In a post earlier today on the mortgage market meltdown, I wrote:
And that is what the argument usually boils down to - someone smart should have been watching them. But lots of smart people were watching all the time. You can see one such person featured in Lewis's article. Guys run all over Wall Street looking every day for some single digit basis point spread they can make money off of. But untold wealth was just sitting there for someone who was willing to call bullshit on the whole CDO/CDS pyramid game. These guys playing this game were searching for people to bet against them.
And despite this, despite untold wealth as an incentive, and companies looking for folks to take the other side of their transactions, only a handful saw the opportunity. Thousands of people steeped in the industry with near-perfect incentives to identify these issues ... did not. What, then, were our hopes of having some incremental government bureaucrats do so? Usually, after this kind of crisis, there are lines of pundits and writers ready to suggest, with perfect hindsight, new regulations to avert the prior crisis. But, tellingly, I have heard very few suggestions.
So in this context, I found these comments by leftish Kevin Drum, certainly no knee-jerk advocate of free markets, quite interesting:
No argument on the greed and ideology front, but I'm curious: was there really anyone who made the right call on all this at a policy level? There were, of course, plenty of people who recognized the housing bubble for the idiocy that it was (Alan Greenspan notably not one of them), but were there any major voices making specific policy proposals to slow down the bubble? Or rein in the mortgage market? Or regulate the CDO/CDS market in a way that would have prevented some of
the damage? I'm talking specifics here, not just general observations that the FIRE sector was out of control. Arguments about interest rates being too low count, if they were made for the right reason, but I'm interested mainly in more detailed recommendations.
I don't have any big point to make here. I'm genuinely curious. There were many moments in the past few years when perhaps something could have been done, but what? And who was proposing serious measures that would have helped? Any major Dems? Economic pundits? Wall Street mucky mucks? Who were the unsung heroes? Help me out here.