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Mostly on the basis that it is the only way they can justify to clients/viewers/etc to "not have seen it." One would very reasonably conclude that the failure o

Mostly on the basis that it is the only way they can justify to clients/viewers/etc to "not have seen it." One would very reasonably conclude that the failure of banks/regulators/analysts to see any of this would likely be a good sign that they prob. don't really know what they are talking about, and predicting the market is actually kinda impossible, and consequently the value they add to their clients is minimal/none. So, in order to not give that impression, it is much easier to say that your models are in fact correct, but it just so happens that the financial crises was a "once in a lifetime" event.

AnimalMuppet 9y ago
I think it goes like this. The memory of a crisis fades over time - especially the emotional memory of how it felt to wonder if the world was ending. So the longer time since the last crisis, the less cautious people are. You can think of this as a system with gain. As time passes, people are willing to take more risks, which corresponds to the gain going up. That's fine... until the gain exceeds unity. Then there's a catastrophe. Then everyone gets very averse to risk, so the gain goes way down. But as time passes, it creeps up again... It's reasonable to call 2008 a "once in a lifetime" event, because there hasn't been anything like it since the Great Depression. This gives some idea of the time constants involved. (One of the virtues of our regulatory regime is that they have managed to increase the time constants. Before the Great Depression, we used to have events like this every decade or two.)
- ChicagoBoy11 9y ago
  Well, not so sure this is a virtue of the regulatory system -- mind you at the time there were a ton of regulations contributing to system instability (like laws preventing interstate banking). Can also be said about this crisis: Had regulators not been so thoroughly captured, there's an argument to be made that banks would be a lot more alert to these sorts of systemic risks.

AnimalMuppet 9y ago

I think it goes like this. The memory of a crisis fades over time - especially the emotional memory of how it felt to wonder if the world was ending. So the longer time since the last crisis, the less cautious people are. You can think of this as a system with gain. As time passes, people are willing to take more risks, which corresponds to the gain going up. That's fine... until the gain exceeds unity. Then there's a catastrophe. Then everyone gets very averse to risk, so the gain goes way down. But as time passes, it creeps up again... It's reasonable to call 2008 a "once in a lifetime" event, because there hasn't been anything like it since the Great Depression. This gives some idea of the time constants involved. (One of the virtues of our regulatory regime is that they have managed to increase the time constants. Before the Great Depression, we used to have events like this every decade or two.)

ChicagoBoy11 9y ago
Well, not so sure this is a virtue of the regulatory system -- mind you at the time there were a ton of regulations contributing to system instability (like laws preventing interstate banking). Can also be said about this crisis: Had regulators not been so thoroughly captured, there's an argument to be made that banks would be a lot more alert to these sorts of systemic risks.