Steven Pearlstein raised this question in his column last week. He argued that if one of the top executives of a major bank had warned that things were getting crazy in financial markets back in 2004-2006 then it could have brought the madness to an early end. This is certainly possible. I have long argued that if Greenspan had been doing his job, he would followed the course suggested by Pearlstein, using the even bigger pulpit offered by the Federal Reserve Board. Like Pearlstein, I would have liked to see the Wall Street execs do something for their paychecks, but I am less confident than him about the responses that an exec blowing the whistle would have received. I can say for certain that almost without exception, business journalists did not want to hear such arguments in these years nor did powerful members of Congress. The oped pages of publications like the Washington Post were not open to these arguments and the editorial boards of these papers did not want to discuss the possibility that we had a huge housing bubble. Now, it is certainly possible that if these arguments came from a Robert Rubin or Henry Paulson (in his Goldman Sachs CEO incarnation) they would have been more willing to listen than when they were just presented by a random economist. However, there was a huge prejudice in these institutions against questioning the conventional wisdom. One of the key lessons of this economic crisis should be that there is a remarkable lack of capacity for independent thinking in our most important institutions: government (both the executive and legislative branches), business, the media, and academia. It is possible that an important authority figure could force a re-examination of deeply held views of the world, but we all must recognize that there is a huge amount of dogma to overcome.
--Dean Baker
