Never Saw It Coming
October 29, 2013 12:11 PM Subscribe
Why the Financial Crisis Took Economists By Surprise by Alan Greenspan
The Globe and Mail: An interview with the Maestro of Libertarianism
And from The Guardian: Alan Greenspan owes America an apology
The Globe and Mail: An interview with the Maestro of Libertarianism
And from The Guardian: Alan Greenspan owes America an apology
"Why the Financial Crisis Took Me By Surprise Despite My Partial Responsibility for Causing It"
by a Shameless Discredited Bureaucrat
posted by justsomebodythatyouusedtoknow at 12:21 PM on October 29, 2013 [89 favorites]
by a Shameless Discredited Bureaucrat
posted by justsomebodythatyouusedtoknow at 12:21 PM on October 29, 2013 [89 favorites]
But in the growing state of euphoria in the years before the 2008 crash, private risk managers, the Federal Reserve, and other regulators failed to ensure that financial institutions were adequately capitalized, in part because we all failed to comprehend the underlying magnitude and full extent of the risks that were about to be revealed as the post-Lehman crisis played out. In particular, we failed to fully comprehend the size of the expansion of so-called tail risk.
This is probably as close to an apology as we're likely to get.
posted by Potomac Avenue at 12:22 PM on October 29, 2013 [7 favorites]
This is probably as close to an apology as we're likely to get.
posted by Potomac Avenue at 12:22 PM on October 29, 2013 [7 favorites]
Because when an economist's salary depends on not seeing the economic crisis coming, they don't.
Meanwhile those who had the freedom to look further ahead than next quarter, already predicted that the post-9/11 measures to stimulate the US housing market would cause tears before bedtime and surprise surprise -- it did.
posted by MartinWisse at 12:24 PM on October 29, 2013 [19 favorites]
Meanwhile those who had the freedom to look further ahead than next quarter, already predicted that the post-9/11 measures to stimulate the US housing market would cause tears before bedtime and surprise surprise -- it did.
posted by MartinWisse at 12:24 PM on October 29, 2013 [19 favorites]
For decades, most economists, including me, had concluded that irrational factors could not fit into any reliable method of forecasting.
Man, they really do buy their own bullshit.
posted by Ghostride The Whip at 12:28 PM on October 29, 2013 [19 favorites]
Man, they really do buy their own bullshit.
posted by Ghostride The Whip at 12:28 PM on October 29, 2013 [19 favorites]
What the economists didn't predict, the sci-fi writers of the 1950s might have done a better job of. He just didn't envision that the allegedly limitless growth was going to be largely in accounting tricks instead of manufacturing. The pipeline has two ends, indeed. The poor couldn't consume all the debt that the industry was trying to shovel on us, and everything collapsed. So we'll put a band-aid on it and... then what, I don't know.
Lucky Morey, blessed economic-consuming unit, drowning in the pipeline’s flood...
posted by Sequence at 12:30 PM on October 29, 2013 [4 favorites]
Lucky Morey, blessed economic-consuming unit, drowning in the pipeline’s flood...
posted by Sequence at 12:30 PM on October 29, 2013 [4 favorites]
Having been mugged too often by reality...
I'm not sure exactly who is core audience is here, but I'd bet it's not anyone who actually was, you know, mugged by the reality of the financial collapse.
posted by OHenryPacey at 12:32 PM on October 29, 2013 [2 favorites]
I'm not sure exactly who is core audience is here, but I'd bet it's not anyone who actually was, you know, mugged by the reality of the financial collapse.
posted by OHenryPacey at 12:32 PM on October 29, 2013 [2 favorites]
Why the Financial Crisis Took Economists By Surprise
Chapter 1 - Complicity
The End
posted by It's Raining Florence Henderson at 12:34 PM on October 29, 2013 [40 favorites]
Chapter 1 - Complicity
The End
posted by It's Raining Florence Henderson at 12:34 PM on October 29, 2013 [40 favorites]
Because when an economist's salary depends on not seeing the economic crisis coming, they don't.
Economists who see a crisis coming don't keep their jobs, but if they see enough of them, they can do very well selling books.
posted by oneswellfoop at 12:34 PM on October 29, 2013 [2 favorites]
Economists who see a crisis coming don't keep their jobs, but if they see enough of them, they can do very well selling books.
posted by oneswellfoop at 12:34 PM on October 29, 2013 [2 favorites]
Because when an economist's salary depends on not seeing the economic crisis coming, they don't.
Did academic economists see the crisis coming? many of their salaries to not depend on not seeing it coming.
posted by MisantropicPainforest at 12:36 PM on October 29, 2013 [6 favorites]
Did academic economists see the crisis coming? many of their salaries to not depend on not seeing it coming.
posted by MisantropicPainforest at 12:36 PM on October 29, 2013 [6 favorites]
Man it's almost like economics is bullshit.
posted by Sternmeyer at 12:38 PM on October 29, 2013 [30 favorites]
posted by Sternmeyer at 12:38 PM on October 29, 2013 [30 favorites]
Oh God that font that 'Foreign Affairs' uses.
posted by colie at 12:40 PM on October 29, 2013 [2 favorites]
posted by colie at 12:40 PM on October 29, 2013 [2 favorites]
Ideology, perhaps?
posted by Phlegmco(tm) at 12:45 PM on October 29, 2013 [1 favorite]
posted by Phlegmco(tm) at 12:45 PM on October 29, 2013 [1 favorite]
Hey, wow, this reads like Alan Greenspan is diving into an endorsement of behavioural economics! Sure he's calling it 'animal spirits' for some unknowable reason, but it's an endorsement none-the-less....
posted by kaibutsu at 12:45 PM on October 29, 2013 [1 favorite]
posted by kaibutsu at 12:45 PM on October 29, 2013 [1 favorite]
Though he still seems not to be buying that great yogi bera line: Predictions are hard, especially ones about the future.
