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From an analysis by the Wharton school[0]: “It’s not just that they missed it, they positively denied that it would happen,” says Wharton finance professor Fra

From an analysis by the Wharton school[0]: “It’s not just that they missed it, they positively denied that it would happen,” says Wharton finance professor Franklin Allen, arguing that many economists used mathematical models that failed to account for the critical roles that banks and other financial institutions play in the economy. “Even a lot of the central banks in the world use these models,” Allen said. “That’s a large part of the issue. They simply didn’t believe the banks were important.” They were fundamentally unprepared and many were unwilling to even entertain the idea that the housing market could collapse. That’s what made stories like The Big Short so surreal, they had all these experts telling them that they were wrong, and economists played a major role in that episode. 0: https://knowledge.wharton.upenn.edu/article/why-economists-failed-to-predict-the-financial-crisis/ https://knowledge.wharton.upenn.edu/article/why-economists-f...

37r7eyyeey 6y ago
> But it was the financial institutions that fomented the current crisis, by creating risky products, encouraging excessive borrowing among consumers and engaging in high-risk behavior themselves, like amassing huge positions in mortgage-backed securities, Allen says. < Which is probably a big reason why many economists weren't watching harder. If the banks are reporting things are fine while incentivizing bad loans on the down low then it's not especially surprising that a data driven field was caught offguard by tainted information.
AngrySkillzz 6y ago
Obviously no one knew what form it would take, but people were pointing out inflated housing prices[1] and other shady tactics in the mortgage market for YEARS. There's always cranks on TV saying This Time Is Different (2000, anyone?), but its just incorrect to say that serious economists were "unwilling to entertain the idea that the housing market could collapse." [1] https://www.npr.org/templates/story/story.php?storyId=4679264 https://www.npr.org/templates/story/story.php?storyId=467926...
eloff 6y ago
That's correct, but it's a far cry from the claim most economists were "unwilling to entertain the idea that the housing market could collapse." Also 2008 surprised almost everyone, so saying economists couldn't predict it is not much of a slander. Neither could banks, governments, hedge funds, or multiple other groups whose business it was to watch out for events like that.

37r7eyyeey 6y ago

> But it was the financial institutions that fomented the current crisis, by creating risky products, encouraging excessive borrowing among consumers and engaging in high-risk behavior themselves, like amassing huge positions in mortgage-backed securities, Allen says. < Which is probably a big reason why many economists weren't watching harder. If the banks are reporting things are fine while incentivizing bad loans on the down low then it's not especially surprising that a data driven field was caught offguard by tainted information.

AngrySkillzz 6y ago

Obviously no one knew what form it would take, but people were pointing out inflated housing prices[1] and other shady tactics in the mortgage market for YEARS. There's always cranks on TV saying This Time Is Different (2000, anyone?), but its just incorrect to say that serious economists were "unwilling to entertain the idea that the housing market could collapse." [1] https://www.npr.org/templates/story/story.php?storyId=4679264 https://www.npr.org/templates/story/story.php?storyId=467926...

eloff 6y ago

That's correct, but it's a far cry from the claim most economists were "unwilling to entertain the idea that the housing market could collapse." Also 2008 surprised almost everyone, so saying economists couldn't predict it is not much of a slander. Neither could banks, governments, hedge funds, or multiple other groups whose business it was to watch out for events like that.