The Independent Evaluation Office of the International Monetary Fund issued its report on the IMF’s actions as the credit crisis unfolded. It argued that the IMF could have done a better job.

The report said “It finds that the IMF provided few clear warnings about the risks and vulnerabilities associated with the impending crisis before its outbreak. The banner message was one of continued optimism after more than a decade of benign economic conditions and low macroeconomic volatility” Not all of the criticism was negative. The IMF, according to the examination, has improved its ability to predict and access solutions for the next credit crisis.

Most of the review panels put together by agencies that monitor the world’s financial health and the individual agencies in the countries that housed the banks that caused the crisis have said the same thing. Regulations were inadequate as were the audit actions that might have detected the coming doom. There was no intelligence anywhere is the system. If there had been the financial world would not have been caught by surprise.

The trouble with the The Independent Evaluation Office report is that it is predicated on the ability of regulators to predict the future. It would be both wonderful and convenient if that were true. The Federal Reserve, and Treasury and a large number of other government agencies did not see that leverage was so great that it would collapse the credit system. Neither did the boards of directors at major banks and financial firms. No one understood that the housing market was built on a crumbling foundation of excessive debt. Bubbles should be seen as they grow and not after they burst, the IMF evaluation assumes.

The assessment of the failure to see the crisis looming is an indirect indictment of the regulatory system in the UK, UK, and some of the EU nations. It is fair to the extent that it assumes that economic success is blinding. It is also fair to the extent that it insists that the remarkably complex world of international finance should be one which can have much of the risk taken out of it. But, it can’t.

The entire system failed, not just the IMF. The duty of regulators was not enough for them to access what was probably beyond assessment. The financial world has a billion moving parts, and it is not realistic to know years ahead which are broken and which are simply prudent profits from risk.

Douglas A. McIntyre

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