Joseph Stiglitz examines the financial crisis in an elequent way, but is anyone going to listen to him?

Joseph Stiglitz is an award winning economist who knows a thing or two about how the western economy works. However, despite his brilliance in understanding the complexities of economic theory, no one seems to listen to him.

Well, I'm hoping that will change. Here is a paper Stiglitz wrote entitled: CRISIS OF 2007/2008 AND ITS MACRO-ECONOMIC CONSEQUENCES.

It's a hefty article, but if you are into economics, study economics, or live and work in the western world, you should read this. It took me a while but it elequently describes how corporations got us into this mess, aka the global financial crisis.

Click here to read the whole thing. If you are too intimidated, here are a couple snip-its from his article that will hopefully tantalize your senses enough to read the whole thing.

THE FINANCIAL THE SOURCES OF THE PROBLEM:

Some of the same problems that had contributed to the earlier problems were at play here.There were incentives for providing misleading information and conflicts of interest.Two additional elements were present: incentives for excessive risk taking andfraudulent behavior (a problem that played an important role in the S & L debacle).Perhaps more important though than these perverse incentives was a failure in modeling:a failure to understand the economics of securitization, a failure to understand systemicrisk, and a failure to estimate well small probability events.

Problems with Incentives:

Executives that are paid with stockoptions have an incentive to increase the market value of shares, and this may be moreeasily done by increasing reported income than by increasing true profits.

In addition, stock options—where executives only participate in the gains, but not thelosses—and even more so, analogous bonus schemes prevalent in financial markets,provide strong incentives for excessive risk taking.

Oh, and if you happen to work for a Fortune 500 Company (or what used to be a Fortune 500 company) you really should read this. If not, have fun repeating the same mistakes throughout history.