The following is in response to Michael Edesess’ article, The WikiLeaks of the Economics Profession, which appeared last week. That article was a review of the book, What Caused the Financial Crisis.
Dear Editor,
While I found Michael Edesess’ review interesting and generally helpful, I can't help but be curious about his stark skepticism that the demand side (institutional and retail investors) of a market would be able to recognize its own urges and needs and insist that the supply side of the market respond in some way. Edesess paints a picture of a hopeless and hapless demand side bumbling along as a mere innocent victim of whatever the eternally scheming, ill-intentioned suppliers want to thrust upon them.
To wit: Edesess seems fully onboard with Richard Posner's perfunctory and dismissive attitude, in his afterword to the book Edesess reviews, toward the idea that the big rating agencies’ failure to provide quality analytic products was a natural byproduct of their irrational government-manufactured oligopoly status that shielded them from market forces and discipline that otherwise might have informed their work. Edesess says, in effect, that even without the oligopoly, there would be no natural demand anyway for rigorous rating firms that would be perceived as a wet blanket. Really, and we know that how?
A scant few paragraphs later, in conclusion, Edesess again rails about how financial service institutions routinely misled, abused and grossly under-informed the pitiful, helpless buyers of their products and services.
While Akerloff's Nobel-winning Lemon Theory beautifully describes the asymmetry of information between buyers and sellers, it doesn't suggest that the demand side of a market is made up of little more than a collection of hapless fools who would simply perish without a regulatory morass descending from the heavens to save them. To the contrary, those hapless fools on the demand side have been reasonably successful in dealing with used-car salesmen, both literal and metaphorical, for years.
My takeaway from the essay collection was that when society deems it necessary to call in a white horse-mounted savior in the form of government regulation to save us from ourselves, we had best be aware of the unintended consequences of the increasingly tangled, unnatural, volatile and even dangerous web we are weaving.
I'm glad to see you bringing attention to what I consider to be this very informative work.
Guy M. Cumbie, CFP®, CIMA®
Cumbie Advisory Services, Inc.
Fort Worth, TX