I would love for greenspan to come out and say, no, we can't predict the future of the markets. We might think we have an idea on a day-to-day basis, but there's always a really good chance that we're wrong, and occasionally we'll be so wrong that it will looks like we're eating our own pants. Which are on fire.
posted by kaibutsu at 12:50 PM on October 29, 2013 [4 favorites]
I would love for greenspan to come out and say, no, we can't predict the future of the markets. We might think we have an idea on a day-to-day basis, but there's always a really good chance that we're wrong, and occasionally we'll be so wrong that it will looks like we're eating our own pants. Which are on fire.
posted by kaibutsu at 12:50 PM on October 29, 2013 [4 favorites]
What most amazes me about this revisionist history is that Greenspan did in fact call it. This is the guy who said "Irrational Exhuberance". And yet somehow even he says "we didn't see it".
Somehow the collective zeitgeist of mainstream economists has, rather than celebrating the people who said "this is an unsustanable bubble", turned to a self-congratulatory "nobody saw this coming", completely writing out the people and methods that actually got it right.
It's like the entire discipline has simultaneously agreed that personality trumps performance.
posted by straw at 12:51 PM on October 29, 2013 [19 favorites]
Somehow the collective zeitgeist of mainstream economists has, rather than celebrating the people who said "this is an unsustanable bubble", turned to a self-congratulatory "nobody saw this coming", completely writing out the people and methods that actually got it right.
It's like the entire discipline has simultaneously agreed that personality trumps performance.
posted by straw at 12:51 PM on October 29, 2013 [19 favorites]
Turns out "Jesus wants you to buy a house" is actually not sound economic thinking.
posted by Artw at 12:56 PM on October 29, 2013 [21 favorites]
posted by Artw at 12:56 PM on October 29, 2013 [21 favorites]
So the Fed's open market committee posts transcripts of its meetings after 5 years have passed. For a while in 2012 I was idly reading through the 2006 meetings and marveling at how they truly didn't know what was coming. But I only made it to May or so and I never looked at the 2007 ones, when things really go south.
If you start with the January 2006 one you get to read everyone's encomiums for Greenspan and their accolades on his achievement in handing off the economy in such great condition.
posted by yarrow at 12:58 PM on October 29, 2013 [5 favorites]
If you start with the January 2006 one you get to read everyone's encomiums for Greenspan and their accolades on his achievement in handing off the economy in such great condition.
posted by yarrow at 12:58 PM on October 29, 2013 [5 favorites]
Why the world's financial crisis took Alan Greenspan by surprise...when MANY other economists predicted it and attribute much of it to the author of this CYA article...
posted by Chuffy at 1:01 PM on October 29, 2013 [4 favorites]
posted by Chuffy at 1:01 PM on October 29, 2013 [4 favorites]
Anybody who knew of the existence of credit default swaps sensed that the economy was a '66 T-bird hurtling towards the rim of the Grand Canyon; we just didn't know where exactly the rim was.
posted by mr vino at 1:02 PM on October 29, 2013 [3 favorites]
posted by mr vino at 1:02 PM on October 29, 2013 [3 favorites]
Alan Greenspan is completely full of shit, and needs to go fuck himself as thoroughly and promptly as possible.
posted by deadmessenger at 1:09 PM on October 29, 2013 [27 favorites]
posted by deadmessenger at 1:09 PM on October 29, 2013 [27 favorites]
Note that Greenspan does have jazz talent and attended Julliard but this is mostly a unverified flight of fancy I think...
He was somehow able to woo Andrea Mitchell, so unless she's bowled over by vague statements about the intricacies of financial markets he's got to have some other talents!
posted by The 10th Regiment of Foot at 1:10 PM on October 29, 2013
He was somehow able to woo Andrea Mitchell, so unless she's bowled over by vague statements about the intricacies of financial markets he's got to have some other talents!
posted by The 10th Regiment of Foot at 1:10 PM on October 29, 2013
There's not an economist in this world who, knowing the available information about the market and the policy moves being made, did not fully expect the crisis. They may have told other people otherwise, but that was because they were being paid to tell people what they wanted to hear.
I remember as far back as 2005 thinking a bust was inevitable, and short of stuff I occasionally read or pick up at cocktail parties, I knew nothing of economics, real estate, financial markets. I still don't.
It just felt obvious. Stuff that was clearly crap was getting sold for ridiculously high prices, and then it was getting resold for even higher prices ... yadda-yadda-yadda. And so everybody I knew who was buying real estate, I'd say, "Be careful, there's gonna be a crash."
But, of course, the problem with irrational markets is that you never quite know when the crash will come, and there's always a pile of money to be made right up until then. So, in a way, you're a sucker not to join the mob ...
Which I'm guessing is where Greenspan got lost. The aggressive capitalist part of his soul just couldn't let him be sage, cautious, reasoned (as one would imagine his job description demanded); not with all that easy lucre on the table, uncapitalized ... until suddenly it was gone. Like a gambler who should've called it a night two hands ago ...
posted by philip-random at 1:11 PM on October 29, 2013 [8 favorites]
I remember as far back as 2005 thinking a bust was inevitable, and short of stuff I occasionally read or pick up at cocktail parties, I knew nothing of economics, real estate, financial markets. I still don't.
It just felt obvious. Stuff that was clearly crap was getting sold for ridiculously high prices, and then it was getting resold for even higher prices ... yadda-yadda-yadda. And so everybody I knew who was buying real estate, I'd say, "Be careful, there's gonna be a crash."
But, of course, the problem with irrational markets is that you never quite know when the crash will come, and there's always a pile of money to be made right up until then. So, in a way, you're a sucker not to join the mob ...
