Krugman's rumination on the rise and fall of the banking industry in today's New York Times is a mouthwatering teaser leaving the reader hungry for more. (Here.)
It is extraordinary that banking profits accounted for a third of all corporate profits in the last decade of the last century.
While "illusion" as Krugman put it was certainly a factor in the seeming success of that industry back then, there must have been a number of other important and fundamental factors at work. Unless we can understand better what those factors were, it is almost certain that the banking industry will again become the engine that drives corporate profits after we get out of this mess to begin another cycle of the same.
Krugman reminds his readers that Larry Summers ridiculed those who in as recent as 2005 warned against a financial meltdown. Summers was then the President of Harvard. At the age of 28 he was already granted tenure by Harvard. He was at the top of his game, wasn't he?
David Halberstam wrote that classic "The Best and the Brightest" in the early 60's as a satire of those with impeccable academic and intellectual credentials who guided the US into the disastrous Vietnam War. One wit called them members of the Harvard Alumni Association in Washington DC.
I have nothing against that great university. However, that institution does seem to breed hubris among many of its alumni who honestly believe they are the best and the brightest.
We maybe seeing history repeating itself in the current financial morass.