# Who actually predicted this Financial Crisis?



## Knobby22 (27 July 2009)

Who actually accurately predicted this downturn and where are they on the economic compass? 
An MRPA paper (Netherlands university) has looked into this. http://mpra.ub.uni-muenchen.de/15892/

I have summarised below:

Peter Schiff, Kurt Richbacher - Austrian School - emphasises savings and production against asset prices. (apologies to Wayne L)

Stephen Keen, Wynne Godley, Michael Hudson - Keynsian - emphasis on the accounting flow of funds approach (Says Law) - These guys have actually set up models that appear to have worked.

Sorenson, Baker - Financialization scenario - i.e. financial innovation will casue a liquidity drain at some point.

Schiller, Roubini, Janszen, Baker - Cycles theory, we were due for a downturn.


The paper is particuarly critical of neoclassical theory which failed to predict this occuring even at the late stages using the Equilbrium model. Specifically noted is the Washington University Macro Madel which is a massive dominant model.

I really liked the Keynsian model set up, but then I am a Keynsian fan. Bit of a big read but worth it.


----------



## tech/a (27 July 2009)

*Soros* Published a book about it before/at the time it happened.


----------



## explod (27 July 2009)

From 2004 I read on it indepth from four books, different author/economists and also the newsletter Privateer.

No accuracy to the timing (but who can exactly time markets) but on the ball with the fundaments and the scope of the fall.    If my reading is any guide we have a long way to fall yet in markets, real estate, derivatives, currencies and bonds.


----------



## satanoperca (27 July 2009)

Steven Keen - the only Australian to make this list - well done.

For those interested in his work,  go to :
http://www.debtdeflation.com/blogs/

Lots of interesting reading about debt, fiat currency system, stimulus, neo economics etc.

Don't see our own Assoc Prof. Robots on this list.

Cheers


----------



## explod (27 July 2009)

satanoperca said:


> Steven Keen - the only Australian to make this list - well done.
> 
> For those interested in his work,  go to :
> http://www.debtdeflation.com/blogs/
> ...





Jack Buckler "The Privateer Newsletter" also, lives in Noosa

Who owe a huge debt of gratitude for opening up my eyes to the real financial world.

Not associated, just subsribed and got value.


----------



## Buckeroo (27 July 2009)

I did and so did many other ASF posters....and yet, it has hardly begun. Just wait until the real crises hits. And where are we on the economic compass?....as a guess, probably not much above toe rag status.

When this time does come, it will be obvious to all that the Keynsian theory was the biggest mistake man had ever made financially. Rather than allow debt to be vanquished, we have made it boom!

Cheers


----------



## MRC & Co (27 July 2009)

tech/a said:


> *Soros* Published a book about it before/at the time it happened.




lol, Soros has been predicting it since the early 80s.

Luckily, Soros actually times it with price (like a trader would) and doesn't fight it as many academic economists try too.


----------



## robots (27 July 2009)

satanoperca said:


> Steven Keen - the only Australian to make this list - well done.
> 
> For those interested in his work,  go to :
> http://www.debtdeflation.com/blogs/
> ...




hello,

no, but you can catch Assoc Prof. Robots over at "house prices to continue to rise" at ASF, 

how the predictions going in relation to housing?

SK sells his joint and the area goes up 7-8%, amazing, and cash rate still at 3% only thing thats been smacked is the shonk market

thankyou
professor robots


----------



## boofhead (27 July 2009)

I remember hearing Satyajit Das talking about it. He and others predicted 6 of the out of last 2


----------



## wonderrman (27 July 2009)

explod said:


> Jack Buckler "The Privateer Newsletter" also, lives in Noosa
> 
> Who owe a huge debt of gratitude for opening up my eyes to the real financial world.
> 
> Not associated, just subsribed and got value.





thank you for the link, his newsletter looks very good and is quite cheap. do you still subscribe and if so do you still think it is a worthwhile buy? 

wonder.