Which I'm guessing is where Greenspan got lost. The aggressive capitalist part of his soul just couldn't let him be sage, cautious, reasoned (as one would imagine his job description demanded); not with all that easy lucre on the table, uncapitalized ... until suddenly it was gone. Like a gambler who should've called it a night two hands ago ...
posted by philip-random at 1:11 PM on October 29, 2013 [8 favorites]
It has been entertaining reading Brad DeLong's blog recently.
posted by the man of twists and turns at 1:13 PM on October 29, 2013 [5 favorites]
posted by the man of twists and turns at 1:13 PM on October 29, 2013 [5 favorites]
Man, the comments on that article are absolutely scathing.
posted by vibrotronica at 1:14 PM on October 29, 2013
posted by vibrotronica at 1:14 PM on October 29, 2013
MartinWisse: "Because when an economist's salary depends on not seeing the economic crisis coming, they don't. "
I really don't believe that Greenspan would have been fired for saying, "You know, guys, a little oversight wouldn't be a bad thing..."
He chose to say the opposite, by loosening regs.
Chuffy: "Why the world's financial crisis took Alan Greenspan by surprise...when MANY other economists predicted it and attribute much of it to the author of this CYA article..."
That's very misleading. Some others predicted it. Those were the outliers. You're making it sound like Greenspan was the lone wolf out there; his opinions were in line with most others.
posted by IAmBroom at 1:17 PM on October 29, 2013 [1 favorite]
I really don't believe that Greenspan would have been fired for saying, "You know, guys, a little oversight wouldn't be a bad thing..."
He chose to say the opposite, by loosening regs.
Chuffy: "Why the world's financial crisis took Alan Greenspan by surprise...when MANY other economists predicted it and attribute much of it to the author of this CYA article..."
That's very misleading. Some others predicted it. Those were the outliers. You're making it sound like Greenspan was the lone wolf out there; his opinions were in line with most others.
posted by IAmBroom at 1:17 PM on October 29, 2013 [1 favorite]
straw: "What most amazes me about this revisionist history is that Greenspan did in fact call it. This is the guy who said "Irrational Exhuberance". And yet somehow even he says "we didn't see it"."
When did he call it? That phrase was used in this context, in 1996, over a decade before the Great Recession:
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
He wasn't predicting anything. He was warning it could happen.
posted by IAmBroom at 1:21 PM on October 29, 2013
When did he call it? That phrase was used in this context, in 1996, over a decade before the Great Recession:
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
He wasn't predicting anything. He was warning it could happen.
posted by IAmBroom at 1:21 PM on October 29, 2013
That's very misleading. Some others predicted it. Those were the outliers. You're making it sound like Greenspan was the lone wolf out there; his opinions were in line with most others.
This is also misleading. When you looked at market fundamentals (easy stuff like housing prices = income*population) and when you looked at the way bulls were making their arguments, it was pretty obvious who was being disingenuous. One layer deeper and you could see the tawdry incentives set up between financiers of different stripes and ratings agencies/regulators.
posted by Reasonably Everything Happens at 1:23 PM on October 29, 2013 [3 favorites]
This is also misleading. When you looked at market fundamentals (easy stuff like housing prices = income*population) and when you looked at the way bulls were making their arguments, it was pretty obvious who was being disingenuous. One layer deeper and you could see the tawdry incentives set up between financiers of different stripes and ratings agencies/regulators.
posted by Reasonably Everything Happens at 1:23 PM on October 29, 2013 [3 favorites]
A lot of economists predicted the crisis and a lot of those were in positions to influence politicians. But those same politicians said: The American head of banks says everything is OK, and the US is more important than localbanksomewheresomething. These politicians also told the economists: you will lose your job if you keep bitching.
For very, very strange reasons, I was there. I have no money nor knowledge. But I saw this happen.
posted by mumimor at 1:24 PM on October 29, 2013 [2 favorites]
For very, very strange reasons, I was there. I have no money nor knowledge. But I saw this happen.
posted by mumimor at 1:24 PM on October 29, 2013 [2 favorites]
Having followed blogs for at least two years before the crash that dissected exactly how big a bubble there was in the housing market, the financial instruments that those mortgages had been chopped into, *and* the credit-default swaps would leverage those losses into apocalypse -- fuck him. Fuck, fuck, fuck him. If a minor economist like Duncan Black could see it coming (Atrios was pointing out "Big Shitpile" stories back in 2006 and 2007), if blogs like Naked Capitalism could see it coming -- it wasn't any mystery, except to people like Greenspan to which economics is theology rather than analysis.
posted by tavella at 1:24 PM on October 29, 2013 [14 favorites]
posted by tavella at 1:24 PM on October 29, 2013 [14 favorites]
I look forward to "Why Nobody Thought the Iraq War Would Be a Fiasco," by George W. Bush, and "Why Everybody Thought Crystal Pepsi Was Revolutionary," by Crystal Pepsi.
posted by Navelgazer at 1:25 PM on October 29, 2013 [33 favorites]
posted by Navelgazer at 1:25 PM on October 29, 2013 [33 favorites]
And now there's a recovery! The stock market is higher than ever, and home prices are buoyant in a market where north of 40% of all sales are cash! Everyone is doing great, except for the median hourly worker, but fuck that chump, seriously.
posted by [expletive deleted] at 1:28 PM on October 29, 2013 [15 favorites]
posted by [expletive deleted] at 1:28 PM on October 29, 2013 [15 favorites]
If a minor economist like Duncan Black could see it coming (Atrios was pointing out "Big Shitpile" stories back in 2006 and 2007), if blogs like Naked Capitalism could see it coming -- it wasn't any mystery, except to people like Greenspan to which economics is theology rather than analysis.
I agree with the sentiment, but calling Atrios a "minor economist"? Shame on you!
(ok fine maybe that's right, but really...)
posted by RedOrGreen at 1:29 PM on October 29, 2013
I agree with the sentiment, but calling Atrios a "minor economist"? Shame on you!
(ok fine maybe that's right, but really...)
posted by RedOrGreen at 1:29 PM on October 29, 2013
Did academic economists see the crisis coming? many of their salaries to not depend on not seeing it coming.
