Hindsight is a wonderful thing
We went to see Robert Peston, the BBC’s Business Editor, speak at the London School of Economics on Monday night.
Lets look at the good things first. Robert Peston is an excellent speaker who clearly, precisely and humorously detailed exactly why he thinks we are in the current economic predicament that we are.
Unfortunately, what he had to say was pretty depressing. To sum up his analysis of the causes of the world financial crisis in 3 over-simplified points:
- Greed – we all wanted too much and borrowed too much. 125% unsecured mortgages indeed.
- Ignorance – nobody, from bankers and hedgefund managers to politicians and journalists, ever really understood what the hell was going on. This is the ‘Grandma Test’, Robert Peston says, where if you can’t explain what a collateralised debt obligation is to your Grandma and how many you’ve got, then don’t do it.
- Naivity – our illustrious leaders stuck their heads in the sand for too long, never believing that it could all go pear-shaped. i.e. they really, really did believe that Alan Greenspan was right, the City was great and that there would be no more boom and bust cycles.
Like how you learn the textbook causes of World War I and II at school, Robert Peston had no problems outlining step-by-step how we got into this recession. Yes, it’s all clear now. So why wasn’t it at the time? Economics always works best in hindsight, doesn’t it?
Tags: hell in a handcart, regret
November 19th, 2008 at 5:52 pm
I also think that a lot of the people involved have known nothing but boom and so never thought it would end, i think the problem now is that the banks etc just literally don’t know what to do.
November 19th, 2008 at 7:31 pm
I had hoped you were going to add a final paragraph along the lines of “but on a brighter note, he told us all what we need to do to get out of this without selling ourselves on street corners”.
But he’d probably already have spilled the beans during one of his Today Programme slots.
Oh dear…
November 19th, 2008 at 9:55 pm
I am utterly utterly clueless about anything relating to economics. I like the sound of the “Grandma Test” though. I think the world would be a finer and happier place if it somehow became fashionable to explain complex issues in words of one syllable which my grandma (God rest her soul) and I could understand. People who communicate in nothing but jargon and management “buzzwords” are just showing off. Good on you Mr Peston whoever you are.
November 19th, 2008 at 10:38 pm
BLTP, not sure about that – there are older people in the City who would definitely know what a recession is. Even I remember the last one! I think that everyone was just deluded.
And sadly yes, ISBW, it does seem that no one knows what to do. An audience member asked Robert Peston the obvious question and he didn’t have an answer other than vaguely saying that it was time to reform the banking system and that maybe nationalisation is a good way to do this. Possibly.
Hoops, I suspect that the revealing thing about the Grandma Test would be that no one would be able to answer any of those difficult questions whatsoever! People do seem to use management-speak to cover up the fact that they don’t know anything. Right, I’m off to blue sky some key concepts that will seek to overcome the negative impact and deficit of meaningful engagment available through this blog for my valued visitors.
November 20th, 2008 at 12:00 pm
I was thinking along the lines of the granny ets the other day for peoples jobs in that yo have to be able to explain to ya gran on xmas day what you do. I saw some oneadvertised as a”thought leader in innovation” and after a couple of inches of blurb i still couldn’t make head nor tail of her job.
November 20th, 2008 at 4:11 pm
Being a ‘Thought Leader’ sounds pretty good. It sounds like you do lots of thinking and talking, but no actual real work. Excellent!
November 23rd, 2008 at 12:00 pm
It’s amazing the boom lasted as long as it did. It would be nice if they could admit they were wrong though, state interventionist economics not needed indeed…
November 23rd, 2008 at 8:22 pm
Admit that they were wrong? Are you crazy Roman Empress. It wasn’t people, it was ‘the market’. Don’t you just love the way people talk about the market like its the crazy person we have no control over?