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14 – The Elephant, Blind Men, and the Rhinoceros (11 Feb 09)

The credit crisis and what follows, dominating economic discussions for some five months now, have prompted such a variety of explanations of causes and remedies, that I keep thinking of the famous Hindu and Indian Buddhist parable of the six blind men and the elephant. One feels a leg, another the trunk, and yet another its tail, and they all come with stories challenging each other’s truth. It would be hard to find a better recent instance of what the fable depicts. I have just re-read some contrasting explanations: from Clintonian regulations perverting private incentives, to Greenspan’s supporting the kind of activity and deregulation schemes that eventually made the crisis possible. Too much regulation, too much de-regulation, the housing market gone wild, and technical change, are among the essences brought forward by the explicators. Their explanations can roughly be grouped under headings of pure theory, historical analogy, empirically informed speculation, and, not to forget, a lot of self-interest. These categories overlap with two main cross-sectional divisions. It would seem that the most popular explanations among the culprits and their colleagues inside the financial institutions have revolved around deteriorated morals: excessive greed, bad apples, and so on. The...

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