Searching the Web for overviews of our current financial crisis — accounts of how we got to where we are — I came across two very useful and interesting pieces.
The first, which has already been much commented upon, is This American Life’s fantastic program on the subprime mortgage crisis and subsequent credit crunch. It’s called “The Giant Pool of Money” and can be listened to here.
Also interesting, though a bit more jargony (read it after you’ve listened to the TAL piece), is Joseph E. Stiglitz’s brief historical overview of the causes of the crisis in Vanity Fair.
Some choice Stiglitz quotes:
As we stripped back the old regulations, we did nothing to address the new challenges posed by 21st-century markets. The most important challenge was that posed by derivatives. In 1998 the head of the Commodity Futures Trading Commission, Brooksley Born, had called for such regulation—a concern that took on urgency after the Fed, in that same year, engineered the bailout of Long-Term Capital Management, a hedge fund whose trillion-dollar-plus failure threatened global financial markets. But Secretary of the Treasury Robert Rubin, his deputy, Larry Summers, and Greenspan were adamant—and successful—in their opposition. Nothing was done.
And:
The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.