Nassim Nicholas Taleb - What is a "Black Swan?"

Both Nassim Nicholas Taleb and Nouriel Roubini correctly predicted the market was built on sand and would eventually collapse; but neither one of them got right precisely when it would happen (they both thought in 2003). Predicting exactly when or why is not the issue.  The issue is the poor choice of fiscal policy.

Steve Keen predicted the exponential growth of private debt and build up of a financial bubble that would soon crash.

Joe Stiglitze predicted an “unsustainable growth” that was doomed to crash.

George Soros, correctly predicted the housing bubble collapse, which then exposed a much deeper bubble (a super-bubble in Soros’ terms) that was the entire solvency/credit trap that has taken over and the failure of 30 years of economic policy; 

Nassim Nicholas Taleb - What is a "Black Swan?"

Steve Keen: The Naked Emperor Dethroned 1/7

Who Predicted The Global Financial Crisis?



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Daniel O’Connor, 2008, predicted bust

Daniel O’Connor, Jan 23rd, 2008, predicted, “the sub-prime bubble is beginning to burst.” This was before bailouts, market crash, the “recession”, rising unemployment, and the credit crunch struck. 

O’Connor’s predictions became reality: “The market economy is now very clearly in the midst of a deflationary-recessionary system dynamic wherein money-credit and productive output are both contracting. This is what the early stages of a depression looks like. The basic system structure is in place and the dynamics work in predictable ways.”

Robert Shiller, inventor of the housing index which bears his name, was among those who saw the housing bubble as early as the year 2000. So did Dean Baker of the Center for Economic and Policy Research. The Economist magazine referred to it as the "biggest bubble in history" in June of 2005. Paul Krugman wrote about it in August of 2005.

What no one quite realized was the extent of the collateralized debt obligation sitting on top of the subprime housing bubble—a bubble on top of a bubble. Since there was no regulation of this market, its total extent was not known even to those who were in it.

I am so glad you responded to this topic. Thank you for the names and dates of those who saw the housing bubble growing and predicted the collapse. If you have referrals of others who see what is happening and realize that this decline is not over I certainly appreciate reading them. I am trying to prepare my family and friends because many seem not to be aware of the risks lying ahead. My sweet and wonderful granddaughters think life will be for them as adults as when they were children. They need to wake up and I need information to help them realize possible further declines. 

The derivatives crisis was foreseen clearly by Brooksley Born who was chair of the Commodities Futures Trading Commission. She warned that a major disruption of the economy could occur and was silenced by Greenspan, Summers, Rubin, and Arthur Leavitt—the only one who apologized for his erroneous views. They dismissed her as a crazy lady who didn't know what she was talking about. She resigned her position when derivatives were placed beyond regulation.

If you get Netflix, there is an excellent Frontline documentary on her called The Warning. I also recommend Roger Lowenstein's book "When Genius Failed" about the collapse of the Long Term Capital Management hedge fund—an event that should have raised warning flags in the financial industry. Although it is not about the housing bubble itself, it is enlightening.

The scary thing is that not much has changed and a repeat of the crisis is possible. It will not take the same form exactly, but it remains a specter on the horizon.

Thank you for your addition of these names. I had totally forgotten Brooksley Born and didn't know of Roger Lowenstein. I shall read their materials. 
In my humble opinion, we are headed for a crash of greater proportion than The Great Depression, mostly because of the personal debt accumulated following weakening of labor and a national debt that has no end. Exponential growth increases as the labor market decreases. 
What is your opinion? What strategies seem feasible for you?

If there are no major shifts in the economic practices that have caused so much debt, I agree we are headed for a world-wide major depression of the hair-curling type. The national debt does not worry me nearly as much as the personal and business debt, but should the GOP control Congress and decide not to raise the debt ceiling, that could become a worry as well.

Financial crises are different from routine recessions and the recovery for labor is often much, much longer. As a country I think the best thing we could do would be to let all the Bush tax cuts expire and invest in improved infrastructure—roads and bridges, high speed rail, schools, libraries, green energy sources.

The Dean Baker article from August 2002 is still available online as a pdf file:

I quickly scanned the "The Run-up in Home Prices: Is It Real or Is It Another Bubble?" and saved it to read more carefully. His charts tell a story that cannot be ignored. 
For people who like "disaster journalism" Romney made an apparent hit and Obama lost. For those who read charts and identify patterns, Obama delivered a measured and responsible point of view, given his value system. I do not share Obama's trust in banking and finance so cannot vote for him. Romney is out of question the most incompetent of candidates for POTUS.
What is your assessment?
My objection to Romney is the way he made his fortune off the backs of working people and passes on costs of his philosophy to middle class tax payers. 

Obama is far too close to Wall Street, but Romney is right in their laps. He has promised to repeal Dodd-Frank, which is already weaker than it needs to be.

I will vote for Obama and hope that in a second term with a larger Democratic contingent in the House, it might be possible to accomplish something, but I am not terribly enthusiastic about the prospect.

Thanks for all the interesting article links.

Appreciate it

As a side note on the deficit, an unusual thing happened to the federal fisc in the year 2009: the annual deficit reached 10% of GDP for the first time since 1945. From 1946 to 2008—a span of 62 years—the highest deficit was only 6% of GDP in 1983 under President Reagan. Except for the Reagan years, the deficit has almost always stayed below 5% of GDP.

Fiscal 2009 began 1 October 2008 before the election and just after the financial collapse. The reasons for the extraordinary increase in the deficit that year are clear—tax revenues were down $419 billion at the same time the government was spending $589 billion more, which was due mainly to the TARP funds to shore up the banks.

The point is that all this occurred before the Obama administration had administrative authority for the budget. Obama's first budget proposal (for fiscal 2010) was submitted on 11 May 2009. It only brought the deficit down to 9% of GDP although it reduced spending by $61 billion and revenues increased by $57 billion.

While Obama has not been able to return the budget deficit to its historic proportions, neither is he entirely responsible for the size of the deficits. Tax revenues have not yet returned to their 2007 high and expenditures have continued to grow. The problem is complicated and not easily solved.

Another book worth reading is Sheila Bair's Bull by the Horns about the financial crisis and the bailout. Bair was head of the FDIC, 2006-2011, (I think) and a lifelong Republican, who worked for Bob Dole, but she makes it clear that regulation of banks and other financial institutions is a necessity and that just the opposite philosophy was prevalent during the tenure of Alan Greenspan.

The book deals with the financial crisis itself starting in October of 2008 and gives you an inside look at the Treasury and how it works—or doesn't.




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