----------



## explod (27 July 2009)

wonderrman said:


> thank you for the link, his newsletter looks very good and is quite cheap. do you still subscribe and if so do you still think it is a worthwhile buy?
> 
> wonder.




I subscribed for about four years, just moved home and it ran out so have to get back to it.   I think you can see some trial issues and then take up  a months sub for a small fee to see how it fits for you.

All of his stuff is backed by actual figures from the organisations and governments concerned.  He is a great intellectual and also had many years in the pits of Chicargo I understand.   I found him from a US website initially so he is read world wide.

It is an economic education.


----------



## GumbyLearner (27 July 2009)

Austrian economist sappear to have predicted the collapse.

But regulatory changes to US Banking laws appear to have allowed it to occur.

It's the old having your cake and eating it conundrum.

I note WayneL has made some valid and accurate points. But I don't agree
with Schiff's line on the free market. 

It's more a matter of pure logic.

If both market players (P) (ch) cheat then both (B) lose. (ch - -)
If one market player (P) co-operates (c) and the other cheats. Then the one that co-operates loses as well. (c - ch +)
If both market players (P) co-operate then both (B) win (c ++)

therefore ch = (ch + B)
If prevalence of B increases then P (ch) can only increase.
If B = 0 then P(ch) = 0.
If prevalence of B decreases then P(ch) can only decrease.

ch = B increasing


Look here

http://en.wikipedia.org/wiki/Glass-Steagall_Act

and here

http://www.bloggingstocks.com/2009/...ti-deregulation-gets-a-spike-through-its-hea/

Last month, I posted on 2008's eight worst ideas. At the top of my list was deregulation. Robert Rubin, who spent a decade as a director of Citigroup (NYSE: C) and is now retiring, is partly responsible for one very important act of deregulation -- the repeal of Glass-Steagall which separated investment and commercial banking. (It was former Citi CEO Sandy Weill's 1998 merger of his Travelers with Citi that spurred Glass-Steagall's repeal in the 1999 passage of the Gramm-Leach-Bliley Act which allowed commercial and investment banks to own each other.)

And by bringing down that barrier -- established in the wake of the stock market manipulations of the 1920s enabled by commercial banks that made margin loans to trade stocks -- the U.S. helped usher in the current financial catastrophe. Now the government is gradually reimposing Glass-Steagall -- in effect, if not in law.

Conclusion, stop cheats.


----------



## jono1887 (27 July 2009)

Karl Marx actually predicted it more than a century ago :


----------



## GumbyLearner (27 July 2009)

jono1887 said:


> Karl Marx actually predicted it more than a century ago :




And I wonder why???? :bonk:

Marx must have been in outerspace compared to this guy. 
At least Merrill Lynch's CEO was grounded in reality. 

http://consumerist.com/5137115/merr...office-renovation-as-company-prepared-to-burn

Merrill Lynch CEO John Thain spent over $1.22 million to renovate his office in early 2008, just as his firm was getting ready to slash thousands of jobs, cut back on spending and dump businesses. Here's this douchebag's big-ticket tally of personal aggrandizement in the midst of financial crisis:

$800,00 to hire celebrity designer Michael Smith. He's interior-decorating Obama's White House. For $100,000. Mixing in items from Target.
$87,000 for a ****ing area rug. I think I could buy all of the area rugs in stock at my local IKEA for $87,000, and have enough money left over to buy all my fellow shoppers an all-you-can eat Swedish Meatball feast. Then invest the remainder in high-yield moon-backed derivatives.
$87,000 two guest jerkface chairs
$44,000 another goddamn area rug
$37,000 six chairs for private dining room. Who has a dining room in their office?
$35,000 "commode on legs." I'm guessing that's a claw-footed toilet. Bad choice. Those gather dust underneath like nobody's business, let me tell you. Update: Actually it's a chest-of-drawers on legs. Too bad no one told me that before I took a crap in it.
$28,00 four stupid curtains
$25,000 mahogany pedestal table. I think my brother just found one of those on the curb on garbage day recently.
$24,000 "Regency Chairs." These are the kind of chairs that you use to line walls and corners but no one actually sits in and some day they end up in the Met and people are like, wow, that looks like a well-preserved, expensive, uncomfortable chair.
$18,000 "George IV Desk." You can find George I desks just as good on eBay, the advances in the later models are mainly cosmetic.
$16,000 custom coffee table. Shellacked with the blood of virgin Peruvian tribe-boys.
$13,000 chandelier in private dining room. Really fun to swing on.
$11,000 fabric for "Roman Shade." That's a euphemism for something dirty, right?
$5,000 mirror in private dining room. It's the one from Snow White.
$5,000 40 yards of fabric for wall panels. That's actually a pretty good deal. In pesos.
$2,700 6 wall sconces. Sconces are for nancies. Real titans of industry use torches.
$1,400 "Parchment waste can." Guess they were out of vellum.

