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I Saw the Crisis Coming. Why Didn’t the Fed?

nytimes.com

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Re: I Saw the Crisis Coming. Why Didn’t the Fed?

#61

Post by jerf »

zaphar wrote: post #54
akd wrote: post #52

Earlier quoted context omitted.

A lot of reasons can sound totally justified in retrospect. "The Colts will win the Super Bowl because they have superior talent." "The Saints will win the Super Bowl because the Colts' ego will go to their head." A lot of people take actions and have reasons for them -- when those actions turn out to be right, the reasons are often given undue credibility.

If the Colts did indeed have superior talent and then win the super bowl then obviously the reason was justified. If the Colts' ego is obviously making them overconfident and does indeed go to their head and cost them the game then again the reason is justified. The point is that the reason isn't justified because the person correctly predicted an outcome. The reason is justified because the reason was based on true…

"If the Colts did indeed have superior talent and then win the super bowl then obviously the reason was justified."

It should be pointed out that with Aristotelian logic, that is false. "Previously I said X will happen because of Y, and X happened." is basically "Y implies X; X is true; therefore Y".

Nevertheless, it is true that if a person makes a claim that something will happen for a given reason, gives plausible logical reasons, that we have priors that also indicate the causative connection is sound, and the prediction ultimately comes true, we should not just ignore it. We may not be justified in using Aristotelian logic to conclude with 100% confidence the person's reasoning was correct, but we are justified in taking it into account and concluding that there is some reason to believe this person, who made a prediction contrary to many people's other beliefs, may in fact have something.

After all, if you're not going to listen to people who make accurate predictions with plausible reasons used for their predictions, you can just give up on science right now, because that's all it is.

Re: I Saw the Crisis Coming. Why Didn’t the Fed?

#62

Post by donaq »

Confusion wrote: post #27

The problem is: Greenspan may very well be right in his assessment that Burry may just have been 'a supremely lucky flipper of coins'. There are thousands of people in similar positions making predictions about all kinds of phenomena. Whatever the outcome, there are always a number of predictions that are 'uncannily' close to that outcome. Unfortunately, these 'correct' predictions are only seldomly made by the same…

Or you could check out Scion Capital's track record.

Re: I Saw the Crisis Coming. Why Didn’t the Fed?

#63

Post by btilly »

anamax wrote: post #60
grandalf wrote: post #44

Earlier quoted context omitted.

Everything you say is accurate except the insinuation that Democrats are mostly at fault. George W. Bush was in office for the worst of it, and he spent his political capital trying to convince people that a war was necessary. He spent 99% of his political capital on war and at best 1% on everything else. He was far from powerless, having control of both houses of congress. The fact is he was perfectly fine with the…

> Everything you say is accurate except the insinuation that Democrats are mostly at fault. George W. Bush was in office for the worst of it In this matter, Bush's sins are sins of omission - as you point out, he didn't do anything. Dems did something, but what they did was wrong. For example, they actively protected Fannie and Freddie. Those are sins of comission. Note that Bush didn't change the regulatory structur…

There is plenty of blame to go around, but one of the biggest mistakes leading up to the financial crisis was significantly lowering the amount of cash reserves the investment banks needed to keep on hand. That happened on Bush's watch with Republicans in charge of every branch of government.

And the revoking of Glass-Steagall under Clinton? That was introduced by Republicans in both the House and Senate, with the Senate vote being almost entirely on party lines. Yes, Clinton signed it, but it was a Republican bill.

Re: I Saw the Crisis Coming. Why Didn’t the Fed?

#64

Post by yason »

Well, you don't see what you wouldn't want to see even if it's right in front of your face. And that works collectively in a society as well.

No matter how many people are yelling "soon, we're toast!", you won't hear it if you don't want to imagine such an outcome in the first place.

Boom.

Re: I Saw the Crisis Coming. Why Didn’t the Fed?

#65

Post by klenwell »

lotharbot wrote: post #26
alanthonyc wrote: post #13

"Everybody missed it. Academia, the Federal Reserve, all regulators." - Alan Greenspan That is complete bullshit. Try telling that to Paulson, who made billions on the crash. I saw the signs myself, but did not understand them, not believing that people like Greenspan would allow something so stupid to take place. When studies show that Americans trust their government less than ever, mark me down as a statistic. Whe…

There were a lot of us watching the signs in 2005 or so. There were a lot of us who didn't miss it. And it wasn't "crackpot conspiracy theory" types; it was normal people looking to buy a home and wondering why median prices in our area climbed from 3x to 5x median income within a few years, when the 3x figure had been pretty steady since WWII. A little bit of research showed that a lot of houses had been bought on u…

It dawned on me when I saw this in the NY Times:

http://graphics8.nytimes.com/images/2005/06/15/business/arm3...

