Take heed of Cassandra’s warning against imminent ruin.

Andrew Smithers
Financial Times (Letters), 24th April 2009


Sir,

Lionel Barber’s article “A flawed first draft of history” (April 22) refers to the symptoms of the current crisis that were missed by the financial press, but does not refer to the cause. This was, quite simply, the incompetence of central banks, whose excessively easy monetary policies fuelled the asset bubbles, in shares, houses and financial assets. The Federal Reserve was particularly to blame, with its mistaken views that asset mispricing could not be measured and that any impact on the economy could be readily offset by interest rate policy.

Those who forecast that central bank policies would lead to our current troubles may have been wrong in their analysis and just lucky about events. While their views were ignored at the time, they should at least be considered now, if we are to avoid similar errors in the future.

Cassandra was a sound analyst. Her forecasts were correct; she made no claims about their timing and her views were largely ignored. But what made her hopping mad was a headline in the Troy Times: “Queen Hecuba asks ‘Why did no one warn us about the wooden horse?’”

Andrew Smithers,
Smithers & Co,
London EC3, UK


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