4 ms·

The story of the financial crisis, from one of the people who predicted it

22 points by samh 17y ago

samh 17y ago
The analogy begins : You have just come from your annual medical checkup, where your doctor assures you that you are in robust health. Walking jauntily down the street, you bump into a practitioner of alternative medicine. He takes one look at you and declares “You have a serious tumour! It must be removed or you will die”. You ignore him as you always have, and continue your merry way down the street. One day later, a stabbing pain suddenly cripples you, and you collapse to the pavement.
onreact-com 17y ago
I prefer the original headline: "It’s Hard Being a Bear (Part Four): Good Economic Theory"
natch 17y ago
Maybe someone who knows more than me about this can tell me: why, on panels of industry experts deconstructing the crisis, do we constantly hear the assertion that nobody saw this coming? And what really confuses me, is why do the experts participating in such panels/media interviews/round tables not challenge that assertion?
- chasingsparks 17y ago
  Competency has a tendency to hide in random distributions. The people who were wrong can assert that there is always some portion of people somewhere claiming that something bad is about to happen and that this group -- with people like "Dr. Doom" -- just got lucky. Interestingly, the same group of people usually are the ones crying "but facts are facts" when objecting to pure rhetoric (what other people call a plausible alternative hypothesis that is not easily tested by statistical inference).
- onreact-com 17y ago
  Groupthink!
- fnid 17y ago
  The people who saw it coming are not saying no one saw it coming. Ron Paul and those who study the Austrian School saw it and acknowledge it. http://en.wikipedia.org/wiki/Austrian_School http://en.wikipedia.org/wiki/Austrian_School I think some of the people saying no one saw it coming are the engineers of this crisis. No one wants to admit they saw it coming and continued to build it -- especially if they benefited from the crisis. It's been argued that the banks created this mess intentionally because they need a large enough catastrophe to be bailed out by the tax payers. If you acknowledge that you saw it coming, then the next question is, "Why didn't you do something or say something?" When faced with that question, people appear in a very negative light. And if no one saw it coming, then you can't be held responsible. It's a freak of nature. An act of God. Uncontrollable. What if I said, "I saw it coming?" Would you believe me? What's my evidence? How can I prove I saw it coming? If I saw it coming why didn't I say or do something about it? It's easier to go with the herd and say not only did I not see it, but no one saw it. To have seen it coming and kept going causes cognitive dissonance and it hurts. Avoid it with ignorance.
  - tedunangst 17y ago
    "What did you do about it?" is really the kicker. The foresight to say something bad is coming without being able to predict when doesn't impress many people. Anyone with a level head knew there was a housing bubble. But if you're working as an investor, you don't get paid to sit back and watch your rivals get rich while you're waiting for the pop.
khafra 17y ago
Unfortunately, this doesn't provide any useful actions to the individual; by his own admission, he would've invested as if expecting a depression in 1987.
fnid 17y ago
This article just spurred a thought about our health care crisis. How are they connected? Debt enabled consumers to pay more for products, so the price of the product increased. They could pay more, because the monthly payments were low -- even for very large mortgages. The same thing happens in the stock market. One of the original reasons the stock market collapsed before the great depression was that traders were over leveraged. You could leverage up 10x back then. This level of leverage is possible today in the commodities market and I predict a similar collapse of the commodities market due to this. We saw a little of this as oil speculators deleveraged their holdings. Back to health care. Health insurance enables large expenditures of health care costs for a low monthly payment. Because consumers can buy large amounts of health care for not a lot of money, they spend more, doctors spend more, hospitals spend more. Insurance companies cut out the tumor of debt by canceling the insurance plans for those who over extend themselves and cost the insurance company more than their monthly payments can afford. I'm not sure where I'm going with this. I suppose a) health care bubble fueled by low monthly payments. b) collapse of health care bubble will reduce innovation in health care industry. c) insurance companies will over extend themselves and increase risk for shareholders and the insured... I don't know, just something that popped into my mind that seems to be a common pattern here...