Note the date.

Re: I Saw the Crisis Coming. Why Didn’t the Fed?

#66

Post by fauigerzigerk »

akd wrote: post #52
zaphar wrote: post #49

Earlier quoted context omitted.

Saying someone was just a "supremely lucky flipper of coins" always seems like a cop out to me. It's not so much the fact that he was right but the reasons he gives for being right. He gives very good explanations for his reasoning and it was sound. Explain how his reasoning was not sound and then you can make statements about how he was just "super lucky." Otherwise you're just guessing about how lucky he is and tha…

A lot of reasons can sound totally justified in retrospect. "The Colts will win the Super Bowl because they have superior talent." "The Saints will win the Super Bowl because the Colts' ego will go to their head." A lot of people take actions and have reasons for them -- when those actions turn out to be right, the reasons are often given undue credibility.

Right. It's the classical data mining problem. What should be done is to take the reasons given and use them as a hypothesis to predict other events. Reinhart and Rogoff have done just that in their book. After reading it I find it very difficult to accept the claim that people predicting this crash were just lucky or that all their reasons are bogus.

And I think you're making a mistake to equate ball games with debt markets. The fortunes in ball games can quickly and unpredictably turn. Debt doesn't work that way. If many people on low income take out mortgages on a teaser rate that goes up two years later to levels they cannot afford unless house prices keep rising at historically exceptional rates so they can remortgage, you know you're going to be in trouble eventually.

Re: I Saw the Crisis Coming. Why Didn’t the Fed?

#67

Post by rfreytag »

I think this is actually an argument for more accessible markets. Retail investing was not offering vehicles to the average investor who wanted to invest believing that house prices would fall. I wondered to many professional and non-professional investors how t invest against the housing market to no avail. If people had understood how to "bet" against house prices then I am confident the bubble would have deflated more gently and earlier. The easiest retail position to take is a "long" purchase of an investment instrument. What is needed is the knowledge of and retail accessibility to bubble-deflating investments.

How far should this go? Anyone should be able to own and even construct derivatives. Such a market would bring along a host of educational material and means to understand the provenance of your derivatives and the counter-party risk. Obviously this accessibility and transparency would benefit professional derivative investors as the pool of clients, information, transparency, and alternative parties and views with which to trade expands.

But this is impossible as long as the notion of "qualified investor" exists. If Greenspan and traditional economics has any hope of being correct then what is needed is to enlarge the pool of "qualified investors" to simply everyone. We need not more regulation but less but for the requirement that the prospectus be accurate, intelligible, and anyone that sells "investments" must do business with anyone has the purchase price.

Taleb says market-based black swans are becoming more common. The question is: are they common enough to make a profitable business out of suppressing them?

Re: I Saw the Crisis Coming. Why Didn’t the Fed?

#69

Post by mcantor »

stretchwithme wrote: post #37

The Fed DID see what was happening. They saw M3 soaring. So they did the logical thing. They discontinued publishing the M3 statistic in 2006. Yep, they decided we just need to bury our heads in the sand and the developing crisis would just go away. But did it? http://www.shadowstats.com/alternate_data/money-supply-chart...

Dear God.

Re: I Saw the Crisis Coming. Why Didn’t the Fed?

#70

Post by mcantor »

anonjon wrote: post #56
anonjon wrote: post #55

It is a fucking conspiracy. fed is run by the banks, banks didn't want fed to intervene bc they were making big bonuses and it was good for the people there. duh. This is an obvious case of corruption of our government. No one was regulating because they didn't want to regulate it . This is why there needs to be things like campaign finance reform and people should seriously go to jail without chance of being pardone…

go fuck yourself guy who down-voted me, you are part of the willful ignorance. Greenspan was a goddamned Rayndian. Stephen Friedman had super strong ties to goldman sachs, In fact, almost everyone high up in the fed has ties to banking in one form or another. None of the people involved are even interested fair in regulation. I don't understand why this is controversial. it is a fucking conspiracy and I'm calling it…

Dude. What in the history of Hacker News would make you possibly believe that a post starting with "It's a fucking conspiracy" in earnest would do anything except get brutally downvoted?
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