FE: What has most surprised you about the current economic downturn?
Mr Cowen: That
it happened with such severity. As an economist I grew up reading and
thinking about two formative events. The first was the crash of the
real estate bubble in the late 1980s, preceded by the stock market
crash in 1987. The second was the Third World debt crisis of the early
and mid-1980s. Both were bad, but for the United States neither were
like the last two years. I’ve never been a believer in any of the
extreme forms of the efficient markets hypothesis, but those events
made me overly complacent about how badly crashes and excess leverage
can turn out. In the early 1980s I expected widespread insolvency for
major U.S. banks and when they muddled through I ended up overrating
their ability to do the same again.