In a New York Times op-ed this morning, Paul Krugman dissects this week’s What Went Wrong hearings, specifically pointing out two blatant cases of “OMG did he really just say that”.
The first is Jamie Dimon‘s take on how normal it is to have a crisis every 5 years or so:
There were two moments in Wednesday’s hearing that stood out. One was when Jamie Dimon of JPMorgan Chase declared that a financial crisis is something that “happens every five to seven years. We shouldn’t be surprised.” In short, stuff happens, and that’s just part of life.
But the truth is that the United States managed to avoid major financial crises for half a century after the Pecora hearings were held and Congress enacted major banking reforms. It was only after we forgot those lessons, and dismantled effective regulation, that our financial system went back to being dangerously unstable.
The other is Lloyd Blankfein on how the crisis was an act of god or nature, not at all created by man:
Still, Mr. Dimon’s cluelessness paled beside that of Goldman Sachs’s Lloyd Blankfein, who compared the financial crisis to a hurricane nobody could have predicted. Phil Angelides, the commission’s chairman, was not amused: The financial crisis, he declared, wasn’t an act of God; it resulted from “acts of men and women.”
Was Mr. Blankfein just inarticulate? No. He used the same metaphor in his prepared testimony in which he urged Congress not to push too hard for financial reform: “We should resist a response … that is solely designed around protecting us from the 100-year storm.” So this giant financial crisis was just a rare accident, a freak of nature, and we shouldn’t overreact.
Now of course, Krugman comes in and blames the crisis on the greed and leverage, which were symptomatic of the compensation structure disease itself. And he’s right, even if he is a partisan. People don’t lever up a company 33-to-1 unless they are getting paid a boat load more oif they do it than if they don’t do it (or if they’re just plain nuts).