Academic economists were surprisingly complicit in the crisis, with some of them having monetary conflicts of interest. See also, the documentary Inside Job, which shows that Columbia economics professor Frederic Mishkin was paid by Iceland's government to write a paper about the bright future of Iceland's banking industry before it collapsed.
posted by frogstar42 at 1:32 PM on October 29, 2013 [2 favorites]
Academic economists were surprisingly complicit in the crisis, with some of them having monetary conflicts of interest. See also, the documentary Inside Job, which shows that Columbia economics professor Frederic Mishkin was paid by Iceland's government to write a paper about the bright future of Iceland's banking industry before it collapsed.
posted by frogstar42 at 1:32 PM on October 29, 2013 [2 favorites]
Here is a rather long and detailed list of economists and others who saw it coming, compiled by investorhome.com.
posted by emjaybee at 1:41 PM on October 29, 2013 [9 favorites]
posted by emjaybee at 1:41 PM on October 29, 2013 [9 favorites]
Did academic economists see the crisis coming? many of their salaries to not depend on not seeing it coming.n
Heard of Harvard's Gregory Mankiw and Columbia's Glenn Hubbard? Those two made bank backing up the banks and promising the obvious would never happen in the pages of the Wall St. Journal.
Somehow I suspect those guys aren't living on professorial salaries.
posted by spitbull at 1:43 PM on October 29, 2013
Heard of Harvard's Gregory Mankiw and Columbia's Glenn Hubbard? Those two made bank backing up the banks and promising the obvious would never happen in the pages of the Wall St. Journal.
Somehow I suspect those guys aren't living on professorial salaries.
posted by spitbull at 1:43 PM on October 29, 2013
The blowup can be laid directly on Ayn Rand. Greenspan was in her inner circle. Now he says "We thought economic actors would act in their own selfish best interest. We were wrong." That represents quite a turn-around.
posted by Mei's lost sandal at 1:43 PM on October 29, 2013 [4 favorites]
posted by Mei's lost sandal at 1:43 PM on October 29, 2013 [4 favorites]
I don't mean to insult Atrios, RedOrGreen, I'm a fan. But I think that even he would say he's not on the Krugman or Greenspan or even probably Brad DeLong level. A professor of economics rather than a major theoretician or policy-influencing type.
posted by tavella at 1:48 PM on October 29, 2013 [1 favorite]
posted by tavella at 1:48 PM on October 29, 2013 [1 favorite]
Why the Financial Crisis Took Economists By Surprise
Because, like the maybe-it-will-work-maybe-it-won't of cloning and transformation in molecular biology, its black magic to everyone without the tools to look for incredibly subtle/hidden problems.
posted by Slackermagee at 2:04 PM on October 29, 2013
Because, like the maybe-it-will-work-maybe-it-won't of cloning and transformation in molecular biology, its black magic to everyone without the tools to look for incredibly subtle/hidden problems.
posted by Slackermagee at 2:04 PM on October 29, 2013
I'd like to thing Greenspan didn't listen, over and over and over and over again when others told him the folly of his policies and the policies of others. I'd like to think Greenspan is incredibly dense and actually was so mind boggingly lacking in intelligence he didn't see any of it.
But the real answer is most likely none of it was a surprise, but he and his buddies made enormous amounts of money and despite being part of the architects of "the crisis" knew full well that people would continue to listen to them and continue to shovel money to them for their fucking expertise and that they can do it all over again, and most likely again after that.
posted by juiceCake at 2:05 PM on October 29, 2013 [2 favorites]
But the real answer is most likely none of it was a surprise, but he and his buddies made enormous amounts of money and despite being part of the architects of "the crisis" knew full well that people would continue to listen to them and continue to shovel money to them for their fucking expertise and that they can do it all over again, and most likely again after that.
posted by juiceCake at 2:05 PM on October 29, 2013 [2 favorites]
I'll always remember a friend telling me that his housemaid had just bought her third house in New York over the course of a few years from 2005-2007. She kept refinancing the houses she was buying and buying new houses with the cash she got from refinancing.
I dunno what gaussian indicators Alan was looking at then? I ain't no economist but it sure didn't look right to me...
posted by Riton at 2:06 PM on October 29, 2013
I dunno what gaussian indicators Alan was looking at then? I ain't no economist but it sure didn't look right to me...
posted by Riton at 2:06 PM on October 29, 2013
The CFR is essentially an old boys club that manipulates DC, and Greenspan is a member. I wouldn't trust a word out of his mouth published on their site.
posted by stephencarr at 2:09 PM on October 29, 2013 [1 favorite]
posted by stephencarr at 2:09 PM on October 29, 2013 [1 favorite]
The truly scary thing to me is this: Regardless of whether they see something coming or not, the only tool that the powers-that-be can wield is control of interest rates. When they are finally cut to 0%, even the powers-that-be are just along for the ride with the rest of us.
posted by Benny Andajetz at 2:20 PM on October 29, 2013 [2 favorites]
posted by Benny Andajetz at 2:20 PM on October 29, 2013 [2 favorites]
When has any cheerleader apologized for their actions?
posted by rhizome at 2:39 PM on October 29, 2013 [1 favorite]
posted by rhizome at 2:39 PM on October 29, 2013 [1 favorite]
As I recall at least one metafilter member posted in 2007 the shit was going to hit the fan any moment now. Let me see if I can find what I am thinking about. Google and four seconds!
Search terms (mortgage asparagirl metafilter).
posted by bukvich at 2:41 PM on October 29, 2013 [2 favorites]
Search terms (mortgage asparagirl metafilter).
posted by bukvich at 2:41 PM on October 29, 2013 [2 favorites]
Greenspan and the "economists" certainly knew it was coming, but the reason they did nothing is so much worse than just getting paid off. The solution was not lowering interest rates but the opposite. Calling off the scams early, shutting down all the fun. And the guy that did that would be vilified, destroyed, called the man that triggered the greatest depression. They were not just getting theirs, they were chicken, total cowards, happy to let the world and so many loose big to save their reputations.
posted by sammyo at 2:51 PM on October 29, 2013 [1 favorite]
posted by sammyo at 2:51 PM on October 29, 2013 [1 favorite]
Ideology, perhaps?
