Epic Stupidity on the Times Op-Ed Page

This is sort of quick follow up on my recent post asking why more bankers (or even any) are not in jail. Today on the New York Times Op-Ed page there is a column by Joseph Hallinan, a former Wall Street Journal reporter who is trying to sell a book he has written called "Why We Make Mistakes." The column, "The Young and the Perceptive" is fundamentally wrong in so many ways as to take the breath away.

The premise of the article is that those on Wall Street who caused the financial meltdown made "mistakes" and that "hedge-fund managers, bankers and others misread the danger involved in many of their investments, but they misread them in the same way." Of course, as anyone who has read "The Big Short" knows, there were a number of people who not only saw the problem but were screaming at the top of their lungs about it and betting lots of money that they were right. Nor were the shorts the only ones. The government was warned and ignored those warnings under pressure from the banks. The Federal Reserve was also warned but did nothing. So why were all of the warnings were ignored. The bankers ignored them because they had every incentive to ignore them and keep doing what they were doing. They were making tons of money and the fact that what they were doing might bring down their firm or the economy tomorrow simply did not matter because they were raking in tens or hundreds of millions today. Elected officials ignored the warnings for the same reasons -- the banks basically owned (and own) way to many of them, paying in the form of campaign contributions. The regulators ignored it because they are essentially the same people as the bankers, want to work at the banks some day, and don't want to rock the boat. So the whole premise that the financial melt down was a "mistake" that was "missed" is puerile.

From there the column just gets stupider, suggesting that the solution is to have kids look at what Wall Street is doing based on a handful of anecdotes in which kids noticed errors. Look, my son also once spotted an error in a text book, but that does not mean he would have been able to figure out the problem in a synthetic CDO.

There is an arguably reasonable point lurking deep in this mess which is that sometimes an outsider can see errors that those immersed in something miss (this is why, for example, I always try to get someone to read my legal briefs who knows nothing about the case.) But to suggest that this was the problem with the financial meltdown is to willfully ignore the reality of the people who were waiving red flags and the people who ignored them and brought down our economy. The problem was not that no one saw the mistakes at the time. The problem was that those who were making the mistakes were being paid to ignore them and did not care about the consequences for the rest of us.