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re: What Caused The Financial Crisis Of 2008?

Posted by Sean | Posted under Economics | September 22, 2008

I’ve been posting daily, but sometimes in the form of comments on other sites.

Pinyo at Moolanomy asks, “What Caused The Financial Crisis Of 2008?“

His response: GREED. I agree and I disagree.

My response,

“What I don’t get.. did humans suddenly become more greedy the last few years? People say there is greed on Wall Street. Yet there was greed on Wall Street for hundreds of years. And there was always greed on Main Street, too. Who does not want to make higher returns? There has to be more to it. My litmus test… if we blame greed, do the solutions minimize our likelihood of recurrence? Heck, greed’s anytonyms can have unintended consquences on par with greed itself!

What keeps all of us from chasing the most ridiculous returns possible? Risk.

Rather than blame greed, what if we refine our risk management parameters so the greedy cannot dump their risk on the unsuspecting (including taxpayers), and the average person is less likely, or less able, to be an accomplice? If goverment regulates what should be regulated, yet does not encourage what should not be encouraged, I don’t think the rest of the actors can cause nearly as much trouble.

The good news… the discussion being generated is so much better than if we were back in the days of television/newspaper and no internet. The better our collective understanding of risk, the less risky our system becomes.”

Thanks to Pinyo for furthering the dialogue!

As a nation, we are in for a big discussion…

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2 Comments so far
  1. Pinyo September 22, 2008 6:23 pm

    No, greed always have been with us. Greed has many guises. Here we are seeing it as mortgage lenders taking on bad loans to make money. When the dot-com burst, it was greed on the part of venture capitalists, Wall Street, and investors driving up the prices on speculation.

    Because greed has many guises, there won’t be a universal test that could prevent something like this from happening again. People likes money and wants to make more money, so it bounds to happen. There are a lot of smart people on this planet and they will come up with a new mouse trap.

  2. Sean September 22, 2008 9:38 pm

    Yes, greed has always been with us, but it does not always lead to a global financial meltdown. If greed is constant, how can that factor alone explain all manner of bubbles and non-bubbles?