Four presidents from both parties thought he was the best choice, mostly because cheap money. Clinton was notable for giving him a ringside seat next to Hillary for his, CLinton's, first state of the Union address.
Some people thought he was terrible choice from the get-go.
Tough crowd.
Hard times.
posted by IndigoJones at 2:51 PM on October 29, 2013 [1 favorite]
Four presidents from both parties thought he was the best choice, mostly because cheap money. Clinton was notable for giving him a ringside seat next to Hillary for his, CLinton's, first state of the Union address.
Some people thought he was terrible choice from the get-go.
Tough crowd.
Hard times.
posted by IndigoJones at 2:51 PM on October 29, 2013 [1 favorite]
as i remember asparagirl was warning everyone for awhile before it happened in a very cogent manner.
I only mention this because she never would have penned the following sentence as an opening to explain why the economy melted in 2008. But hey, maybe she was into frisbee or something.
I had just returned home from playing indoor tennis on the chilly, windy Sunday afternoon
posted by localhuman at 3:22 PM on October 29, 2013 [1 favorite]
I only mention this because she never would have penned the following sentence as an opening to explain why the economy melted in 2008. But hey, maybe she was into frisbee or something.
I had just returned home from playing indoor tennis on the chilly, windy Sunday afternoon
posted by localhuman at 3:22 PM on October 29, 2013 [1 favorite]
Still waiting for Nouriel Roubini's review of this book.
posted by rhizome at 3:22 PM on October 29, 2013 [3 favorites]
posted by rhizome at 3:22 PM on October 29, 2013 [3 favorites]
"We thought economic actors would act in their own selfish best interest. We were wrong."
The stupidity of this is so infuriating. These actors, the unprosecuted criminals who have by and large walked away from the wreckage with billions, were acting in their selfish best interest. Why would anyone think that would automatically benefit the entire economy? An idiotic belief system masquerading as "economics", perhaps?
posted by mondo dentro at 3:27 PM on October 29, 2013 [20 favorites]
The stupidity of this is so infuriating. These actors, the unprosecuted criminals who have by and large walked away from the wreckage with billions, were acting in their selfish best interest. Why would anyone think that would automatically benefit the entire economy? An idiotic belief system masquerading as "economics", perhaps?
posted by mondo dentro at 3:27 PM on October 29, 2013 [20 favorites]
It wasn't that complicated.
Many people believed housing couldn't go down, and kept buying housing risk.
Many people knew housing could go down:
... some said nothing and did little or nothing.
... some said nothing and sold risk to those who thought housing couldn't go down.
... some lied in order to sell risk to those who thought housing couldn't go down.
People in the first and especially the second category were supposed to be punished by the market, and that happened. People in the last category were supposed to be punished by the law, and that's happening too, unless you think the fines on every bank are nothing.
posted by MattD at 3:34 PM on October 29, 2013 [1 favorite]
Many people believed housing couldn't go down, and kept buying housing risk.
Many people knew housing could go down:
... some said nothing and did little or nothing.
... some said nothing and sold risk to those who thought housing couldn't go down.
... some lied in order to sell risk to those who thought housing couldn't go down.
People in the first and especially the second category were supposed to be punished by the market, and that happened. People in the last category were supposed to be punished by the law, and that's happening too, unless you think the fines on every bank are nothing.
posted by MattD at 3:34 PM on October 29, 2013 [1 favorite]
It's like Condi saying she didn't know Bin Laden was determined to attack ... and when pressed, she said yeah, but we didn't know in the US .... and when pressed, she said yeah, but we didn't know with jet liners .... and when pressed, she said yeah, but we didn't know on that day.
---
Greenspan knew we had a bubble, he just didn't know how sustainable it was. Or whether a Lehman failure would pop it, or the pop would happen on that day, and how deep the black pool of credit swaps was. And none of us knew whether the Fed could really refloat the banks drowning in the massive black pool of swaps.
---
The happy lucrative career merry-go-round continues for regulators, auditors, ratings agencies, consultants, and fund managers.
He'd do us all a service if he'd give us an assessment of how deep the black pool of shadow banking now goes, and whether there's any credence at all to the too-big-to-fails' balance sheets.
This Fed bubble will pop too, and Greenspan doesn't bother warning us that there's nothing bigger to refloat the Fed. Thanks for nothing, Alan.
posted by surplus at 3:43 PM on October 29, 2013 [2 favorites]
---
Greenspan knew we had a bubble, he just didn't know how sustainable it was. Or whether a Lehman failure would pop it, or the pop would happen on that day, and how deep the black pool of credit swaps was. And none of us knew whether the Fed could really refloat the banks drowning in the massive black pool of swaps.
---
The happy lucrative career merry-go-round continues for regulators, auditors, ratings agencies, consultants, and fund managers.
He'd do us all a service if he'd give us an assessment of how deep the black pool of shadow banking now goes, and whether there's any credence at all to the too-big-to-fails' balance sheets.
This Fed bubble will pop too, and Greenspan doesn't bother warning us that there's nothing bigger to refloat the Fed. Thanks for nothing, Alan.
posted by surplus at 3:43 PM on October 29, 2013 [2 favorites]
Paul Krugman predicted it, gave the reasons and the fucking DATE when it would happen, based on the resetting of a shitload of ARMs that would immediately turn into junk. He said so on the Great Orange Satan for free to anyone who would read it, and I read it. He put a full clip into the ten-ring.
In spite of this prediction, there was not much planning for me to do except to pay down my own mortgage as rapidly as possible. When the crash came, interest rates plummeted, and I was able to refi at very good rates because I had bought my equity in the good times instead of selling it back to the bank, and I was one of the few who could now qualify for the juicy rates.
