Meltdown and the "Financial Expert"

As the stock market indices were spiraling down, like vintage airplanes shot-down on the History Channel, there was something else that was also going down in flames. It was the widespread belief that there was such a thing as a financial expert. It used to be axiomatic that bankers were traditional and conservative people who rarely changed the way they did business. The truth turns out to be that they behave more like the proverbial sheep who just followed each other in jumping off the sub-prime mortgage cliff. Similarly, another myth has come under scrutiny, which is that in a free market economy, whatever money anyone makes is determined by their actual worth. Now we know most of the members of the Wall Street clan who used to get seven or eight figure bonuses didn't know what was going on, and therefore, didn't know what they were doing. They made all this money because they were at the right place at the right time. It was more like picking the right slot machine to play just before it hit the jackpot. In common sense discourse this would be called dumb luck but in the financial world this was considered ability, even excellence.

Unlike most industries the life-blood of the financial industry is trust, not innovation. History tells us that financial innovation has caused us more grief than almost anything else. We had the Junk bonds of a few years ago, the Savings & Loans crisis, the Enron scandal and other derivative based disasters, and now the brilliantly innovative tandem of sub-prime mortgage and credit-default swaps which has brought the world economy to its knees. We should have learned by now to run away from any mention of an innovative financial product. Most of the financial products are paper anyway, and the more innovative ones are not only paper, but are backed by more paper with some virtual paper thrown in for good measure. In hindsight these things look like glorified pyramid schemes; at least judging by the end result.