August 07, 2009

It was more comfy to ignore the warnings

Sir Samuel Brittan in Economists shuffle the deckchairs August 7, quotes a letter to Her Majesty written by Professors Tim Besley and Peter Hennessy stating “many people did foresee the crisis” but clarifying that “no one foresaw the form it would take and its timing, onset and ferocity”. This sure sounds to me as a lame excuse for inaction, like a mother having been warned of the dangers of leaving her child alone at the side of the road complaining that no one told her exactly when and where and by whom her child would be overrun.

Indeed plenty of persons warned about the dangers in quite clear term and I myself wrote in a letter published by FT in January 2003 saying that “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds.”

If there is an explanation for why the warning were unheeded it is because of too much utterly misplaced solidarity among peers and the fact that we allowed our financial regulations to be captured by a small group of fanatics in Basel.