22 points by samh 17y ago

samh 17y ago

The analogy begins : You have just come from your annual medical checkup, where your doctor assures you that you are in robust health. Walking jauntily down the street, you bump into a practitioner of alternative medicine. He takes one look at you and declares “You have a serious tumour! It must be removed or you will die”. You ignore him as you always have, and continue your merry way down the street. One day later, a stabbing pain suddenly cripples you, and you collapse to the pavement.

onreact-com 17y ago

I prefer the original headline: "It’s Hard Being a Bear (Part Four): Good Economic Theory"

natch 17y ago

Maybe someone who knows more than me about this can tell me: why, on panels of industry experts deconstructing the crisis, do we constantly hear the assertion that nobody saw this coming? And what really confuses me, is why do the experts participating in such panels/media interviews/round tables not challenge that assertion?

chasingsparks 17y ago
Competency has a tendency to hide in random distributions. The people who were wrong can assert that there is always some portion of people somewhere claiming that something bad is about to happen and that this group -- with people like "Dr. Doom" -- just got lucky. Interestingly, the same group of people usually are the ones crying "but facts are facts" when objecting to pure rhetoric (what other people call a plausible alternative hypothesis that is not easily tested by statistical inference).
onreact-com 17y ago
Groupthink!
fnid 17y ago
The people who saw it coming are not saying no one saw it coming. Ron Paul and those who study the Austrian School saw it and acknowledge it. http://en.wikipedia.org/wiki/Austrian_School http://en.wikipedia.org/wiki/Austrian_School I think some of the people saying no one saw it coming are the engineers of this crisis. No one wants to admit they saw it coming and continued to build it -- especially if they benefited from the crisis. It's been argued that the banks created this mess intentionally because they need a large enough catastrophe to be bailed out by the tax payers. If you acknowledge that you saw it coming, then the next question is, "Why didn't you do something or say something?" When faced with that question, people appear in a very negative light. And if no one saw it coming, then you can't be held responsible. It's a freak of nature. An act of God. Uncontrollable. What if I said, "I saw it coming?" Would you believe me? What's my evidence? How can I prove I saw it coming? If I saw it coming why didn't I say or do something about it? It's easier to go with the herd and say not only did I not see it, but no one saw it. To have seen it coming and kept going causes cognitive dissonance and it hurts. Avoid it with ignorance.
- tedunangst 17y ago
  "What did you do about it?" is really the kicker. The foresight to say something bad is coming without being able to predict when doesn't impress many people. Anyone with a level head knew there was a housing bubble. But if you're working as an investor, you don't get paid to sit back and watch your rivals get rich while you're waiting for the pop.

khafra 17y ago

Unfortunately, this doesn't provide any useful actions to the individual; by his own admission, he would've invested as if expecting a depression in 1987.

fnid 17y ago

This article just spurred a thought about our health care crisis. How are they connected? Debt enabled consumers to pay more for products, so the price of the product increased. They could pay more, because the monthly payments were low -- even for very large mortgages. The same thing happens in the stock market. One of the original reasons the stock market collapsed before the great depression was that traders were over leveraged. You could leverage up 10x back then. This level of leverage is possible today in the commodities market and I predict a similar collapse of the commodities market due to this. We saw a little of this as oil speculators deleveraged their holdings. Back to health care. Health insurance enables large expenditures of health care costs for a low monthly payment. Because consumers can buy large amounts of health care for not a lot of money, they spend more, doctors spend more, hospitals spend more. Insurance companies cut out the tumor of debt by canceling the insurance plans for those who over extend themselves and cost the insurance company more than their monthly payments can afford. I'm not sure where I'm going with this. I suppose a) health care bubble fueled by low monthly payments. b) collapse of health care bubble will reduce innovation in health care industry. c) insurance companies will over extend themselves and increase risk for shareholders and the insured... I don't know, just something that popped into my mind that seems to be a common pattern here...