Thought for the Morning

A nice, very conservative, observation from Megan McArdle:

In general, I think that we’re approaching this crisis the wrong way when we look for a villain.  One of the things that has really surprised me–so far, anyway–is just how little criminal activity we’ve uncovered during this crisis.  There’s an old accounting saying, “recessions uncover what auditors can’t”.  Enron, Global Crossing, and MCI were not the only companies that played funny games with their books in the late 1990s.  A number of technology companies played games with their books, but were able to grow enough to unwind their chicanery with little more than a slap on the wrist from the SEC.  Enron, et al. were simply the ones who got caught short when the music stopped.  I don’t mean to say that all or most companies were guilty of this, because the overwhelming majority weren’t.  But the problem wasn’t unique to Enron, and had they been able to carry on with it longer, there’s every chance that they might have been able to get out of their bad positions and stay solvent.

By contrast, so far the worst misbehavior I’ve seen has been the two Bear Stearns executives who told people their fund was okay the month before it went belly up.  This was a bad thing, and the people who did it no doubt richly deserve the jail terms they are going to get, and then some.  But on the scale of dishonesty generally uncovered during recessions, this wouldn’t normally rank high enough to trigger more than a “You boys!!!” and a finger-wag.

This probably has something to do with just how tightly regulated financial companies already are; when the SEC wants to know about every transaction you do, it’s hard to get too funny with the books.  Still, it’s pretty impressive.

But no one wants to hear that.  Everyone wants a villain:  lefties want to hear that it was greedy bankers, or cold-hearted deregulators (or better yet, both!) who are entirely and 100% to blame; conservatives want to hear that it was poor people taking out loans they knew they couldn’t pay off, and a pandering government that leaned on companies and the taxpayer to hand those irresponsible wretches free money. 

Nature is not a novelist.  Reality does not come packaged in narrative form, and rarely gifts us with either true heroes, or true villains.

It is safe to say that almost everyone involved in this mess, from the borrowers to the bankers, thought that they were getting away with something–at the very least, that they had found a way to get rich without working.  It is an old saw that no one can be conned unless they are willing to believe in something for nothing, and the best cons generally get the victim to believe that he is putting one over on the con man. 

It is trivial to observe that humans are imperfect; that is why institutions exist.

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