Let me begin with a story, I learnt long ago.
While Albert Einstein is queuing to enter heaven, he meets three men. He asks about their IQs.The first replies 190. “Wonderful” exclaims Einstein. “We can discuss my theory of relativity”. The third mumbles 50.Einstein pauses “so what is your forecast for G.D.P growth next year?”
Serious economists, doing wonderful work of Econometric forecasting should not jump from their chair and get angry. This old joke only sums up the futility or rather frustrating experience of both good economists and also the people’s view of their economic forecast. The reputation of the tribe called economists, especially those who adored the chair of high sky scrapper buildings dealing with the fate of global finance was severely dented, both during and after the Asian currency meltdown.
The crude irony is that they not only failed to predict the scale, scope and severity of the crisis, but quite a few IMF economists and other policy entrepreneurs contributed to the crisis, by their words and also their official role of market watchers and economic guide. This is not to blame them or ridicule their caliber/ intellectual strength; financial deregulation and globalization of finance have rendered the Asian economies more vulnerable and the quantum of mischief by global fund managers and professional speculators in precipitating the crisis, was only expected, as a logical corollary.
This is what I wrote in my academic diary more than a decade ago. The content and character of global finance has changed for the worse in 2000s.Alan Greenspan,as chief of the Fed, who unleashed low interest rate policy did not bother to check asset inflation, once it was going out of control. Despite clear warning signals given by young economists including those who were trained in Keynes/Minsky tradition, Alan refused to yield.
The regulators abdicated their social responsibility by allowing the Housing and real estate bubbles to acquire a monstrous proportion, which eventually proved to be more devastating not just for U.S financial system but for the entire world economy. Even good intended advice from people like Roubini was not taken seriously and Economists trained in Rational Expectation Models and Efficient Market Hypothesis, gave tremendous support by way of their theoretical underpinning by positing that derivative financial instruments had an inbuilt mechanism to manage and diversify risk. Now it is history that there was no risk cover for the original clients, mortagage borrowers and those people who purchased mortgage based securities. Recent events show that much corrective mechanisms are not put in place to salvage the reputation of U.S. Banking and financial system. It is an irony of fate, all through the history of the financial crisis, ‘the dishonesty and fraud’ have been rewarded with bonus via rescue measures while the tax payers have been penalized.
While Albert Einstein is queuing to enter heaven, he meets three men. He asks about their IQs.The first replies 190. “Wonderful” exclaims Einstein. “We can discuss my theory of relativity”. The third mumbles 50.Einstein pauses “so what is your forecast for G.D.P growth next year?”
Serious economists, doing wonderful work of Econometric forecasting should not jump from their chair and get angry. This old joke only sums up the futility or rather frustrating experience of both good economists and also the people’s view of their economic forecast. The reputation of the tribe called economists, especially those who adored the chair of high sky scrapper buildings dealing with the fate of global finance was severely dented, both during and after the Asian currency meltdown.
The crude irony is that they not only failed to predict the scale, scope and severity of the crisis, but quite a few IMF economists and other policy entrepreneurs contributed to the crisis, by their words and also their official role of market watchers and economic guide. This is not to blame them or ridicule their caliber/ intellectual strength; financial deregulation and globalization of finance have rendered the Asian economies more vulnerable and the quantum of mischief by global fund managers and professional speculators in precipitating the crisis, was only expected, as a logical corollary.
This is what I wrote in my academic diary more than a decade ago. The content and character of global finance has changed for the worse in 2000s.Alan Greenspan,as chief of the Fed, who unleashed low interest rate policy did not bother to check asset inflation, once it was going out of control. Despite clear warning signals given by young economists including those who were trained in Keynes/Minsky tradition, Alan refused to yield.
The regulators abdicated their social responsibility by allowing the Housing and real estate bubbles to acquire a monstrous proportion, which eventually proved to be more devastating not just for U.S financial system but for the entire world economy. Even good intended advice from people like Roubini was not taken seriously and Economists trained in Rational Expectation Models and Efficient Market Hypothesis, gave tremendous support by way of their theoretical underpinning by positing that derivative financial instruments had an inbuilt mechanism to manage and diversify risk. Now it is history that there was no risk cover for the original clients, mortagage borrowers and those people who purchased mortgage based securities. Recent events show that much corrective mechanisms are not put in place to salvage the reputation of U.S. Banking and financial system. It is an irony of fate, all through the history of the financial crisis, ‘the dishonesty and fraud’ have been rewarded with bonus via rescue measures while the tax payers have been penalized.
No comments:
Post a Comment