Why is it so hard . . . ?

It seems way too easy to second-guess the financial gurus who failed us and got us into this economic disaster. There must be something I'm missing. If only I understood more, I would see how impossible it was to see it coming.

For example, I fail to see the fallacy in the sensible argument made by Michael Burry, quoted in my 04/04/10 blog, about how he knew when the housing bubble was about to burst:

I waited for the lenders to offer the most risky mortgages conceivable to the least qualified buyers. I knew that would mark the beginning of the end of the housing bubble.

My naive kitchen table economics tells me: You can't make something out of nothing and have it keep on giving; you can't spend more than you make and not have it eventually catch up with you.

Ah, the bliss of ignorance. Thank god, most of us did not know that at the time. We might have become alarmed at what was about to happen. If I was as smart as Alan Greenspan, maybe I would have realized how untrue those slogans were. If I didn't have the advantage of hindsight, maybe I could have been a legendary head of the Federal Reserve system, too.

Not only has Greenspan told us repeatedly that "no one could have predicted" the housing bubble and its devastating bursting, now he's telling a Congressional committee that the banking system has been "undercapitalized" for the past 40 or 50 years, and that the financial system is so complex that regulators don't stand a chance. The answer can't be as simple as "we need better regulation," he says. I think he's saying that it's too complex for any outsider to see what's going on inside the banks, so we just have to rely on banks to regulate themselves.

Didn't we already try that? Aren't most serious thinkers now saying that's how we got into this mess? I guess I'm just too naive and under-educated to understand how complex it is and how it is a problem without a solution.

Seems to me that the regulations put into effect following the 1930s crash worked pretty well for about six decades. And then they started dismantling them. It's not that they wouldn't work now, it's that the banks have so much power that we probably can't re-impose similar regulations now. And the banks are determined to keep it that way.

The lesson: don't rely on experts who never listen to anyone else except other insider-experts. But what do I know?

Ralph