During the aftermath of the 2008 financial crisis it was commonplace to encounter senior financiers and members of boards of major financial firms who would admit, privately, that there were substantial gaps in their knowledge of the complex products that had put a bomb under the West’s economy.
As a journalist in Britain it was my own ignorance about the architecture of the system that prompted me to spend several years researching and writing a book about what happened at the Royal Bank of Scotland. Briefly, RBS became, at the worst possible moment, the biggest bank in the world. Pre-crisis I had thought I had a fairly decent grasp of economic theory and how the financial sphere worked. In the aftermath of 2008 I discovered I didn’t know the half of it. I wasn’t alone.
Leading politicians had a steep learning curve too in the immediate crisis period. The banks they had put their faith in – as generators of growth and lovely tax receipts – had grown way too big, much too fast in manner that induced disaster. In the eurozone the crisis took longer to unfold, but the lesson was similar. Excessive scale, reckless lending and discombobulated complexity combined to blow up the economy.
But no matter what reasonable differences of opinion one might have with individual politicians – such as former Prime Minister Gordon Brown, who was in charge during the crisis here in Britain – about the size of the state or the model they used to rescue the financial system, it was clear that these were generally intelligent people with a grasp of the basics and a quite a bit more. Brown and his colleagues acted to save the market system and they understood how it functioned.