Thanks Paul.
posted by Repack Rider at 4:05 PM on October 29, 2013 [4 favorites]
In spite of this prediction, there was not much planning for me to do except to pay down my own mortgage as rapidly as possible. When the crash came, interest rates plummeted, and I was able to refi at very good rates because I had bought my equity in the good times instead of selling it back to the bank, and I was one of the few who could now qualify for the juicy rates.
Thanks Paul.
posted by Repack Rider at 4:05 PM on October 29, 2013 [4 favorites]
A relevant asparagirl post that works a timeline, starting in July 2007.
MeFi takes a look at the world of sub-prime mortgages and "ARMageddon", the coming reset of ARM's (adjustible rate mortgages). MeFi further discusses how those bad mortgage debts being securitized and sold off is starting to bite Wall Street in the ass, i.e. the death of two Bear Stearns hedge funds.
posted by philip-random at 4:13 PM on October 29, 2013 [2 favorites]
MeFi takes a look at the world of sub-prime mortgages and "ARMageddon", the coming reset of ARM's (adjustible rate mortgages). MeFi further discusses how those bad mortgage debts being securitized and sold off is starting to bite Wall Street in the ass, i.e. the death of two Bear Stearns hedge funds.
posted by philip-random at 4:13 PM on October 29, 2013 [2 favorites]
I wish I had a dollar for every time the Bush administration and the phrase "nobody could have predicted" was uttered. I'd be set for life, just like all these guys who get paid for being wrong.
posted by fifteen schnitzengruben is my limit at 4:15 PM on October 29, 2013 [3 favorites]
posted by fifteen schnitzengruben is my limit at 4:15 PM on October 29, 2013 [3 favorites]
> "For decades, most economists, including me, had concluded that irrational factors could not fit into any reliable method of forecasting."
Now we are truly fucked.
Greenspan the chicken didn't raise rates in the face of growing bubbles. However he didn't know when the bubbles would pop, and said so.
Now he's talking like Jim Morrison in the desert. If behavioural economics becomes mainstream and psychologists or population ecologists join the quants and make new models that supposedly can forecast "reliably" (for some value of reliable), they will think there will be no more black swans.
posted by morganw at 4:54 PM on October 29, 2013
Now we are truly fucked.
Greenspan the chicken didn't raise rates in the face of growing bubbles. However he didn't know when the bubbles would pop, and said so.
Now he's talking like Jim Morrison in the desert. If behavioural economics becomes mainstream and psychologists or population ecologists join the quants and make new models that supposedly can forecast "reliably" (for some value of reliable), they will think there will be no more black swans.
posted by morganw at 4:54 PM on October 29, 2013
Paul Krugman predicted it,
In 2002, he seems to have called for it: "To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
posted by IndigoJones at 5:28 PM on October 29, 2013 [2 favorites]
In 2002, he seems to have called for it: "To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
posted by IndigoJones at 5:28 PM on October 29, 2013 [2 favorites]
Another thing about Greenspan is that he knows enough about history that he's probably been compiling his list of excuses for over 50 years in the case he was at the helm of this predictable turn of events. This book is just his distillation of that.
> "For decades, most economists, including me, had concluded that irrational factors could not fit into any reliable method of forecasting."
In other words, "most" economists weren't accounting for the existence of the inevitable irrational actors in any of their models. It's not that they didn't think they could fit into the models, they were just ignoring them because gladhanding leads to careers.
posted by rhizome at 5:51 PM on October 29, 2013 [1 favorite]
> "For decades, most economists, including me, had concluded that irrational factors could not fit into any reliable method of forecasting."
In other words, "most" economists weren't accounting for the existence of the inevitable irrational actors in any of their models. It's not that they didn't think they could fit into the models, they were just ignoring them because gladhanding leads to careers.
posted by rhizome at 5:51 PM on October 29, 2013 [1 favorite]
Man it's almost like economics is bullshit.
It's not all bullshit. Economics is a political art. Like any art-form or political forum, there is an element of bullshit woven into the fabric. The party for the rich preaches austerity & trickle-down. The party for the poor preaches intervention & welfare. An eternal struggle ensues.
posted by ovvl at 6:49 PM on October 29, 2013
It's not all bullshit. Economics is a political art. Like any art-form or political forum, there is an element of bullshit woven into the fabric. The party for the rich preaches austerity & trickle-down. The party for the poor preaches intervention & welfare. An eternal struggle ensues.
posted by ovvl at 6:49 PM on October 29, 2013
If, as you say, it is a "political art", but it presents itself as a science, would you not call that bullshit?
posted by thelonius at 7:35 PM on October 29, 2013 [3 favorites]
posted by thelonius at 7:35 PM on October 29, 2013 [3 favorites]
As an aside, my understanding is that academic economists make a stable base salary from the university, but can make much much more than that contracting, etc. They aren't as much as you hope in an ivory tower isolated from external persuasions.
posted by lab.beetle at 7:39 PM on October 29, 2013
posted by lab.beetle at 7:39 PM on October 29, 2013
So it occurs to me that a truly neutral press would preface any future mention of any of the people saying "nobody saw it coming" with "discredited former economist".
posted by straw at 8:04 PM on October 29, 2013 [7 favorites]
posted by straw at 8:04 PM on October 29, 2013 [7 favorites]
If, as you say, it is a "political art", but it presents itself as a science, would you not call that bullshit?
No, they're just labels which people agree to apply in certain contexts. The Academy might call economics a science, and I don't know if I agree with them 100% on everything, but I see their context..
In my personal opinion, the bold contrarian saying that "all economics is bullshit" also has a rather big-assed thread of bullshit sagging in their conceptual fabric. If you say that all economics is bullshit, then that also makes you an economist, but a dull one. You are presenting your personal theory of social exchange, but it lacks depth.
posted by ovvl at 9:27 PM on October 29, 2013 [1 favorite]
No, they're just labels which people agree to apply in certain contexts. The Academy might call economics a science, and I don't know if I agree with them 100% on everything, but I see their context..
