“Can it really be the case that so many *intelligent*, *skilled* and experienced professionals in our government did not see the tsunami that was brewing in the unregulated world of derivatives and mortgage backed securities?”
I’m never quite sure. I seriously doubt that very many of them are in fact intelligent and skilled. I’ve talked to a lot of investment “professionals” lately and, frankly, none of them have a clue what is happening. I explain to them that this is the unavoidable consequences of the loose monetary policy and housing bubble of the first half of this decade, and they still can’t even grasp it in hindsight!
I read a study once that found that only 25% of people ever achieve the formal operational stage of cognitive reasoning, or the ability to think in abstractions and connect the dots. This sounds harsh, but anecdotally it seems reasonable. We often talk about people “drinking the Koolaid” when the masses act irrationally. Clearly the vast majority of participants in the financial markets honestly believed that real estate was a can’t-lose road to permanent prosperity. Only a few understood what was happening. How many of that few had any ambition for a government post? Fewer still. Maybe none. They mostly run blogs like this, or actively invest against the Koolaid drinkers, like George Soros, Peter Schiff, Jim Rogers, etc. So it is entirely possible that Ben Bernanke and Hank Paulson are in fact that dumb and unskilled that they really don’t understand what is happening. I’m going to go out on a limb and venture that George W. Bush did not plan all of this, and doesn’t comprehend why this is all happening.
On the other hand, I’ve read Allen Greenspan’s essays when he was affiliated with Ayn Rand. He gets it. His actions in the past 10 – 15 years is a spectacular about face from what he used to write. I think he knew damn well what he was doing….
