Joel Trammell beat me to the punch with his posting: You can't manage an economy you don't measure:
"this problem, in part, was caused by lack of oversight"
I'll try to keep my outrage in check because I'm not an economist or an accountant or a lawyer. I don't really know what happened any more than anyone else (probably less than many people) but Joel's point resonates with me: If somebody had been watching and willing, then these problems could have been detected and dealt with earlier. In retrospect, it's obvious that excessive risks were taken for short term gain, and some folks were just plain crooks.
It's ironic that folks in the Financial Services industry were blind-sided by this crisis. For years they have been at the forefront of analysis and pattern recognition technology, driving many of the advances in the field. Software that could have detected Madoff's ponzi schemes is trivial compared to the sophisticated financial gaming models developed by the Quants. There's really no excuse except for a lack of someone who was willing to look out for everyone else.
At times like these we realize that sometimes a Big Brother can be a wonderful thing to have.
I'll bet that most of you think of George Orwell's Big Brother when you hear the term. Orwell's Big Brother scares the hell out of us - a omnipresent leader spying on everyone - but he's just a one dimensional character from a horror story.
We should also think of the Big Brothers Big Sisters organization... proving the point in real terms that having someone to look out for us can be a very good thing indeed.
But what about privacy?
My personal belief is that real privacy is an illusion in the 21st century. Maybe not for those living on the margins of society, but for someone like me the walls are transparent and thin. If you are curious and persistent you can probably dig up every embarrassing and questionable act that I've ever done. You can figure out where I live, where I shop, where I eat, where I travel. You can dig up former girlfriends, past employers and folks who can't stand me. My life may not be an open book - but opening my book is way too simple.
I'm not all that happy with my lack of privacy, but I am more concerned by the thought that someone can use that publicly available information to pretend to be me (identity theft). As I wrote in my 2004 blog Privately Famous:
"I know that many people fear a National Identity Card, and I can sympathize; Governments are notorious for turning oppressive. I hold the other view; I want a National Identity Card, and I want my DNA and finger-prints on file. Without a trusted identification authority (and I know that nothing is foolproof), it's just too easy for someone else to pretend to be me, and too hard for me to prove that I am me."
The price of Privacy can be way too high if it's carried to ridiculous extremes. Our fear of government prying led us to condone the gutting of regulatory oversight that we just naturally assumed was protecting us.
Forget the financial mess for the moment: Did you ever think that American Peanut Butter would be dangerous in the 21st century? Didn't Teddy Roosevelt institute food safety oversight a hundred years ago?
Regulatory oversight is certainly a potential evil - but it's a necessary evil. With the tools that we have today Big Brother can watch us, but we can also watch him. We have no real privacy, but neither does he.
Technology can help. We can help reduce the "red tape". We can help spot the suspicious. We can help predict the long term. We can help the watchers watch, and we can help watch the watchers.
We can help avoid messes like this in the future.