What Happened? Anatomies of the Financial Crisis

If you’ve been staring dolefully at your mutal fund statement and wondering “What the heck happened?!” you are not alone. Perhaps you’re in a position like that of P.J. O’Rourke, whose self-professed understanding of the financial crisis comes to this:

Jim Jerk down the road from me, with all the cars up on blocks in his front yard, falls behind in his mortgage payments, and the economy of Iceland implodes. I’m missing a few pieces of this puzzle myself. 

In this special issue of Cato Unbound, we’ve asked four respected economists, with four very different perspectives, to supply what they think are the missing pieces of the puzzle and to tell us how they all fit together.

Before the meltdown, a few perpetually dour forecasters saw disaster on the horizon, because they always see disaster on the horizon. Yet no one predicted the disaster we got. And the full, true story of what really happened has yet to be told. Of course, this hasn’t kept ideologues from taking the opportunity to malign their enemies and plump for policies they wanted all along. But we cannot place blame until we know what actually happened and why. And we can’t do anything to ensure it won’t happen again until we know what “it” was.

So this month we have brought you Lawrence H. White, the F.A. Hayek Professor of Economic History at the University of Missouri St. Louis; William K. Black, associate professor of economics and law at the University of Missouri, Kansas City and author of The Best Way to Rob a Bank Is to Own One; Casey Mulligan, professor of economics at the University of Chicago; and J. Bradford DeLong, professor of economics at the University of California, Berkeley. Each will provide a short essay laying out his best account of what happened. After all the essays are online, our panelists will then hash out their differences in a lively informal blog chat.

At the end, your mutual fund statement might not look brighter, but it least it will be a bit less maddeningly mysterious. More importantly, with a clearer picture of what happened, we can start deliberating more intelligently about what does, and does not, need to done.

As always, Cato Unbound readers are encouraged to take up our themes, and enter into the conversation on their own websites, blogs, and even in good old-fashioned bound publications. “Trackbacks” are enabled. Cato Unbound will scour the web for the best commentary on our monthly topic, and, with permission, publish it alongside our invited contributors. We also welcome your letters. (Send them to jkuznicki@cato.org.)