According to Jacob Weisberg no one could have predicted that subprime mortgage-backed securities would go under:
The assumption that the rating agencies knew their business, a key enabler of the subprime meltdown, is analogous to the view before the Iraq war that Saddam Hussein had WMD. There are a lot of people now who scoff about what an obvious fallacy that was and not many who can point to doubts expressed at the time. But even if Rubin had better understood the risks Citi traders were taking and been in a position to do something about it, he almost certainly would not have said, “sell the AAA-rated CDOs.” Nor would anyone else have.
Brad DeLong notes that a number of economists expressed doubts on this score. Robert Waldmann observes that majorities in the House and Senate passed a bill signed into law by George W Bush that “gave authority to the Securities and Exchange Commission to designate, regulate and investigate rating companies” so clearly doubts about the ratings agencies were in circulation.
But back to the WMD! For one thing, I don’t think Weisberg is even stating correctly what the controversy is all about. If it was really widely believed that Saddam Hussein had working nuclear weapons or the ability to unleash a massive plague on humanity—i.e., weapons capable of unleashing mass destruction—then obviously there wouldn’t have been an invasion at all. Nobody invades nuclear-armed countries, which is more or less the point. The notion that Saddam “had” something called “weapons of mass destruction” was based on a rhetorical sleight of hand that lumped illegal-but-not-especially-massively-destructive poison gas weapons in with nukes. It’s true that many elites went along with the Bush administration in promoting promoting this confusion, but Tim Noah blew the whole thing to shreds in Slate so Weisberg can hardly say nobody was expressing doubts on this score.
The thing the controversy was about, meanwhile, wasn’t weapons but weapons programs—specifically nuclear weapons programs. But is it true that nobody expressed doubts about this? Well I guess I’m the only person who remembers this since it actually changed my mind (far too late, I was an idiot) about the war but the IAEA nuclear weapons inspectors got on the ground and concluded there was no nuclear weapons program:
Nuclear weapons inspections in Iraq are making marked progress. To date, we have found no substantiated evidence of the revival in Iraq of a nuclear weapons programme – the most lethal of the weapons of mass destruction. No verification programme can provide absolute guarantees that every facility or piece of equipment has been seen; there is always some degree of risk – and for that reason we need to continue to maintain a monitoring and verification presence in Iraq well into the future. For the present, we intend to continue our programme of intrusive inspection, making use of all the authority granted to us by the Security Council and all the information provided by other States. Barring any unforeseen circumstances, and provided that the level of co-operation by Iraq accelerates and support by other States continues, the IAEA should be able, in the near future, to provide the Security Council with credible assurance regarding the presence or absence of a nuclear weapons programme in Iraq.
It’s true, again, that few political or media elites bothered to pay attention to this report but that’s different from saying that nobody knew. After all, who was in a better-position to know than the IAEA inspection team? It’s just that nobody cared.