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Will We Ever Learn?

In the '90s, the smartest people were telling us that the Internet Revolution had vanquished the business cycle by sending productivity on a perpetual upward climb. Etoys and were in their glory. Economic laws no longer applied. And then the bubble burst. In the '00s, the smartest people were telling us that Wall Street had vanquished the business cycle by gaining mastery over risk. No mortgage was too absurd, no leverage too great, no structured product too reckless when risk-spreading models were so brilliantly engineered. Commonsense laws no longer applied. And then the bubble burst, again.

So the big question, as we absorb what's happened to Freddie and Fannie and Lehman and AIG and Merrill and, oh yes, Bear Stearns, is this: Do we have the capacity to learn? Despite temptation, can we resolve to assume that if something sounds crazy, it probably is? The business cycle is real. The economy has some direct relationship to supply and demand. Housing, which has grown at roughly the rate of inflation for many decades, probably can't grow a whole lot faster over time. You can't sustain a market based on lending when the borrowers don't have the resources to pay back the loans. It's all pretty basic. That guy on TV right now who's telling us how we can make a killing on real estate, with no money down? We're probably better off resisting the urge to chase that particular dream.

In our coverage this week, we'll take you through the misconceptions and mistakes that led to the current crisis; assess what has to happen to get us on a safer footing; consider how long the Fed can keep riding to the rescue; and help make sense of the surprising calamity at AIG.

And, in the coming weeks and months, we'll continue to focus on the signs of whether we are—or are not—learning from our mistakes.

Adler is editor-in-chief of BusinessWeek.

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