That wasn’t random or unpredictable though, was it? Especially if considered as part of a free-for-all model of capitalism, which has been rather heavily criticised.
Right, even Marx predicted the sub-prime mortgages fiasco – preaching how the growth of “fictitious capital” is one of the most “effective vehicles of crises and swindle.”
Well, considering that the majority of the industry insiders embraced the sub-prime mortgages, their derivatives and other exoteric financial instruments, and the public at large ignored the existence of these time bombs; I would say that the latest financial implosion came as a surprise. The financial risk takers smothered the few alarm-sounding pros like Warren Buffet, or Meredith Whiney, a prominent banking analyst.
The other aspect of Black Swans is that they appear explainable in retrospect.
but yeah, according to the models which were being utilised, this was an entirely unexpected event. The fact that perhaps it shouldn’t have been doesn’t change that.
Well, considering that the majority of the industry insiders embraced the sub-prime mortgages, their derivatives and other exoteric financial instruments, and the public at large ignored the existence of these time bombs; I would say that the latest financial implosion came as a surprise.
This doesn’t prove it was random, though. Many of the “insiders” weren’t even trying to predict - they either knew it was bad and didn’t care, or didn’t care if it was good or bad. They were just trying to make money. and the ones who thought it was good, you can’t discount that they may have simply been delusional since they wanted to believe that what made them personally rich had to be good for everyone else also.
As for the public, they weren’t even paying attention; its not as if we all understood what was going on and still failed to predict. Most people weren’t even trying to predict, and those that were were mostly operating from a viewpoint of narrow self-interest.
I would say the surprise of the financial crisis is a failure of objectivity and intelligence, rather than proof of randomness.
If most geologists say there’s no fear of an earthquake while a few disagree and sell their property in CA, is the upcoming earthquake considered a black swan?
Rig - absolutely. That’s a point I didn’t really make clear, I guess. I suppose that’s what I get for not reading the whole book and not really considering this aspect of Black Swans when I was posting it. I really was just interested from a personal point of view, but since we’re getting into this side of it…yes.
The point becomes that the majority (indeed, probably 99.99%) of the population would believe the greater number of scientists telling them “Nope, no problems here.” However, those few who did predict it would not just get out in time, if they were callous investors they could probably make a lot off it with relatively little exposure. If it doesn’t happen, not that big a deal. They may have lost a little of what htey invested, they moved someplace else but whatever. If it does happen, they make a killing!
That’s really a counterpoint to what Curtis was saying as well. The fact is that, because no-one predicted it and none of the models foresaw it, when you were making a decision about it, the outcome was essentially random. Don’t be fooled because it is “obvious” now it would happen - it wasn’t then!
And I have to leave now! More later!
That’s an excellent point. Interestingly enough, the failure of objectivity and intelligence originating from three different sources – the financial industry, the public at large (consumers and investors) and government – reached an apogee simultaneously. Hitting a crisis jackpot with a three-reels slot machine comes to mind immediately. Of course, as some commentators have suggested, the economy “slot machine” could have been rigged.
Whether this surprise truly rates elevation as a Black Swan is open to debate, but an overwhelming majority of players/decision maker got caught with their pants down: the lending institutions, the traders and market makers, the investors, the fund managers, sovereign wealth entities which funneled capital into unstable market positions, the risk managers at any of these firms, the world’s various central bankers, the regulatory bodies.
I feel I should explain: when I say ‘random’ I mean it was unpredictable using the usual statistical instruments. It would have been considered so unlikely it essentially could never happen. Therefore, it happening at all becomes a random event.
but you could also argue(and I believe) that most governments, financial experts, and businessmen either only care about their own self-interest, or don’t really understand what’s going on with economies(the former more than the latter, really). In other words, lack of objectivity and intelligence when judging the economy is the norm, not the exception; previously, American only got by because our economy was so abnormally powerful that it could handle mismanagement. But not this time…periodically it just gets to be too much, as has just happened.
Yeah, I just said it wasn’t unpredictable as it’d been predicted by some people, not that it was obvious.
There’s more to be said (constant crises! marxist pro/con digression! economic models! European socialdem failure!), but I’m a bit tired now tbh.
I would incorporate another ingredient in the crisis mixture – Mr. Joe Public, with that hyper-consumerism “think big” mentality, as in: “ the neighbor’s got a big house/car/plasma TV, well, I want… No, I need a bigger one!”
It would be interesting to observe if/how the latest crisis changes the profile of the “new” consumer – if there is (and how long will it last) a shift towards “conscientious consumption”, “voluntary simplicity”, “thriftiness”, focus on value and quality, not quantity.
Marx would definitely appreciate my “subtle” slot machine allusion.
The Kapitalist slot machine is rigged = the dice are loaded… everybody knows…