magoo finance II

17Sep07

A physical resemblance between Mr Magoo and Alan Greenspan has been noted. But does the likeness extend further?

In a spirit of counterfactual journalism — inspired by the Niall Ferguson school of history — the Knackered Hack would like to invite readers to comment on what would have happened to the economy and business if Greenspan (left) had been less indulgent of the markets and not engineered the enormous injections of liquidity into the global economy in 1987 and 2001? Were they too much? Should interest rates have been raised more quickly post the 9/11 economic shock?

If volatility and instability are an inevitable consequence of complexity (which I understand mathematicians would say they are), and if the markets have been excessively bailed out, does this mean a breed of risk-taker has been selectively promoted by corporations and markets that is actually not fit for purpose in this new, more complex environment?

Alternatively, technologists talk about something called “graceful failure” to ensure that the loss of some node in a complex technology is not catastrophic for the entire system. Are we seeing this at work in the global financial system? It may not look graceful through the prism of the media, but will the horn-rimmed spectacles of economic history afford a different view?

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1 Moose on Sep 18th, 2007 said:

My guess is that the US real estate bubble and the credit market bubble would not have grown so large and would have popped much earlier. It will be interesting to see if Bernanke’s cuts can pump up these deflating bubbles.