WHAT WENT WRONG?

ON 24 October 1929, the newsreels of the time showed ruined bankers throwing themselves from the window-ledges of their Wall Street offices. On Monday of this week the TV news showed some of the five thousand staff who have lost their jobs at the London office of Lehman Brothers walking out with cardboard boxes containing their personal belongings to face an uncertain future. At the weekend Alan Greenspan, the former long-serving chairman of US Federal Reserve, said that the United States is passsing through a “once-in-a-century financial crisis.”

As someone with no training in economics and little personal interest in the stock market, I find the cause of the current crisis very difficult to fathom and its consequences even more obscure. But what surprises me as I read the financial experts is to see that so many people have known for a long time what was going wrong - that US banks and other financial institutions treated housing as a collateral for loans on the assumption of ever-rising prices - and that when potential purchasers found they could not afford those prices the whole house of cards collapsed. Is it really as clear as that and if it is why could none of the brilliant financial brains in Wall Street and government see the problem coming and take corrective action before it became acute? The US financial world is highly regularised but apparently not very effectively. Now the whole world is caught up in the consequences.