Wednesday, December 05, 2007

Paul Krugman's Scary Observation

It's a little off topic, but I read this quote from New York Times columnist Paul Krugman from his Monday column. Frightening, don't you think?

The financial crisis that began late last summer, then took a brief vacation in September and October, is back with a vengeance. How bad is it? Well, I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.

This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.
Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers, committed to the view that the market is always right, simply ignored the warning signs...And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation — but added, “I don’t think we’d want it the other way around.” Is that your final answer, Mr. Secretary?

I haven't had a chance to read Krugman's latest book, The Conscience of a Liberal, yet, but am currently reading Naomi Klein's The Shock Doctrine about the "Chicago Boys" and their effect on modern economies, and politics. If you've read the book, you know the phrase "free-market orthodoxy" is an understatement as used to describe the followers of Milton Friedman, true free-market fundamentalists, as described by Klein.

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