U.S. Economy: We Don't Have the Right People in Charge

Unfortunately, this is what happens when you have a bunch of academics and politicians managing the global economy.

Most of the people trying to “fix” our problems or create policy have little to no real life banking or market experience. They’re the generals on the battlefield, but they’ve never been in a bunker when the bullets start flying. All they’ve ever done is read about it....The whole system is backwards because of it. The academic economists always wait for the data to tell them where we’re headed. Classic scientific method. Thus, the Fed/government is always reactive to issues rather than trying to get ahead of issues as the market does. The inverted yield curve was forecasting the bond market’s concerns about the global economy since 2006, but our policy makers did nothing until late 2007. The global economy doesn’t subscribe to the scientific method. It is a forward looking system. If you wait for the enemy to advance into your backyard you can’t expect to defend against it effectively. That’s our approach and it’s due to the academics and lieutenants who run this army.

Barney Frank (has no real financial background and arguably helped cause this mess by transferring FNM/FRE oversight in 2000), Tim Geithner (former NY Fed watchdog who witnessed this crisis implode in his backyard), Hank Paulson (arguably had more to do with causing this mess than anyone as he ramped up GS leverage and innovation in an attempt to ramp up EPS) Ben Bernanke and Alan Greenspan (nothing more than glorified academics) are not qualified to deal with this problem. Why do we elect/nominate people to run the most important element of our government when they have no real financial experience or expertise?

It makes no sense. And then when we finally decide to put real life bankers and “market experts” into power positions we choose the exact people who helped cause this mess - Paulson and Geithner for example. Does the government understand markets & economies at all? I don’t think so. It’s as if we built the world’s strongest military and then shoved all the Generals into a closet while the Lieutentants man the war room....25 years of Keynesian academia unraveling before our very eyes.

Disclosure: no positions

Comments

[Dave Wrixon:]

Its amazing how many things become apparent during such crises.

Mar 03 05:37 AM

[atlasman:]

"Most of the people trying to “fix” our problems or create policy have little to no real life banking or market experience."

or have run even so much as a local Dunkin Donuts.

This is more than a banking crises. Think of Commerce as a branch of your military analogy where PFC1st class Gomer Pyle is in charge.

Mar 03 05:59 AM

[carloz678:]

"Barney Frank helped cause the mess". Really? I thought Phil Graham was the chairman of the banking committee at that time. In fact wasn't he the prime mover in banking deregulation that caused this whole "mess" and McCains economic adviser.And his wife, I remember something about her as head of the CFTC. Good work there, if hedge funds hadn't run the price of oil up to $147 mabe the world economy wouldn't have taken a dump.
I'm glad you don't run the economy, you can't get the simple stuff right. Elections, good idea work on fixing them.

Mar 03 06:11 AM

[abetterplace:]

""Barney Frank helped cause the mess". Really? I thought Phil Graham was the chairman of the banking committee at that time."

Whops, A little democrat defense here. Barney Frank couldn't run a goat shelter. I bet you think Obama is making all the right decisions too.
As for myself, I wouldn't bet on either the Dems or Repubs having anyone smart enough to get us out of the mess they both helped create. Only time will tell.

Mar 03 07:38 AM

[john s. gordon:]

phil gramm bless his heart eliminated the uptick rule, and pretty soon we had naked short selling of whatever stocks the speculators wanted to attack & a mess,
phil gramm created the enron loophole while wendy was on the board of directors of enron (wasn't that convenient now), pretty soon california consumers got shafted.
> jack

Mar 03 08:14 AM

[Tradememe:]

The problem is exactly that : We think people are in charge of the economy. But the simple fact is that in a free enterprise system, the consumers must have the propensity to consume. And if they don't, there is not much that the government can do.

Mar 03 08:20 AM

[bagman432:]

That about covers it.

Any idea when the American people will wake up to the fact that the two major political parties are one big pile of SH*T? Where are the libertarians when you need them? Time for a revolution?

P.S. You mentioned some of the morons responsible for this disaster but you forgot Nancy Pelosi. A real brainiac who will save us all. LOL

Mar 03 08:42 AM

[Ferdinand E...:]

My 6 years in the US army tells me that it's best to let generals rather than lieutenants run the show. If course, if one of the generals could have been a man (John McCain) willing to sponsor 100 years of war in order to win a war that was won 5 years ago, maybe a lieutenant - or a corporal - would be better.

As for Mr Paulson, wasn't he a top executive with perhaps the leading investment bank in the world? I tell you what: read carloz678's post and think about it for a while. It should help you to clear your mind and get your next contribution right..

