Teeing It Up for the Next One

After a nice tour of the various factors contributing to the financial crisis, Dani Rodrik writes:

Perhaps it is futile to look for the single cause without which the financial system would not have blown up in our faces. A comforting thought ― if you still want to believe in financial sanity — is that this was a case of a “perfect storm,” a rare failure that required a large number of stars to be in alignment simultaneously.

So what will the post-mortem on Wall Street show? That it was a case of suicide? Murder? Accidental death? Or was it a rare instance of generalized organ failure? We will likely never know.

The regulations and precautions that lawmakers will enact to prevent its recurrence will therefore necessarily remain blunt and of uncertain effectiveness.

That is why you can be sure that we will have another major financial crisis sometime in the future, once this one has disappeared into the recesses of our memory. You can bet your life savings on it. In fact, you probably will. [emphasis added]

So what’s the lesson of that? That regulation cannot prevent financial crises given the status quo political economy of financial markets? That financial crises are unpreventable, full stop?

[HT: Mark Thoma]

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