Hindsight may be 20/20, but there were plenty of warnings that economists wish they had heeded — the types of loans being made; a lack of communication among the world’s largest banks; and poor regulation of investment banks, agencies Fannie Mae and Freddie Mac, and the insurance industry.
Tucker Hart Adams
An independent economist with the Adams Group in Colorado Springs
“I should have paid more attention to the types of loans being made and the growth in new financial products that supposedly took questionable credit and turned it into AAA securities. When I was told by a dozen economists from the country’s largest commercial and investment banks that they had developed models and products that eliminated risk, it was time to run for cover. That was May 2007.”
Michael Englund
Chief economist at Action Economics in Boulder
“The narrowing of interest-rate spreads . . . seemed hard to justify from fundamentals, much like the ‘Internet bubble’ in stock prices in the late ’90s, and it seemed only a matter of time that we would see the bubble burst in global fixed- income markets. . . .If there is a moral to the story, it’s that seemingly unsustainable patterns in financial-market data often prove to be just that, even if it’s hard to forecast the timing of market corrections.”
Diane Swonk
Chief economist at Mesi row Financial in Chicago
“In July 2007, I was at an annual meeting of economists from around the globe. The conclusion we came to was that a major financial crisis was in the making, driven by problems in structured investment vehicles and the false dilution of risk in the subprime market. The gut instinct I ignored . . . was our collective fear that a lack of communication among the largest central banks of the world would undermine our ability to stabilize a financial crisis once it erupted.”
Richard Wobbekind
Director of the business-research division at the University of Colorado’s Leeds School of Business
“What the vast majority of economists, including me, didn’t anticipate was the ability of the financial sector to take down the real economy. The biggest piece of the economic decline I missed was an understanding of the degree of leverage (debt) in the economy, and the fact that it wasn’t insured adequately. Since this data was not readily available, you had to be very close to those markets to understand the magnitude of the problem.”
Eugenio Alemán
Senior economist with Wells Fargo Bank in Minneapolis
“My biggest issue has to do with the ex- post realization of how bad the regulatory environment was in the financial markets — with the notable exception of the commercial-banking sector — specifically investment banking, agencies Fannie Mae and Freddie Mac, and the insurance industry, especially credit- default swaps within the insurance industry.”
