Have you seen (pant! pant!) HBO's docudrama about, "Too Big To Fail"? Were you attentive but a tad over-Hollywooded by it? Do you agree with financial writer, Jesse Eisenger, that it is "extraordinarily revealing about the financial crisis... only its revelations are almost entirely inadvertent"?
Ostensibly it's a story of their success against all odds. Michael Kinsley, reviewing the movie in the New York Times, labeled Hank Paulson the "hero" of the account.
Except that the movie actually depicts something entirely different: failure upon failure. "Too Big To Fail" The Movie isn't the story of how the Three Musketeers saved the global economy. It's a story of how the three didn't see the financial crisis coming; hadn't prepared for it; made mistake after mistake as it was cresting; and then, in their moment of triumph, made their most colossal blunder of all.
That, it turns out (whether or not "Too Big To Fail" knows it), is the true story of the financial crisis...
The crisis, after all, hit all of America, up and down, side to side. The financial crisis is far from over beyond Wall Street and its backyard.
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... They (and we) could avoid crises by just paying attention. But there's plenty of evidence that attention is exactly what we do not pay. James Surowiecki looks at the ramshackle way in which we gather information and then fail to put it to use, or get it to us too late, or find that it isn't telling the whole story. Example: check out our (and our elected officials') consistent failures with inflation data.
The government continues to track inflation, for instance, by gathering price data much as it did in the nineteen-fifties: it surveys consumers by phone to see where they buy, surveys businesses to see how much they charge, checks out shopping malls to price goods. This leaves out consumers who have only cell phones, and it probably overstates inflation by not fully accounting for things like the impact of big-box stores. The larger problem, though, is the time it takes: the Consumer Price Index’s figures don’t come out until a month after the fact. In turbulent times, that’s too slow.
A new venture called the Billion Prices Project may help change that. The B.P.P., which was designed by the M.I.T. economists Alberto Cavallo and Roberto Rigobon, gathers price data not via survey but, rather, by continuously scouring the Web for prices of online goods around the world. (In the U.S., it collects more than half a million prices daily—five times the number that the government looks at.)
Oh goody! We'll get less scary and much more accurate reports about inflation, right? Our members of Congress and people in the Treasury -- people who depend on accurate information -- will be able to do better job.
Not really.
Giving policymakers more information doesn’t mean that they’ll believe it or act on it. In the years leading up to the financial crisis of 2008, after all, there was a lot that people didn’t know, but the fundamental problems were obvious: housing prices were rising too fast and banks were flinging loans at unqualified borrowers with reckless abandon. Yet the Federal Reserve and banking regulators failed to take any action to try to pierce the bubble before it brought the economy crashing down. These days, all the available numbers, including the C.P.I. and the Billion Prices Project, suggest that inflation is under control. Still, politicians and some Fed members are fretting that a huge price spike may be imminent, and are pushing to make monetary policy tighter, even in the face of unacceptably high unemployment. An enormous amount has been done lately to make sure that policymakers have the numbers they need. The question is whether they’ll use them.
