Laughing on the outside

This video is not as famous as “Burning Down the House”, (see previous post) but is very funny an provides a concise history of the subprime mortgage crisis. This “serious” entry from Wikipedia tells a story that is not much different from the comedic skit.  The subsection on the causes of the crisis illustrates how comprehensive the system failure was.  Whole swaths of the political, financial and journalistic systems simply didn’t work as expected. My guess is that when a big enough carrot is dangled in front society the incentives to “get along” simply become too great to resist.  Some of my friends in the management consultant business say the the “global warming” bandwagon is too tempting to avoid. “Green compliance” and there is a cynical attitude that one should make money off the fad while it lasts. Less than a decade ago it was fashionable to argue that the Y2K bug (remember that?) would cause a global catastrophe. Fortunes were made on it. I wonder how much of the subprime bubble was created by the need to simply get with the program.

With any luck, one of the concepts that may yet take a knock as a result of the current crisis are carbon trading schemes.  If the subprime mortgage was caused by trading government-spawned fictional assets, carbon trading is way of trading in government-created regulatory costs — representing externalities which may been inflated as well. The ability of a bureaucracy to create ‘wealth’ and ‘penalties’ by fiat is one of the greatest powers of a state. When these powers are harnessed to effect social engineering, unintended consequences may occur.