"Groupthink" at IMF: Lender failed to warn of financial crisis

Feb 9, 2011, 16:03 GMT

Washington - An internal inquiry slammed the International Monetary Fund (IMF) on Wednesday for serious management failings that prevented the crisis lender from spotting a global financial disaster that in late 2008 helped plunged the world into recession.

The IMF, which is charged with watching over the global economy, offered 'few clear warnings' between 2004 and 2007 that Wall Street and financial firms in Europe were taking on risky loans that would eventually bring the entire financial world to the brink of collapse.

Instead, the IMF backed many of the financial practices that helped spark the crisis, including massive expansions of bank loans and the housing sectors in many Western countries, according to the IMF's Independent Evaluation Office (IEO).

In the run-up to the crisis, the IMF suffered from a culture of 'groupthink' that prevented opposing opinions, an overconfidence that financial companies in the rich world could handle any crisis, and a failure to 'connect the dots' that could predict Wall Street's ills, the IEO found in its report.

'The banner message of IMF surveillance was characterized by overconfidence in the soundness and resiliency of large financial institutions, and endorsement of the financial practices in the main financial centers,' the IEO said.

IMF Managing Director Dominique Strauss-Kahn admitted the organization's failure to warn of the looming crisis was a 'humbling fact' and said the IMF had already taken steps to beef up scrutiny of financial systems and boost coordination within the IMF.

But Strauss-Kahn said the crisis lender could still do more to improve its own internal workings. He suggested allowing outside experts to voice their views on the IMF's findings.

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