Mark and Doug are two Christian economists seeking to combine economics and theology in a fun, thoughtful, and inviting fashion. The name of the blog is a reference to Jesus' admonition to his disciples to be "wise as serpents and innocent as doves" (Matthew 10:16) when going forth into the world. We hope you join the conversation.
Wednesday, January 26, 2011
It Seemed Like a Brilliant Idea at the Time
Here's a provocative comment from Robert Scheer writing at The Huffington Post:
"It wasn't the students struggling at community colleges who came up with the financial gimmicks that produced the Great Recession, but rather the super-whiz-kid graduates of the top business and law schools.
What nonsense to insist that low public school test scores hobbled our economy when it was the highest-achieving graduates of our elite colleges who designed and sold the financial gimmicks that created this crisis. Indeed, some of the folks who once designed the phony mathematical formulas underwriting subprime mortgage-based derivatives won Nobel prizes for their effort."
I've had a chance to talk to students many times about the danger of ascribing the Financial Crisis to any one factor. From my point of view, there was a perfect storm which included: 1) the pressure from the federal government on the banking industry to make sub-prime mortgages for political rather than economic reasons; 2) an overly long period of easy monetary policy; 3) unintended consequences of the post-Enron "reform legislation" especially a) changes in accounting rules, and b) some worst-of-all-possible-worlds changes in the regulation of securities rating agencies; and 4 ) natural tendencies for the formation of asset bubbles. But I agree with Scheer that the replacement of common sense economics of mortgage lending with mathematical whiz-kiddery was not benign. The unintended damage done by anyone who thinks of himself or herself as an expert in a field has important implications for understanding the idea of a "calling" from God and for how the sin of pride operates in out lives.
* Thanks to instapundit.com for the original tip to the Scheer post.