Home > Uncategorized > Why didn’t we see the crisis coming?

Why didn’t we see the crisis coming?

We were blind to the crisis symptomsIt is not the economists alone whom we should blame for not foreseeing the crisis. There is a long list of professions that failed to see the crisis brewing… from the road-side palm reader to the bankers on the wall street, even the academic gurus, the journos and the government machinery is also to blame.

But, barring the economists, for all others, it was just a side game. So, the spotlight again goes back to the “economists” who were relatively better equipped to smell the tsunami tide coming our way. No matter what different reasons these economists give about their blinding of this crisis, major reasons that stand out are
(1) lack of big picture about potential impact of any bubble burst in the economy
(2) capitalist inclinations leading to “capitalism is always right” mentality
(3) reckless and irrational use of quantitative models to explain their “works” without an eye for the ground realities

Although the relation between financial institutions and the wider economy seems so commonsensical, no one factored this relationship in their strategizing and even if they did, it was just a minor side reference.

So, does this mean that economists are not the root cause and that there is something more primary than this… yes!!!! It is the academic world. Having been to one of the hallowed IIMs, I have had a chance to watch the faculty closely on what they do to churn out the theories / frameworks / methodologies that
professionals and companies adopt sincerely without question. Looking a little deeper into this…. the paradox that shows up is that the academic work is based on economic orthodoxy derived from economist views from the early 20th century when markets operated in a different manner. So, whatever comes out of this academic exercises is basically an extension of those views into the present context. And the disconnect happens when a professional of the new millenium believes in a fresh economic perspective but uses archaic models to execute his/her ideas. It is so like putting a cart wheel on an aeroplane.

Quantitative models seem to be everything for the businesses… and the commonsensical ground realities were mere aberrations. How I wish we knew that these aberrations are going to drown us as well along with the models.

So, one basic lesson that I learnt was… “keep your ears to the ground while you watch the sky”! For any senior manager, it is important to go beyond pure quantitative models and understand the business environment at the operating level.

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  1. August 31, 2009 at 9:32 am
  2. October 13, 2009 at 8:34 am
  3. March 21, 2010 at 12:10 pm

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