Great White Parenthetical

The statement ("One can't explain an unusual cluster of errors by citing greed, which is always around, just as one can't explain a cluster of airplane crashes by citing gravity") seems to be wrong on the fact of it.

The early probes to the moon crashed rather than landing because of gravity (i.e., the moons gravity field is "lumpy" making it difficult to create a program that allows the probe to land itself).

Just because it's always there doesn't mean the force is constant.

Dan,

If White had mentioned probes crashing on the moon rather than airplanes crashing here on planet Earth, your point might have more force. But he didn't.

@Dan: "doesn't mean the force is constant"

So people "got greedier" is your explanation? That's exactly the thinking he's trying to counter.

Blackadder,

My purpose was to dispute his point, which was that something that is always around can't explain a cluster of errors.

Gravity is always around for both the airplanes and the probes. I can see denying that gravity "explains" plane crashes, but it definitely seems to explain probes crashing, even if the crashes came in a cluster (i.e., that cluster could have been aimed as a part of the moon where the gravity field is less understood).

Ergo the fact that something is always around doesn't disqualify it from explaining clusters of errors.

@Drew: "So people 'got greedier' is your explanation? That's exactly the thinking he's trying to counter."

Two things.

First, my narrow point is that his point (that things that are always around can't explain clusters of errors) is untrue since even things that are always around can still vary in intensity, and that that variation in intensity may explain the cluster.

Second, I'm not saying that an increase in "greed" explains all of our current mess. I think that any large financial crisis is likely to have multiple causes.

But I do think that individuals and institutions sometimes behave in ways that they later conclude were irresponsible, and that the incidence of this behavior is likely an increasing function of the profits that they (and others around them) are making by engaging in the irresponsible behavior now. I think that "greed" is a resonable word to describe that.

Note: I realize that there are some who want to explain the whole thing away as a tale of Wall Street greed and the evils of capitalism. I don't wish to throw my hat in with them. But I do think that greed, always around though it may be, does explain some of our current situation.

Greed is not good explanation for planned economy failure, because planer could (or should) take it into account and counteract it. If he didn't - that was his failure.

However, in market economy, there is no planner - so greed can be explanation for its failure. Almost certainly greed (whatever the measure) isn't constant, neither for individuals nor for groups. Theoretically, people can understand the statement "If you are too greedy, market will fail - next time behave yourself" and then they can try to counteract their own greed in future. So, at least theoretically, it is possible.

Doesn't any explanation need to explain why the bad loans seem to have been clustered in certain places: California, Nevada, UK, Spain. Where else?

Seems like a disease outbreak.

Is the gravity of the moon really lumpy? So you could lose weight by walking from one part of the moon to another? Awesome.

Dan's narrow point (his words) about the non-uniformity of gravity and its possible application to the non-uniformity of greed seems accurate but not instructive. Is any purpose served by laying blame for the crash on greed (other than the obvious purpose of falsely vindicating actual culprits, if any)? Does anyone think a greed-proof system is a useful or even partially attainable goal?

Greed isn't constant, but neither is fear. Perhaps it should be on how and why fear was banished from the system.

Kevin, yes, you can lose weight by walking from one part of the Moon to another. In fact, you can do the same thing on Earth. And the further you walk, the more weight you lose!

(Sorry. Couldn't resist.)

Seriously, you raise a concern with the greed-helped-cause-the-problem explanation that I share: it'll be used to cover other important issues.

The only good purpose I can see of offering up greed as an explanation (but never THE explanation) of the crisis is that, if it's true, it helps us understand how bubbles pertetuate once they get going.

I'm really not disagreeing with the author THAT much. Even he says that "[t]here is no doubt that private miscalculation and imprudence made matters worse for more than a few lending institutions and individual borrowers."

(Note: I think that my term "greed" is a fair terms for his "miscalculation and imprudence".)

He continues, "Such mistakes help to explain which firms have run into the most trouble. But to explain industry-wide errors we need to identify policy distortions capable of having industry-wide effects".

The difference seems to be that while he thinks that it can vary across firms, he doesn't seem to account for it varying across time. That is, I think that an increase in greed can have industry-wide effects.

Maybe this ties in with Arnold Kling's idea about the suits (management) vs. the geeks (the financial engineers). If every other company is hauling in the money, maybe it's harder for the former to listen to the latter's warnings or be seudced by their crazy ideas.

Can we greed-proof the system? No. Can we make it greed-resistent? Sure. The Fed could be more active in popping bubbles as they form. Would that be good policy? I have no idea.