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A system overwhelmed by innovation
October 13, 2008
The stunning scale of the interventions under way in financial markets – barely imaginable just weeks ago – make it seem that nothing will ever be the same. A crisis so grave, so weighted with ideological implications, must point to a grand political realignment, with much of what we thought we knew about the role of governments and markets overthrown. So it is argued, and so many people hope.
It is possible. It happened after the Great Depression. But I doubt that this crisis will change the world anything like as profoundly. In the end, I doubt it will even overthrow much of the conventional wisdom about states and markets.
In thinking through the parallel with the 1930s, the important question is how far the financial emergency will infect the rest of the economy. The Depression changed the US and the world because it wrecked the lives of countless millions of people.
The remainder of this column can be read here. Please post comments below.
If Obama gets elected, he won’t be the first politician to have made far too many promises than he can keep. Even if this financial crisis hadn’t occurred, Obama will find it difficult to deliver the tax cuts he has promised along with so many other things. Actually finance is not the only field where innovation can go badly wrong. Bio-technology, stem cell research, GM food, these are all fields where too much innovation can have people screaming for more regulation. www.winnowed.blogspot.com
Posted by: Vinod Joseph | October 13th, 2008 at 3:38 am | Report this commentMy usual comment regarding healthcare spending in the USA: the current consolidated spending of over $2 trillion could be halved to match the spending in other OECD countries on a per capita basis while improving health status outcomes.
$1 trillion in spending that adds nothing to improved health status and may in fact decrease it.
The USA healthcare system is that dysfunctional.
There are any number of excellent proposals on how to achieve the savings while improving outcomes. Mr. Crook recommend one excellent book on the topic by Dr. Ezekiel Emanuel a few months ago. There are other books of comparable quality that have been published in the last few years, notably by Dr. Thomas Bodenheimer and Prof. Kevin Grumbach and Dr. Arnold Relman among several others.
The only two candidates for the USA Presidency whose proposals for reform represent improvement are Representative Kucinich and Ralph Nader both of whom have been virtually ignored by the mainstream press.
Instead volumes of analysis, comment and reporting have been and will continue to be produced on the policy positions of the two current Presidential candidates, even though one proposal - that of Senator McCain - is pure nonsense and the other from Senator Obama has some positive features - primarily the expansion of insurance coverage - but otherwise will do next to nothing to reduce the absurdly high costs.
Posted by: Wendell Murray | October 13th, 2008 at 4:50 am | Report this commentIs there really such a big conflict between “innovation” and “regulation”, or is the current crisis in America and the UK not more the result of policies, beginning with the Reagan/Thatcher era, which put the power and resources of the government on the side of the wealthy corporations and eroded the purchasing power and standard of living of the middle class, forcing it into a cycle of ever increasing debt based on inflated housing prices in order to maintain its standard of living?
A powerful argument to this effect appears in Graham Turner’s recent book “The Credit Crunch”. Interesting reading.
Posted by: algasema | October 13th, 2008 at 5:17 am | Report this commentThe 2 points of the author are clear but he doesn’t support them with evidence.
Point 1) Obama, if elected, will not be able to deliver what he promised.
How come? where are the figures supporting this prediction? The Bush administration has so many stupid programs that will be cut out by the democrats making room for savings.
Point 2) Financial innovation has created this mess.
Innovation brings efficiency to a system. The problem in wall street was not innovation but lack of oversight. Since more than 2 years financial analysts knew that we were gonna be in trouble but nobody in wall street or in the government wanted to prevent this because they were seeing big gains. Innovation should always be embraced and not halted as the author suggests.
Posted by: Alejandro | October 13th, 2008 at 12:37 pm | Report this commentTwo examples where innovation is controlled are pharmaceuticals and aerospace. Most people in both industries would accept that it is a good idea.
Posted by: Forlornehope | October 13th, 2008 at 3:01 pm | Report this comment“Most people in both industries would accept that it is a good idea”…when it keeps out competitors.
The idea that finance is deregulated is nonsense. Poorly regulated, sure, but unregulated does not reflect the heinous Sarbannes-Oxley Act, among many others.
JBP
Posted by: John Powers | October 13th, 2008 at 7:16 pm | Report this commentI am somewhat concerned that the American people are being asked to swallow too large a dose of cognitive dissonance in one gulp, and I suspect that may be one reason for the delay in producing the detail of the new phase of the MOAB.
On the other hand I for one would be very pleased if Gordon Brown re-nationalised the railways.
Posted by: Rodchenko | October 13th, 2008 at 7:31 pm | Report this commentThe system was overwhelmed by negligence.
I bet that Clive Crook does not know of anyone who knows of anyone who knows of anyone that has lost a single dollar giving a subprime mortgage on too generous or outright stupid terms to anyone who classifies as belonging to a subprime sector.
But I do bet that Clive Crook knows of many persons or institutions that have lost fortunes investing in securities collateralized with mortgages just because these securities were rated AAA by one, two or even three of the three credit rating agencies that everyone, including the financial regulators uses.
In this respect unless Clive Crook classifies a mortgage given on stupid terms as an innovation he is absolutely wrong about “A system overwhelmed by innovation”. The system was overwhelmed by the sheer negligence of those sentries that the regulators appointed and empowered, the credit rating agencies, and the negligence of the regulators and the market participants who thereafter went to sleep in the belief they now were safe.
Posted by: Per Kurowski | October 14th, 2008 at 12:14 pm | Report this comment