Alberto Mingardi  

Antonio Foglia on the financial crisis

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"The global financial crisis that began in August 2007 resulted from a massive, unavoidable cognitive mistake on the part of regulators and bankers." In a recent op-ed for Project Syndicate, Antonio Foglia made this point in "celebration" (not sure this is the right word) of the tenth anniversary of the financial crisis. Foglia, who is a banker but also a libertarian economist involved with a few think tanks, maintained that unfortunately the crisis taught us the wrong lessons: "regulators have piled on ever-more complex rules, and too-big-to-fail banks have become still bigger". Foglia's article echoes Jeffrey Friedman and Wladimir Kraus's Engineering the Financial Crisis, to me still one of the best works on the crisis.

Antonio's op-ed is well worth reading. I was particularly impressed by the causal link implied in this seemingly uncontroversial observation: "When banks enjoy extraordinary profitability even while playing by the rules, bankers assume that they are doing something right, and they compensate themselves accordingly. ".

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COMMENTS (2 to date)
Thaomas writes:

The main mistake of the financial crisis was not to have wiped out the shareholders of the failed financial institutions and auctioned them off to new shareholders. It's not so bad to have institutions that are too big to fail so long as the owners, who are ultimately responsible for the risk profile decisions made, are not too big to fail.

Edward DeMedeiros writes:

"...unavoidable cognitive mistake...."
These words should never be uttered regarding any bank CEO or regulator, ever. Professionals don't allow these things to happen unless there is outright greed, collusion, conspiracy, or willful ignorance or willful blindness; and if it is so, then they don't belong in the positions they're in. If someone like myself, with NO formal economic training, could see what was happening, it is doubtless regulators and CEO's did too! I guess my clarity to the coming situation was due to the fact that I'm old enough to have lived through a few bubbles and recognized it for what it was. There was a great rape, and the American people--and others around the world--paid for it, in my opinion.

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