The Global Financial Crisis according to Michael Hirsh

Global Financial Crisis Survey

Michael Hirsh is chief correspondent for National Journal and previously served as the senior editor and national economics correspondent for Newsweek. One of his columns of particular relevance was The Most Misunderstood Man in America: Joseph Stiglitz predicted the global financial meltdown. So why can't he get any respect here at home? (7/17/2009). Hirsh is the author of Capital Offense: How Washington Turned America's Future Over to Wall St.

1. Which FCIC View best represents the causes of the Financial Crisis?

Majority Conclusions

2. Which narrative presented by Douglas Elliott and Martin Baily of the Brookings Institute in Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble best represents the causes of the Financial Crisis?

It was both the fault of the Government and Wall Street.

3. I believe the Global Financial Crisis

is ongoing with no projected end, because the necessary fixes have not been put in.

4. What were the primary causes of the Global Financial Crisis?

Deregulation and fecklessness on the part of Washington as free-market fervor, which became a kind of national religion in the aftermath of the Cold War, established the canard of self-regulating markets as the ruling zeitgeist. Policy-makers came to ignore key differences between financial and other markets, which economists had known about for 300 years. Financial markets were always more imperfect than markets for goods and other services, more prone to manias and panics and more susceptible to the pitfalls of imperfect information unequally shared by market players. After the Great Depression authorities had understood that the financial markets must be more regulated than other markets, not least because they supplied the lifeblood of a capitalist economy: capital. Yet that critical distinction was lost in the whirlwind of fervor that championed free markets and market solutions, especially in the minds of overconfident U.S. policymakers, after the Cold War.

5. What still needs to change as a result of the crisis?

The size of Wall Street firms, and the disproportionate size of finance in the overall economic equation of America. Finance, when completely unleashed, came to dominate the real economy, rather than serve in its traditional role as a supplier of capital to the "real" economy of goods and services. Through most of the high-tech era of the last part of the 20th century, the wizards of Wall Street were justifiably proud of the role they had come to play in providing venture capital to entrepreneurs. The ability of a smart person with a smart idea in America to turn it into a new company and new product was unmatched in the world. It was the heart of America's strength, and it was thanks in good part to the rollicking open markets on Wall Street. But somewhere along the line, toward the end of this era-as the zeitgeist hit its peak and government regulators backed off completely -- Wall Street became the master of Main Street rather than its handmaiden.

Compiled by Gary Karz, CFA
Host of InvestorHome

Global Financial Crisis Survey

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