Sunday, December 21, 2008

Black Boxes

Frank Rich, writing in his Sunday NY Times column, ponders the repeated warnings we've had during this current economic crisis and questions why we continue to ignore all the red flags.

He posits that many of these financial instruments are regarded as "black boxes", that are either very complex, or confidential, or both. Things go in one end, mash about like socks in a dryer, then spit something wonderful out the other side. As long as we're happy with the result, we don't ask too many questions about what's going on inside the box.
The rest of us know black boxes as those cockpit recorders that are supposed to provide salient details after a crash, ostensibly to help us understand what went wrong to prevent future disasters. The black boxes don't, however, provide much benefit to the passengers and crew of the plane.
Particularly in light of the Bernie Madoff case, where as much as $50 billion in investments might be forever lost in what amounted to an elaborate, unregulated Ponzi scheme, rich folks and savvy investors ignored the lack of documentation and transparency into what was actually responsible for their above-average return, year after year.

The question in the aftermath of the Madoff calamity is this: Why do we keep ignoring what we learn from the black boxes being retrieved from crash after crash in our economic meltdown? The lesson could not be more elemental. If there’s a mysterious financial model producing miraculous returns, odds are it’s a sham — whether it’s an outright fraud, as it apparently is in Madoff’s case, or nominally legal, as is the case with the Wall Street giants that have fallen this year.

The fact that ABC News has been ignored as they requested information from the financial firms who received part of the $700 billion in bailout cash to determine how much they received, and how that money has been spent, tells us a lot more about the endemic problems that exist in how our financial markets are owned and operated than any Congressional committee hearing. They took our money, gave it to those who operated the black box enterprises, and refuse to tell us who, what, when, where, and why. 

Soon we'll be printing $1 billion dollar bills like some third-world nation. And there's plenty of blame to go around.

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