A vexing, outraging or amusing (depending on your situation and whether you’re about to lose your farm to the water) element in the Assiniboine flood story has been the scrap over a bad gauge in Saskatchewan being the cause of Manitoba’s woeful unpreparedness for the extent of the waters causing the deliberate dike breach at the Hoop and Holler.
Manitobans are at the best of times given to blaming Saskatchewan for stuff, and the Grey Cup fiasco has lent some credence to the “13th Man” argument. But now the Manitoba government has been wriggling out of the “Blame Saskatchewan” position and not blaming that bad gauge entirely for the mad panic that broke out last Monday night.
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Regardless, I expect there are some mighty anxious water officials out there, not looking forward to the time after the flood, when they will be forced to answer how they didn’t seem to see the problem coming for more than a week after the late-April snowstorm. I expect a lot of gauges are being re-checked and technical models re-assessed.
That’s what the financial industry, investors, regulators and governments have been doing since the 2008 financial meltdown, and the extended navel-gazing and investigations haven’t been kind to the technocrats, wonks and regulators who thought common sense and wisdom were outdated now that they had sophisticated mathematical and statistical models they could rely upon to flag any real problems before they became crises. As we all know, they monumentally failed, and one of the results was the massive slump in crop prices, the sudden tightening of credit and great suffering in many places.
I’ve spent this weekend in the hospital, staying with a sick baby, and with all the quiet hours I’ve had since Friday I’ve been ploughing through the report of the Financial Crisis Inquiry Commission, which was published in 2010. I’ve read chapters before, but never the whole thing as a book. It’s great reading, which an odd thing to say about a detailed study of complicated financial entities and complex derivatives, but underneath it all is a gripping tale of hubris of financial supremos, financial regulators and politicians about our ability to create and control a vast financial monster, and make it do our bidding. (Dr. Frankensterin, anyone?)
What strikes me most about the tale is the large number of times wise people with experience warned bank bosses, regulators and politicians about the clear signs they saw that a gigantic problem was arising. They were almost always – beyond the state level – ignored or told they were wrong. Generally, they were told by regulators that the regulators had sophisticated gauges and complex theoretical models that would catch any problem that was developing, so the whistle-blowers could go back to their desks and rest their fluffy little heads.
“Wall Street is essentially floating on a sea of mathematics and computer power,” noted one witness before the commission. Another, a consumer advocate, revealed how hard it was to reach the financial technocrats:
(A witness ) said that Fed officials seemed impervious to what the consumer advocates were saying. The Fed governors politely listened and said little, she recalled. “They had their economic models and their economic models did not see this coming.”
Another witness was told by regulators that the mushrooming subprime mortgage industry and skyrocketing house prices were justified because employment and economic activity was also up. He pointed out that they were looking at the situation backwards: the out of control housing market was driving wages and economic growth, but that didn’t compute for the Fed.
So gauges and models can be a problem, especially if they give technocrats an excuse to close their eyes. Whatever the truth of the bad Saskabush water gauge, I imagine the post-flood world will contain some reconsideration of the present system of gauges and measures, and whether they provide an accurate view of what is really going on.
And perhaps in future they’ll employ a few more of those old time measures: guys with eyeballs in pickup trucks.