Aren't you feeling good now that the government gave Bank of America a big check to buy these guys? It was vital to the national interest to prevent the collapse of the interior decorating industry.


----------



## Awesomandy (28 July 2009)

GumbyLearner said:


> Merrill Lynch CEO John Thain spent over $1.22 million to renovate his office in early 2008, just as his firm was getting ready to slash thousands of jobs, cut back on spending and dump businesses.




He probably knew what was going to happen, and realised that it was a "now or never" chance to redecorates his office.

I remember filling out a survey back in 2007. One of the questions was asking which class of asset I thought would produce the highest return for the next 12 months. I ticked the box for "other", and when it asked me for more information, I typed in "cash". In some way, I hoped I was wrong, but it was a relief having my money in >8% term deposits while watching everything else crashed and burn.


----------



## cooper276 (28 July 2009)

Meredith Whitney called the US banks mid 07.
http://en.wikipedia.org/wiki/Meredith_Whitney


----------



## Temjin (28 July 2009)

There are a lot more people just on that list that have predicted the financial crisis. Althought I am aware of the criteria that the author of the paper used to select the candidates. (Steven Keen obviously mentioned about this paper a while ago. heheh) 

Bill Bonner, John Mauldin (he's gooood), David Rosenberg (very good too), George Soros, Jim Rogers, Bill Gross, Mike Shedlock, Karl Denninger, Marc Faber (Dr Doom and Gloom), Martin D. Weiss, probably some of the guys at Mises.org. 

There are certainly more than I am unaware of. But I certainly understand some of them may not have given an exact "value or timing" on the occurance. 

And ironically, you have Queen Elizabeth complaining why "no one" say this coming and her country's prominant economists (neo-classicial) apologise to her with stupid reasons on why they couldn't. Then you have Vice President Dick Cheney also saying no one saw this coming and Bush cannot be blamed for it. Blah blah blah 

Chopper Ben obviously didn't see this coming but now everyone is praising him for his role in "solving" the crisis and that he should been re-elected again.


----------



## wayneL (28 July 2009)

Temjin said:


> There are a lot more people just on that list that have predicted the financial crisis. Althought I am aware of the criteria that the author of the paper used to select the candidates. (Steven Keen obviously mentioned about this paper a while ago. heheh)
> 
> Bill Bonner, John Mauldin (he's gooood), David Rosenberg (very good too), George Soros, Jim Rogers, Bill Gross, Mike Shedlock, Karl Denninger, Marc Faber (Dr Doom and Gloom), Martin D. Weiss, probably some of the guys at Mises.org.
> 
> ...




Just about everyone of the Austrian school and their followers saw it coming. That's many tens of thousands.

Even some Keynesians saw it coming. Dr Vince Cable, the Liberal Democrat's shadow Chancellor of the Exchequer warned about it in public and in parliament as early as 2006.

Lizzy would have known if she didn't confine her council to the Stalinist b@stards currently in power.


----------



## Mr J (28 July 2009)

Define accurate prediction, as many people were expecting the markets to decline a great distance. Anyone with any understanding of how markets work would have realised the potential for a slump or crash.


