Hmmm…

So I came across a link to, an Irish blogger, David Malone, with a nice post on the problems, The Enemy Within, showing the regulators in Ireland are no more interested in regulating than those in the US.

In the comments, there was a link to an academic paper by Dirk J Bezemer, Groningen University, Netherlands, dated 16 June 2009, titled “No One Saw This Coming”.

The paper is in PDF format, so use appropriate caution, but Mr. Bezemer wondered, after all the claims that “No one could have imagined …” that the global economy would go into a meltdown, if that was true.

This is an academic paper, so there are footnotes and references throughout, and the criteria used in the selection of the dozen people he cites as having predicted what happened were very limiting. It wasn’t enough that someone said it, they had to have the background to make that prediction, and they had to explain their reasoning.

I was interested that all of the major macro schools were represented, the Austrians, the freshwater, and the saltwater followers all had adherents who predicted the global meltdown, because they are all focusing on that ubiquitous report required in all accounting programs – the balance sheet.

They are definitely not in agreement as to what should be done, but they all saw the problem.

Simply put – people were generating “paper” assets, rather than “real” assets. If you read the blogs you know that it is a common statement that Wall Street doesn’t actually create anything. You need manufacturing to create real assets, and since the coronation of Reagan manufacturing has been moving out of the US. You can’t base your economy on “paper” assets and expect to survive.

People took on too much debt because “on paper” they were well off. As much of their wealth was tied up in their house, when the housing bubble burst, their asset value disappeared. When the assets took a major hit, the debt load leaped up.