Even the Smart Guys Don’t Understand the Meltdown

Or consider that a group of institutional investors with whom I work, some of the biggest in the US, regularly indicate when polled that their boards literally do not understand the risks that new securities and investment strategies pose to their organizations.

Or that Alan Greenspan, über-guru of the financial universe for two decades, claimed the new system of complex financial instruments distributed risk more effectively than before.

Or that the masters of the universe that ran the hottest investment shops in the world got it wrong to the extent that today more than 20 have bitten the dust, institutions that once controlled more than $11 trillion in assets.

It is not surprising that the bailout is rife with problems, given that it was created without a single deliberative hearing by a Congress that had failed grotesquely to meet its most fundamental market oversight responsibilities, that was in turn being led by an administration that had itself been wrong throughout the evolution of this debacle.

But of all these problems the biggest is that we might now relax and think that our crazy collective dance may actually work. This despite the fact that it does not even begin to address any of the associated and underlying problems we face: recession in the US, recession overseas, a huge national debt, uneasy overseas creditors upon whom we depend (and who also happen in some cases to be our rivals), and a global financial system that is opaque, impossibly complex, and unregulated because so much of it exists above and beyond the reach of national regulatory agencies.

What we witnessed in Washington last week will not make it into any future editions of Profiles in Courage. And, although it is ridiculous enough, it is way too dark for America’s Funniest Home Videos. It was a collective act not of leadership but of desperation, not of strategy but of superstition.

We can only hope it will work. But sadly, it is far less likely to be seen as a success than the frantic dances of scared villagers were in the Middle Ages. Because eclipses pass even if we don’t understand them.

This will require something more of our leaders…or leaders who know something more of the real nature of the challenges we face.