----------



## Ageo (28 July 2009)

Mr J said:


> Define accurate prediction, as many people were expecting the markets to decline a great distance. Anyone with any understanding of how markets work would have realised the potential for a slump or crash.




Only the people who actually perform such manipulations will know the accuracy of such crashes/booms


----------



## Beej (28 July 2009)

wayneL said:


> Just about everyone of the Austrian school and their followers saw it coming. That's many tens of thousands.




The Austrians have been "seeing" the GFC coming since the early 1900s..... 

Beej


----------



## wayneL (28 July 2009)

Beej said:


> The Austrians have been "seeing" the GFC coming since the early 1900s.....
> 
> Beej




:headshake Asinine comment.

Austrians understand the business/credit cycle. Therefore there will be period recessions, correction and contractions of credit, in response to excesses of credit and the resulting booms and malinvestment.

If you can leave aside your mendacity for about four hours, watch these videos:

http://sigmaoptions.blogspot.com/2008/01/bump-lessons-in-economics.html


----------



## Temjin (29 July 2009)

Beej said:


> The Austrians have been "seeing" the GFC coming since the early 1900s.....
> 
> Beej




And we definitely know the classical economists (mainstream) never saw this coming. 

I know which side I will take.


----------



## Knobby22 (29 July 2009)

Temjin said:


> And we definitely know the classical economists (mainstream) never saw this coming.
> 
> I know which side I will take.




LOL

There may be a lot of ill feeling between the Austrians and the Keynsians but I reckon they should join together and kick out the neo classical economists who have no idea and yet seem to hold all the important positions. All they have in their advantage is a good name.

Once they are removed we can go from there.


----------



## Temjin (29 July 2009)

Knobby22 said:


> LOL
> 
> There may be a lot of ill feeling between the Austrians and the Keynsians but I reckon they should join together and kick out the neo classical economists who have no idea and yet seem to hold all the important positions. All they have in their advantage is a good name.
> 
> Once they are removed we can go from there.




Lol that's the problem, they hold all the "wealthy" positions and have plenty of power. Try asking for a policy to ban all neo-classical economic teaching in universities and replace them with alternative texts, and you will probably be flamed down till death. I know Steve Keen is trying his best with his readers right now, so I hope it does raise the awareness. 

Too many innocent undergraduates are being "brainwashed" into the dark side.


----------



## wayneL (29 July 2009)

I just wish they would stick to one theory.

The greatest problem in my opinion, is that they chop and change in the interests of political expediency.

One minute they're laissez faire, the next they're Friedmanite monetarists, then they're blinkin' full on Keynsesians etc.

What we have is none of the above. What we have is Frankenomics... bits and pieces from the dead corpses of other theories sowed together in an effort to appease the ignorant masses.

Neo-classical economics, as practised by self interested bureaucrats, is nothing more than the reptilian shape-shifting of science fiction. There is no overriding central tenant that is adhered to.

I could live with proper Keynsianism (with a lot of muttering under my breath), so long as we are Keynesians in the boom as well as the bust. Only invoking Keynesianism in busts is nothing more than tax and spend for political survival.


----------



## trainspotter (29 July 2009)

Joseph Stiglitz did. 

http://www.newsweek.com/id/207390/page/1

Stiglitz has warned for years that pro-market zeal would cause a global financial meltdown very much like the one that gripped the world last year. In the early '90s, as a member of Clinton's Council of Economic Advisers, Stiglitz argued (unsuccessfully) against opening up capital flows too rapidly to developing countries, saying those markets weren't ready to handle "hot money" from Wall Street. Later in the decade, he spoke out (without results) against repealing the Glass-Steagall Act, which regulated financial institutions and separated commercial from investment banking. Since at least 1990, Stiglitz has talked about the risks of securitizing mortgages, questioning whether markets and authorities would grow careless "about the importance of screening loan applicants." Malaysian economist Andrew Sheng says, "I think Stiglitz is the nearest thing there is to Keynes in this crisis."


