"Nobel" smackdown.
The Bank’s prize announcement stresses that Tirole was selected because of his “clever” approach to regulation, including financial regulation. So the obvious question is how Tirole, in authoring his book on corporate finance theory and as the exemplar of “clever” approaches to financial regulation missed the crisis, missed the causes of the crisis, missed the causes of past crises, and advance ideas on financial regulation that would not have prevented our banking crises? The subsidiary question, also close to unique in economics, is how he could get so much so wrong by ignoring the work on these crises by a recipient of the Bank’s prize in 2001 (George Akerlof) by savings and loan regulators, white-collar criminologists, and a series of successful civil, administrative, and criminal actions? In other fields, the failure to cite and discuss the relevant work of a recent Nobel Laureate would cause the author to be viewed as an embarrassment to the field.…
Tirole knows about the “C’s” of loan underwriting – they’re in his book on corporate finance. Because he has not read, or failed to understand, the relevant literature on the S&L debacle he not only proved that hindsight about that debacle suffered from galloping myopia rather than being 20:20. Effective loan underwriting had to be eviscerated for the epidemics of loan fraud to rage as they were when he wrote and published his book on corporate finance in early 2006. Tirole failed to recognize or understand the criminogenic environments that produced the three epidemics of home lending fraud that were evident at the time he wrote his book. There is no evidence that he understands those three fraud epidemics even today. He exemplifies the tragedy and staggering opportunity costs of economics and economists.New Economic Perspectives
Hold Your Wallet When the Swedish Central Bank Prize Rewards “Clever”
William K. Black | Associate Professor of Economics and Law, UMKC
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