3 ms·

What he predicted was a correction to a housing bubble. Specifically, it seems, the Californian housing bubble. There is nothing particularly special about hou

What he predicted was a correction to a housing bubble. Specifically, it seems, the Californian housing bubble. There is nothing particularly special about housing bubbles and their correction. This happens all the time. What he didn't predict was the effect that that correction in 2008 would have on the global financial system. That's because you'd need to include securitisation, how the big players were holding risk and the effect of perceived credit worthiness on short term liquidity. A while ago, when I looked into this, I found just one paper, written prior to the crash, that could reasonably be considered to have predicted what occurred. Unfortunately, I can't find it, if I do I'll add the link.

rando444 9y ago
I read a book prior to the crash that I consider an accurate prediction of what was coming. "The coming crash in the housing market" by John Talbott The author used a mountain of evidence and trends to back up the books premise, and going through it all it was hard to deny. Timing such an event though is always difficult, as exemplified by other books like 'The big short'.
mayukh 9y ago
And even if you did find something, how would you know if they were just lucky or truly prescient ? Folks are constantly predicting gloom and doom. Some have even made successful careers out of it, their low probability of predicting such catastrophes not withstanding. Relatedly there were several economists predicting bad things. https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp082705 https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp0827... Its easier to say bad things will happen and be right eventually, the much much much harder part is to get the timing right.
- lucozade 9y ago
  That's my point. The paper didn't predict bad things happening. It specifically said that banks were holding higher level tranches of CDOs. Because they're MTM accounted they could suddenly drop in value if default rates increase. This, in turn, could cause other banks to suspect their creditworthiness and pull their funding lines. In other words, it was very specific about what it thought a collapse mechanism was and it turned out to be spot on. I don't believe they were either lucky or prescient. I think that they were well informed and joined the dots in a way that few others had.

rando444 9y ago

I read a book prior to the crash that I consider an accurate prediction of what was coming. "The coming crash in the housing market" by John Talbott The author used a mountain of evidence and trends to back up the books premise, and going through it all it was hard to deny. Timing such an event though is always difficult, as exemplified by other books like 'The big short'.

mayukh 9y ago

And even if you did find something, how would you know if they were just lucky or truly prescient ? Folks are constantly predicting gloom and doom. Some have even made successful careers out of it, their low probability of predicting such catastrophes not withstanding. Relatedly there were several economists predicting bad things. https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp082705 https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp0827... Its easier to say bad things will happen and be right eventually, the much much much harder part is to get the timing right.

lucozade 9y ago
That's my point. The paper didn't predict bad things happening. It specifically said that banks were holding higher level tranches of CDOs. Because they're MTM accounted they could suddenly drop in value if default rates increase. This, in turn, could cause other banks to suspect their creditworthiness and pull their funding lines. In other words, it was very specific about what it thought a collapse mechanism was and it turned out to be spot on. I don't believe they were either lucky or prescient. I think that they were well informed and joined the dots in a way that few others had.