In my personal opinion, the bold contrarian saying that "all economics is bullshit" also has a rather big-assed thread of bullshit sagging in their conceptual fabric. If you say that all economics is bullshit, then that also makes you an economist, but a dull one. You are presenting your personal theory of social exchange, but it lacks depth.
posted by ovvl at 9:27 PM on October 29, 2013 [1 favorite]
what about "all economics claiming to be a science is bullshit"?
posted by philip-random at 9:47 PM on October 29, 2013 [1 favorite]
posted by philip-random at 9:47 PM on October 29, 2013 [1 favorite]
Now he's talking like Jim Morrison in the desert.
Hey, Jim Morrison was a lot more rational than Alan Greenspan.
posted by telstar at 9:51 PM on October 29, 2013
Hey, Jim Morrison was a lot more rational than Alan Greenspan.
posted by telstar at 9:51 PM on October 29, 2013
Wow, reading through that thread from Asparagirl is absolutely incredible. I'm having trouble getting the precise timeline, but the prescience is uncanny. Bailouts, CDOs, toxic waste, all described 18 months before the popular press got wind of it. Knowing all that back then wouldn't have changed my actions at all, but it could have potentially helped a fair number of people. I'm voting for Asparagirl in 2016, and the MeFi allstars of 2007 can be her cabinet.
posted by Llama-Lime at 10:54 PM on October 29, 2013 [2 favorites]
posted by Llama-Lime at 10:54 PM on October 29, 2013 [2 favorites]
If you say that all economics is bullshit, then that also makes you an economist, but a dull one.
Dull isn't worse if it's more accurate. When economists have a predictive accuracy lower than a monkey pushing buttons at random (worse than random), then in a very practical sense, a monkey pushing buttons at random is the superior economist. Dull seems rather beside the point.
posted by anonymisc at 11:19 PM on October 29, 2013 [1 favorite]
Dull isn't worse if it's more accurate. When economists have a predictive accuracy lower than a monkey pushing buttons at random (worse than random), then in a very practical sense, a monkey pushing buttons at random is the superior economist. Dull seems rather beside the point.
posted by anonymisc at 11:19 PM on October 29, 2013 [1 favorite]
Maybe we shouldn't have let a literal inner circle literal member of the Ayn Rand literal cult have any influence over anything.
As long as the rich own our society this will continue.
posted by Pope Guilty at 2:19 AM on October 30, 2013 [1 favorite]
As long as the rich own our society this will continue.
posted by Pope Guilty at 2:19 AM on October 30, 2013 [1 favorite]
The Economist ran a cover story in 2005 on what would happen if what seemed like a global housing bubble burst. Here is a quote:
For Greenspan to suggest that no one saw a crash coming because of US housing is remarkable. The idea that people wouldn't have said to him that there was trouble coming is fanciful.
But bubbles are harder to detect than crashes. It has been pointed out by someone or other that people display 'asymmetric ignorance' - everyone knows when there is a crash, but bubbles are harder to discern.
posted by sien at 2:24 AM on October 30, 2013 [2 favorites]
Soaring house prices have given a huge boost to the world economy. What happens when they drop?From the 2005 MeFi post about the bubble here is muppetboy's opinion:
Jun 16th 2005 |From the print edition
PERHAPS the best evidence that America's house prices have reached dangerous levels is the fact that house-buying mania has been plastered on the front of virtually every American newspaper and magazine over the past month. Such bubble-talk hardly comes as a surprise to our readers. We have been warning for some time that the price of housing was rising at an alarming rate all around the globe, including in America. Now that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.
Okay, here's my prediction:The idea that there was something really wrong with the US real estate market goes back to 2003 at least. In 2003 I was talking to a hedge fund trader and he said to me that he was working hard on a way to short US housing.
Over the next 2 years, the housing bubble will burst. then over the following 2 years, we will slip into an unusually bad recession and the stock market will tank a second time, taking it to lows not imagined possible now. the overall impact, when combined with a growing crisis in the commodities markets (oil in particular) will be worse than the 1970's. the financial fallout will be the worst in living memory. we will have banking scandals, bailouts, bankruptcies and inevitably massive increases in taxation (which will all fall on property holders since the federal government will push all costs down on the states). the upside is that we have the infrastructure to bail ourselves out again. so the recession will not be as bad as the 1930's. the downside is that public mood might actually be worse than the 1930's. i don't think people are resilient enough these days to cope with a serious and prolonged recession. things are about to get very, very hard. welcome to The Not-So-Great Depression.
For Greenspan to suggest that no one saw a crash coming because of US housing is remarkable. The idea that people wouldn't have said to him that there was trouble coming is fanciful.
But bubbles are harder to detect than crashes. It has been pointed out by someone or other that people display 'asymmetric ignorance' - everyone knows when there is a crash, but bubbles are harder to discern.
posted by sien at 2:24 AM on October 30, 2013 [2 favorites]
To reiterate the key point of this thread:
Fuck you, Alan Greenspan.
posted by MikeKD at 2:38 AM on October 30, 2013 [2 favorites]
Fuck you, Alan Greenspan.
posted by MikeKD at 2:38 AM on October 30, 2013 [2 favorites]
I put together a few charts on the Fed, I was bored. I charted the last 60 years or so of the Fed rate, and some indicator of financial activity, I forget which, and looked at the Fed rate during election years.
The conclusion I came to was that Greenspan was an arm of the RNC. The Fed rate during Democratic re-election bids, in 96 and 2000, was as high as it could be, and was as low as they could be for 92, but 88 was OK. In 2004 the Fed rate was at a comical level, and it kicked off the housing bubble.
I'm surprised no one talks about this.
posted by rakish_yet_centered at 4:32 AM on October 30, 2013 [2 favorites]
The conclusion I came to was that Greenspan was an arm of the RNC. The Fed rate during Democratic re-election bids, in 96 and 2000, was as high as it could be, and was as low as they could be for 92, but 88 was OK. In 2004 the Fed rate was at a comical level, and it kicked off the housing bubble.
