British Economists Send Apology To Queen

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Jul 27, 2009, 4:29:12 AM7/27/09

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["Conservatives"… the collective individual greed will lead to the common good...idiot savants in economics schools – can I have may fees back for the rubbish peddled…Prophet Mohammed once apparently said, there will come a time when the world will be ruled by people of no knowledge... ]

British Economists Send Apology To Queen | 07/26/09 09:31 AM | AP

LONDON — Sorry Ma'am – we just didn't see it coming.

A British newspaper reported Sunday that a group of eminent economists have apologized to Queen Elizabeth II for failing to predict the financial crisis.

The Observer newspaper reported that a letter has been sent to the Queen after she demanded, during a visit to the London School of Economics last November, to know why nobody had anticipated the credit crunch.

According to the newspaper, the letter says that says "financial wizards" who believed that their plans to manage risky debts and protect the financial system were infallible were guilty of "wishful thinking combined with hubris."

Signatories to the three-page letter include Tim Besley, a member of the Bank of England's monetary policy committee and historian Peter Hennessy.

The newspaper said the content was discussed during a seminar with a group of leading economists in June, including Nick MacPherson, a permanent secretary at Britain's Treasury, and Goldman Sachs chief economist Jim O'Neill.

"In summary, your majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole," the newspaper quoted the letter as saying.

Buckingham Palace declined to comment on the correspondence, but said the Queen often discusses current issues with experts. In March, Mervyn King became the first Bank of England governor to be invited for private talks at the palace.

"The Queen always displays an interest in current issues and is kept abreast of current issues. Obviously the recession is very topical," Buckingham Palace said in a statement.

Luis Garicano, a professor at the London School of Economics, said he had discussed the origins of the crisis with the Queen during her visit. He said she had asked: "Why did nobody notice it?"

The London School of Economics was not immediately available for comment, or to provide a copy of the letter.
British Economists Send Apology To Queen (27 July 2009)
http://www.huffingtonpost.com/2009/07/26/british-economists-send-a_n_244998.html

    * Heather Stewart, economics editor
    * The Observer, Sunday 26 July 2009
    *

Queen Elizabeth II and Luis Garicano at LSE

Luis Garicano at LSE shows Queen Elizabeth II a chart explaining how the credit crunch was caused. Photograph: Kirsty Wigglesworth/PA Archive/Press Association Ima

A group of eminent economists has written to the Queen explaining why no one foresaw the timing, extent and severity of the recession.

The three-page missive, which blames "a failure of the collective imagination of many bright people", was sent after the Queen asked, during a visit to the London School of Economics, why no one had predicted the credit crunch.

Signed by LSE professor Tim Besley, a member of the Bank of England monetary policy committee, and the eminent historian of government Peter Hennessy, the letter, a copy of which has been obtained by the Observer, tells of the "psychology of denial" that gripped the financial and political world in the run-up to the crisis.

The content was discussed at a seminar at the British Academy in June that was attended by economic heavyweights including Treasury permanent secretary Nick MacPherson, Goldman Sachs chief economist Jim O'Neill and Observer economics columnist William Keegan. The letter explains that as low interest rates made borrowing cheap, the "feelgood factor" masked how out-of-kilter the world economy had become beneath the surface, with some countries, such as the United States, running up enormous debts by borrowing from others, including China and the oil-rich Middle Eastern states, that were sitting on vast piles of cash.

Despite these yawning imbalances, they say, "financial wizards" managed to convince themselves and the world's politicians that they had found clever ways to spread risk throughout financial markets - whereas "it is difficult to recall a greater example of wishful thinking combined with hubris".

"Everyone seemed to be doing their own job properly on its own merit. And according to standard measures of success, they were often doing it well," they say. "The failure was to see how collectively this added up to a series of interconnected imbalances over which no single authority had jurisdiction."

That meant when the reckoning came it was extreme, starting in summer 2007 and culminating in the near-collapse of the entire world financial system after the bankruptcy of Lehman Brothers last autumn.

"In summary, Your Majesty," they conclude, "the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole."

Besley stressed that the experts had not been in "finger-wagging mode" and had agreed that the causes of the credit crunch were extremely complex. "There was a very complicated, interconnected set of issues, rather than one particular person or one particular institution."

Other experts at the seminar last month included Paul Tucker, deputy governor of the Bank of England, Vernon Bogdanor, the constitutional expert from Oxford University, and HSBC's chief economist, Stephen King.

A spokesman for Buckingham Palace said the Queen has displayed a particular interest in the causes of the recession, summoning Bank of England governor Mervyn King to a private audience earlier this year to explain what he was doing to tackle it.

Official figures published on Friday revealed that Britain's economy has now been contracting for 15 months, and the recession is deeper than any since the 1930s, outside of wartime.

Robin Jackson, chief executive and secretary of the British Academy, said: "The global recession is a huge development, and it is reasonable to ask to what extent it could have been foreseen. What's more, we can't say 'never again' if we don't fully understand what occurred. The academy forum was an opportunity to get an exceptional range of experts, participants and commentators in one room, sifting fact from fiction and shedding light on what had gone on. We hope Her Majesty - and indeed others - will find our letter informative."

The academy plans to hold a second seminar later in the year to ask how best to prevent another such crisis occurring. Besley denied that economics as a profession had been discredited by the scale of the crisis, but admitted that unconventional ideas - about how herd psychology and bouts of irrationality can grip financial markets, for example - had sometimes received "less play" during the boom years.

He said the academy hopes to provide a forum for airing economic differences: "What we need is a forum where people can come together on a very open basis, to provide challenges and have a debate."

Professor Luis Garicano, to whom the Queen directed her question when she visited the LSE in November last year, said: "She seemed very interested, and she asked me: 'How come nobody could foresee it?' I think the main answer is that people were doing what they were paid to do, and behaved according to their incentives, but in many cases they were being paid to do the wrong things from society's perspective."