Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Ted Forstmann: The Guy Who Called the Financial Crisis

Ted Forstmann
Gary Gershoff | WireImage | Getty Images

You know who doesn't get enough credit for his prescience before the crisis? Ted Forstmann, the legendary private equity guy.

In July 2008, when much of the market was engaging in a hopium rally, Forstmann sat down with my brother Brian Carney for a Wall Street Journal interview.

Here are some excerpts:

"We are in a credit crisis the likes of which I've never seen in my lifetime," Mr. Forstmann warns. He adds: "The credit problems in this country are considerably worse than people have said or know. I didn't even know subprime mortgages existed and I was worried about the credit crisis."

...In other words, "In order to fix what's going on in the United States there's going to have to be a certain amount of pain. The market's going to have to clear somehow...and it's hard for me to believe that it gets fixed without" upheaval in the financial system, the economy and the country as a whole. "Things are going to fail. Enterprises are going to fail. The economy is going to slow," he warns.

To be clear, although Mr. Forstmann talks about "fear and greed" getting out of whack, his is not a condemnation of "greedy speculators" or a "culture of greed" or any of the lamentations so popular among the populists in Washington. It is a diagnosis of the ways in which the financial sector responded to a government policy of printing money that was free, or nearly so. "The creation of much too much money caused all of this excess," he says. In other words, his is not an argument for draconian regulation, but for sound money.

Someone should interview Forstmann right now to figure out what he thinks.


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