Monday, 26 October 2009
The Great Crash of 2008
At a packed event at the Lowy Institute the other evening I heard Dr Ian McFarlane, past Governor of the Reserve Bank, and Prof Ross Garnaut, author of the Garnaut Climate Change Review, try to explain the economic machinations that led to the GFC. They both admitted to being caught off guard by the speed and depth of the "great crash of 2008". In Ross's book of the same name he traces the earliest sign to the collapse of a US mortgage originator called Merit Financial in May 2006. The company was owned by a former football star and ran up more that $2 billion of mortgages over 5 years specializing in clients with a bad credit history. Many of the loan officers were ex-footballers, one an ex-Hooters girl. Their training consisted of a 19-step program lasting an hour!
I bought the book and asked Ross to sign it for me. I told him I was a psychologist with an interest in behavioural economics. He wrote, "it has taken too long for me to give it the importance it deserves, but Shiller's perspective is certainly part of the story" (behavioural economist Bob Shiller is the best-selling author of "Irrational Exuberance").