Ben Stein: 4 lessons from the recession

    A look back at what the financial crisis has taught us.

    By Ben Stein

    As I write this from real estate disaster-ridden but still-glorious Los Angeles, I read much speculation that the recession is over.

    The stock market has rallied explosively. Foreign markets in both the developing world and the developed world have done spectacularly well. China is unbelievably up after an unimaginably gruesome crash.

    Even the poor beaten-to-death REIT sector has gained dramatically lately. Credit is supposedly flowing to at least some sectors (barely mortgages and small business yet), and the big banks look incomparably more solid than we feared just a year ago. Retail is showing signs of life, and even home sales are up and prices look to have stabilized in many areas. Unemployment is still gruesome but it is always the last thing to improve.

    So, now, beloved class, what can we say we have learned from this recession, its runup, and its aftermath, if we are in fact in the aftermath?

    1. Economic forecasting is still an extremely difficult gambit and nowhere near a science. It is a lot more like astrology than mathematics. As the recession bore down on us, the great majority of economic seers said it was not going to happen or if it did happen, it would be mild.

    In fact, the recession turned out to be long-lasting and severe. Not one person I know foresaw that the government would allow Lehman Brothers to fail and thus simply shoot investor, borrower, lender, consumer, and employer confidence in the head. As dismal as Henry Paulson appeared, no one dreamed he would be that foolish.

    Perhaps more worrisome, as the recession ground on, the top dogs in economics said it would last indefinitely. Many truly big names said it would turn into a genuine Depression, with prolonged unemployment approaching depression-era levels of one in four or five workers. This now looks extremely unlikely.

    2. Financial market forecasting is even more troublesome than economic forecasting. Hardly anyone I am aware of got the recent stock market recovery right. No one saw a recovery of roughly 60% in broad indices in the span from early March to mid-November. To the contrary, even in the spring, I was getting e-mails from people "in the know" seeing a bottomless pit for the stock markets.

    3.The amount of lying and deception by the financial sector of this country has been breathtaking. The banks lied about the risks they were taking on, about the amount of their exposure, about how well capitalized they were, and about their prospects for survival. Throughout the financial sector there was similar deceit.

    The fact that so much fraud can go on with no one getting punished for it is terrifying to the investor. Major players in finance were playing a truly staggering game of deceit -- selling pension funds CMOs while at the same time selling the same instruments or derivatives attached to them short. This is betrayal of trust on a scale that even I, as someone who looks at The Street with a gimlet eye, could scarcely have imagined.

    4. The government has no special abilities to forecast or predict a darned thing. Alan Greenspan, former head of the Fed, a truly wonderful man and a smart economist, not only did not see the crash, but did not see the bubble preceding it. Not only did he not see it, he thought it was an economic impossibility.

    Ben Bernanke, the current head of the Fed and a helpful man of immense goodwill, did not see the possibility of a housing bubble and a crash when he was chairman of the President's Council of Economic Advisers.

    Once he got to be head of the Fed, he did not see the severity of the crisis. He especially did not see the disaster that would result from failure to rescue Lehman. This went beyond ordinary mistakes.

    As to former Treasury Secretary Henry Paulson, let us say a prayer for people like us who have rulers as arrogant and incompetent as he was. As to the current Treasury Secretary, Timothy Geithner, he also failed to see the crisis coming and failed to see how vital it was to rescue Lehman. He has definitely gotten better on the job, but whether he works for the taxpayers or for Goldman Sachs (GS, Fortune 500) is extremely questionable in my little mind.