Mar 03 08:51 AM

[The Pragmat...:]

Thanks for the comment. I am not trying to turn this into a political thing. I could honestly care less if Frank is a Republican, Democrat or Communist. But it is a flat out wrong to say that he didn't have his hand in this fiasco from the start and now he is leading the charge to fix it? Please.

From Wikipedia:

In September 2003, Frank, then the ranking Democrat on the Republican-led Financial Services Committee, opposed a Bush administration proposal for transferring oversight of Fannie Mae and Freddie Mac from Congress and the Department of Housing and Urban Development to a new agency that would be created within the Treasury Department. The proposal reflected the administration's belief that Congress "neither has the tools, nor the stature" for adequate oversight. Frank stated, "These two entities...are not facing any kind of financial crisis.... The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

He was instrumental in maintaining the loose oversight of these companies.


On Mar 03 06:11 AM carloz678 wrote:

> "Barney Frank helped cause the mess". Really? I thought Phil Graham
> was the chairman of the banking committee at that time. In fact wasn't
> he the prime mover in banking deregulation that caused this whole
> "mess" and McCains economic adviser.And his wife, I remember something
> about her as head of the CFTC. Good work there, if hedge funds hadn't
> run the price of oil up to $147 mabe the world economy wouldn't have
> taken a dump.
> I'm glad you don't run the economy, you can't get the simple stuff
> right. Elections, good idea work on fixing them.

Mar 03 11:54 AM

[sunnsea:]

Barney was talking about "affordable" housing for which there are no current programs exisiting. $500-700,000 mortgages are not "affordable" housing. Bundling the mortgages and then creating derivatives from them, with 30 times leverage and insuring with credit default swaps was not Barney Frank's problem. He had nothing to do with this situation.

Mar 03 01:30 PM

[alphadominance:]

As we pick through the wreckage of the fallout from deregulation we are living with the consequences of the decisions made by the big boys of business. Clearly they didn't quite get it right either. This is not to say politicians are not also complicit. It's like the old adage says, power corrupts. I think we need a return to a functional balance between governance and enterprise. Business runs things better, but needs regulation to keep them honest, plain and simple. Since the pendulum swung so far to the deregulation and egregious corruption side in the last administration, it's natural that now people are calling for an overcorrection in the opposite direction because it is human nature to be reactionary, particularly when as is the case for most laypersons, you don't know what you are talking about.

Mar 03 01:38 PM

[henarl:]

There is a big distinction between academics and entrepreneurs. The entrepreneurs gravitate to business from a desire for financial gain and thereby create the economy. The academics and attorneys gravitate to politics and government from a desire for fame and power and thereby control the economy. Problem is, the entrepreneurs are much better at what they do than are the academics and attorneys but lately the latter are having much more influence.

Mar 03 04:34 PM

[Old Wizard:]

Barney Frank, Senator Todd, the head of the ways and means committee , the secretary of the treasury[s] the undersecretary of defence, the speaker of the house and her non-earmarks, earmarks, the mag-lev train from Las Vegas to Disney Land- This is today's version of the gang who couldn't shoot straight, couldn't pay taxes or had sweetheart mortgages, or were lobbyists for the very industry they would now contract for, or have big private planes or earmarked a train that has yet to prove practical or who used our money to preserve the marsh mouse in San Francisco's marshes. Why don't you believe they can solve our economic problems? How disenguine of you!

Mar 03 04:47 PM

[EEB:]

So, we should ditch the scientific method and follow the markets? But weren't the markets also telling us that shares were worth a lot when the Dow was at 14,000? Wasn't the housing market telling us that 3 bedroom homes in some places of California and Florida were worth $500,000? Some other markets might very well have been telling us something else, but then which markets should we follow? We can't just follow the markets because they nearly always present inconsistent messages. Thus, we have to use reason in some fashion.

Of course, this doesn't mean that we do have the right people in charge, but the disparagement of academics was too general. I don't think much of economics as an academic discipline, but that doesn't mean that we shouldn't have people studying the economy. We should be trying to gain more knowledge about economics instead of throwing in the towel.

Mar 03 05:43 PM

[MauDib:]

This is true from the bottom to the top of our political system. For example, local city councils and school boards used to be comprised of owner/managers of small businesses. Now, people who have never had to make spending trade-offs or manage a payroll, e.g. teachers, retired military, etc., are the decision makers.

BHO has never run anthing other than a constitutional law classroom, and other less visible political leaders suffer from the same lack of management experience.

Mar 03 08:53 PM