Economists apologise to Queen

28 07 2009
"I think that black bit is the empty vault of the Bank of England": Luis Garicano at LSE shows Queen Elizabeth II a chart explaining how the credit crunch was caused. Photograph: Kirsty Wigglesworth/PA Archive/Press Association Ima

"I think that black bit is the empty vault of the Bank of England": Luis Garicano at LSE shows Queen Elizabeth II a chart explaining how the credit crunch was caused. Photograph: Kirsty Wigglesworth/PA Archive/Press Association Ima

 

A group of academics and economists has apologised to the Queen for failing to predict the credit crunch.

Following a seminar at the British Academy the group of signatories sent a letter to the Queen. The letter explains that low interest rates made borrowing cheap, the “feelgood factor” masked how out-of-kilter the world economy had become beneath the surface, with some countries, such as the United States, running up enormous debts by borrowing from others, including China and the oil-rich Middle Eastern states, that were sitting on vast piles of cash.

Despite these yawning imbalances, they say, “financial wizards” managed to convince themselves and the world’s politicians that they had found clever ways to spread risk throughout financial markets – whereas “it is difficult to recall a greater example of wishful thinking combined with hubris”.

“In summary, Your Majesty,” they conclude, “the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”

The Guardian has an open thread for people to suggest ways of explaining the crisis to the queen. here are some of the highlights:

Well your majesty, it is akin to the story of the King, his magic coat, the crowd and the little boy. The crowd of economist, bankers, politicians and opinion formers all cheered the new economic dawn for it suited them and their self interest. It was is inconvenient and bad for business or fee earning for them to shout that the so called economical miracle is a mirage or that they could not see it. Alas, there was no little boy among this self seeking crowd of “intellectuals”

Well, ma’am, you know how nobody is allowed to ask you a direct question because you’re too important? Same with the bankers.

There is one famous economist who did predict the crisis, about 150 years ago. His name is Karl Marx and his modern day followers, such as David Harvey and Richard Wolff, have been predicting the crisis for years. Wages haven’t grown since the 1970s but consumption needs to go up for the economy to grow but without their real wages going up how can they possibly afford it? Two main reasons, work longer hours (to which we have reached a limit) and borrow lots and lots of money.

1. Bankers bribed succesive governments to look the other way.

2. Bankers bribed credit rating agencies and auditing firms to generate false profits.

3. Bankers bribed their staff to go along with the whole charade.

The problem with the letter and the Queen’s question is that quite a lot of people apparently did predict the credit crunch. Of course when they predicted it, they were laughed out of town like Dr. Nouriel Roubini, (who the New York Times dubbed Dr. Doom) was at the IMF when he told them about the impending crisis in 2006!

The other problem with the letter is that the signatories are academics and some bank officials but not the actual greedheads who need to do the actual apologising, or the regulatory morons who concieved a system so lax and insanely optimistic that banks were actually allowed to make up money, or the self delusional criminals who spazzed what money we had on wars.

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