“Redesigning the Financial System” — Or Not
In a world with few wise men — financial or otherwise — Jeremy Grantham certainly makes the cut (Paul Volcker, Warren Buffett, and John Bogle also come to mind).
It’s hard to improve upon Grantham’s own words, from his 3rd quarter letter to shareholders (his fund manages a measly $87 billion for investors).
Here are a couple choice excerpts:
In general, countries with simpler and less aggressive banks have had much less pain in the recent crisis . . . “Oh!” say the bankers, “If we become smaller and simpler and more regulated, the world will end and all serious banking will go to London, Switzerland, Bali Hai, or wherever.” Well, good for those other places. If that means they will have knee-buckling, economy cracking, taxpayer-impoverishing meltdowns every 15 years and we will be left looking like a boring back water, that sounds fine to me.
And this nugget, capturing the current mindset towards reining in a clearly out-of-control financial sector:
I can imagine the company representatives on the Titanic II design committee repeatedly pointing out that the Titanic I tragedy was a black swan event: utterly unpredictable and completely, emphatically, not caused by any failures of the ship’s construction, of the company’s policy, or of the captain’s competence.
“No one could have seen this coming,” would have been their constant refrain. Their response would have been to spend their time pushing for more and improved lifeboats. In itself this is a good idea, and that is the trap: by working to mitigate the pain of the next catastrophe, we allow ourselves to downplay the real causes of the disaster and thereby invite another one. And so it is today with our efforts to redesign the financial system in order to reduce the number and severity of future crises.
Grantham’s take on Alan Greenspan, Ben Bernanke, Geithner, Goldman Sachs and a long list of others is bracing, infuriating, refreshing — and most of all, accurate.