Even the Smart Guys Don’t Understand the Meltdown

Here are a few: What would happen if there were no bailout? What does systemic risk really mean? Would a bailout actually ensure that the crisis did not get worse anyway? Who actually holds the worst of the debt and would they sell it? Are we in a recession right now? How long will the downturn last?

Why did the crisis happen when it did? How many players were really involved in driving the market down? What is the total amount of derivatives on the market today? How many of them are at risk? Who are the counterparties? Are some countries more at risk than others? Which financial players have the most exposure?

The questions all have one thing in common besides their critical implications for our future: No one knows the answer to any of them.

You may think that this is an exaggeration (in fact, you are sure to unless you actually work on Wall Street and have been tracking these issues…in which case you know it’s true), but consider a few other bits of corroborative evidence.

First, you couldn’t pick better guys than Treasury Secretary Hank Paulson or Federal Reserve chief Ben Bernanke to be at the helm. Paulson has run the alpha firm of the financial world, Goldman Sachs. Bernanke is brilliant, a leading expert on financial crises.

And yet they have been wrong at virtually every turn…late to recognize the crisis, late to act, vacillating, failing to communicate the seriousness of the issue effectively to Congress, and, in the eyes of some critics, triggering a further meltdown by letting Lehman Brothers fail.

Alternatively, consider that had the bill passed, as it was thought it might, week before last, Washington Mutual still would have failed two days later and the headline across America would have been “Bailout Fails to Stop Biggest Bank Bust in US History.”