Another Headline from the Land of D’oh! Financial Crisis of 2008 avoidable

According to this recent BBC article, which summarized a report from the US Financial Crisis Inquiry Commission, Regulators, politicians and bankers were to blame for the 2008 US financial meltdown. Well, duh!

From page 17 of the report:

      The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.

The only thing the report, and article, got wrong was that the cause of the crisis is the same fundamental cause of the financial crises for the last 30 years. Simply put, it was greed.

  • Greed (by the lenders and the regulators, who wanted to believe the market was strong) led to the tide of toxic mortgages
  • Greed led to reckless actions by executives
  • Greed led to households taking on too much debt
  • Greed led to fundamental breaches in accountability

And while the report may be correct when it states that to pin this crisis on mortal flaws like greed and hubris would be simplistic because it was the failure to account for human weakness that is
relevant to this crisis
, the reality is that, despite the repeated financial crises of the past 30 years, federal regulators have yet to put checks in place for greed. And until regulators recognize that they have to be looking for greed whenever markets rise too fast (because that’s what produces unsustainable evaluations and toxic assets) and actually do so, their hubris is going to allow these crises to happen again and again. The boom and bust will repeat until the economy just can’t take it anymore and future historians discuss the fall of the great American Empire along side the fall of the great Roman Empire.