I'm surprised no one talks about this.
posted by rakish_yet_centered at 4:32 AM on October 30, 2013 [2 favorites]
rakish_yet_centered did your charts show Volcker to be apolitical? I remember doing something like that in my undergrad macro class and we concluded Volcker was politically neutral regarding Fed funds rates.
If I recall, he didn't care which party he burdened with high unemployment.
posted by surplus at 4:56 AM on October 30, 2013
If I recall, he didn't care which party he burdened with high unemployment.
posted by surplus at 4:56 AM on October 30, 2013
The few high-profile academic economists who received large sums of money to pen papers that their buyers wanted does not invalidate the point that the vast majority of academic economists do not depend on denying the existense of a bubble for their salary.
posted by MisantropicPainforest at 5:30 AM on October 30, 2013 [1 favorite]
posted by MisantropicPainforest at 5:30 AM on October 30, 2013 [1 favorite]
did your charts show Volcker to be apolitical?
I thought so
posted by rakish_yet_centered at 5:34 AM on October 30, 2013 [1 favorite]
I thought so
posted by rakish_yet_centered at 5:34 AM on October 30, 2013 [1 favorite]
when i was studying accountancy Greenspan's nickname was God, and my big take-away lesson is: don't make gods out of humans, they always turn out to be capable of mistakes.. I always remember an American Superbowl where a team with a huge history of winning were up against a team that had only done well that year, and translated into the ears of someone ignorant of American football, all everyone said was, "This team have played so well so constantly this year they are bound to win, but because this other team are famous for always winning it in the past, I am going to say they will win it, because it seems so improbable that should change." Needless to say the team it was actually probable would win it did. What mean by that is, often people are saying, are thinking, the right thing, but decide to ignore it. I think in the same way, a lot of people started to say, half said, that the crash was a risk, but would conclude that it wasn't out of fear of their own ignorance.
posted by maiamaia at 7:14 AM on October 30, 2013
posted by maiamaia at 7:14 AM on October 30, 2013
I think it was in the Atlantic not that long after the crash -- a rather long article by a broker (?) who'd been caught in some malfeasance about a year before the shit hit, so he was already well out of the game, but hardly a saint. He had a lot to say from all kinds of angles, but one thing has always stuck with me, which is the timing of the crash -- 2008 being seventy-nine years down the line from 1929, the lifetime of a fairly old man. In other words, pretty much everybody who'd been around with any kind of grasp of things in 1929 was dead by 2008. Indeed, if they were even young adults in 1929, they likely hadn't been around much past 1990. So the 2008 crash was a direct result of there being no wise old man left who'd suffered the previous fall, nobody to point out the Emperor had no clothes -- certainly nobody anyone was listening to.
Watch out Class of 2077 ... assuming we get that far.
posted by philip-random at 9:42 AM on October 30, 2013
Watch out Class of 2077 ... assuming we get that far.
posted by philip-random at 9:42 AM on October 30, 2013
There was a good interview with Greenspan on CBC a couple of days ago titled "Alan Greenspan on free market philosophy". All I could think of during the interview was "this guy is a blatant liar".
posted by sneebler at 5:33 PM on October 30, 2013
posted by sneebler at 5:33 PM on October 30, 2013
rakish_yet_centered: "The conclusion I came to was that Greenspan was an arm of the RNC. The Fed rate during Democratic re-election bids, in 96 and 2000, was as high as it could be, and was as low as they could be for 92, but 88 was OK. In 2004 the Fed rate was at a comical level, and it kicked off the housing bubble.
I'm surprised no one talks about this."
You plotted four data points about Greenspan, and you're surprised no one else picked up on "this" supposed meaning of those four numbers? Seriously?
posted by IAmBroom at 8:58 AM on October 31, 2013
I'm surprised no one talks about this."
You plotted four data points about Greenspan, and you're surprised no one else picked up on "this" supposed meaning of those four numbers? Seriously?
posted by IAmBroom at 8:58 AM on October 31, 2013
So the 2008 crash was a direct result of there being no wise old man left who'd suffered the previous fall
Isn't that what the canon is for?
posted by rhizome at 1:09 PM on October 31, 2013 [1 favorite]
Isn't that what the canon is for?
posted by rhizome at 1:09 PM on October 31, 2013 [1 favorite]
You plotted four data points about Greenspan
I plotted the Fed rate, which comes out monthly? or quarterly, I forget, for 20 odd years. then some financial activity measurement, that probably came out monthly, over those 20 years, so I would say I plotted hundreds of data points.
Look at the fed rate during the 2004 election. Compare it to the fed rate during the 2000 election, or the 1996 election. Seriously did you bother to look at the charts? Seriously, I mean seriously?
posted by rakish_yet_centered at 7:23 AM on November 1, 2013
I plotted the Fed rate, which comes out monthly? or quarterly, I forget, for 20 odd years. then some financial activity measurement, that probably came out monthly, over those 20 years, so I would say I plotted hundreds of data points.
Look at the fed rate during the 2004 election. Compare it to the fed rate during the 2000 election, or the 1996 election. Seriously did you bother to look at the charts? Seriously, I mean seriously?
posted by rakish_yet_centered at 7:23 AM on November 1, 2013
Sorry, you aren't making a case about those hundreds of data points. You're making a case about the rates during the elections, of which there were four (that you pointed out as the basis of your conclusion).
It doesn't matter if you sampled the rates during those four elections one million times a day. It's still only four meaningful, independent data points.
posted by IAmBroom at 12:38 PM on November 1, 2013
It doesn't matter if you sampled the rates during those four elections one million times a day. It's still only four meaningful, independent data points.
posted by IAmBroom at 12:38 PM on November 1, 2013
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posted by memebake at 12:19 PM on October 29, 2013 [8 favorites]