----------



## wayneL (29 July 2009)

Here's another one http://www.guardian.co.uk/business/2008/oct/31/creditcrunch-gillian-tett-financial-times

But "they" didn't like it and "Schiffed" her publicly.

Jeff Randall and Ambrose Evans-Pritchard were another couple of financial journos over here who warned, and were roundly scoffed at.



> Tett's doom-mongering did not make her tremendously popular. Largely, her cautions were ignored, and when they weren't ignored they were subject to criticism. "We had enormous kickback from the bankers in the City saying, 'Why are you being so critical of the industry? Why are you being so negative?' All that kind of stuff." On a trip to the economic forum Davos in 2007, she was even denounced from the stage. "*One of the most powerful people in the US government at the time stood up on the podium and waved my article, the article that predicted the problems at Northern Rock, as an example of scaremongering.*"




LOL


----------



## wayneL (29 July 2009)

Merryn Somerset-Webb was another one who was publicly bearish... and served as something of a pin-up girl for us bears at the time.


----------



## trainspotter (29 July 2009)

This guy did as well. He used to be the CEO of Lehman Brothers


----------



## Knobby22 (30 July 2009)

wayneL said:


> I just wish they would stick to one theory.
> 
> The greatest problem in my opinion, is that they chop and change in the interests of political expediency.
> 
> ...




True

They just invoke Keynes in bad times as an excuse to appease politicians. 
It seems to be policy to serve short term goals rather than actually managing the economy. The problem is that the science for economics is soft and very somewhat unproven. This gives the beaurocrats, I mean economists, the excuse to follow policyies of appeasement to whatever political party they are aligned with.  And the political party are oncerned with serving their powerbase or getting re-elected. 

I also could live with us trying Austrian policy properly though not at the middle of a major crisis. I reckon it would lead to anemic growth but what  do I know, it might work splendidly.


----------



## Ageo (30 July 2009)

Was their ever a monetary system used throughout history that was well balanced???

If yes why not adopt that?


----------



## Trembling Hand (30 July 2009)

Ageo said:


> Was their ever a monetary system used throughout history that was well balanced???




What is your definition of well balanced?

Who knows if boom and bust isn't the best way to get to where we want to go? where do we want to go?


----------



## Knobby22 (30 July 2009)

Ageo said:


> Was their ever a monetary system used throughout history that was well balanced???
> 
> If yes why not adopt that?




The gold standard did work well through the 19th century but caused heaps of problems in the early 20th century. It had a good stabilising effect and in the 19th century it was more wars that caused it problems. 

The are many problems with the gold standard in today's world but that should be another thread.


----------



## Flipper15 (3 August 2009)

I was in the US in April 2007 and bought a book called Crash Proof How to Profit from the Coming Economic Collapse by Peter Schiff. At that stage I had not heard of him.

He is now featured regularly on CNBC and other US business programs usually portrayed as the "bear".

So as has been already said on this thread he was one of the ones who called it correctly. From memory the first real signs were in Europe and of course Bear Stearns in the US in July 2007.


----------



## Trembling Hand (3 August 2009)

Flipper15 said:


> I was in the US in April 2007 and bought a book called Crash Proof How to Profit from the Coming Economic Collapse by Peter Schiff. At that stage I had not heard of him.
> 
> He is now featured regularly on CNBC and other US business programs usually portrayed as the "bear".
> 
> So as has been already said on this thread he was one of the ones who called it correctly. From memory the first real signs were in Europe and of course Bear Stearns in the US in July 2007.




Funny this is though i don't think from what i have read he has done that well though.

Especially when you take into account the bears sit out the rally or are always trying to pick the tops and have their heads handed to them.

Could be wrong though. Fans will set us straight.


----------



## grace (3 August 2009)

The fellow who wrote in The Bulletin magazine wrote about 2004, 2005 and 2006 (the CDO, CDS, derivative avalanche).  What is his name?  He spelt it out just as it has happened.....gosh I hate it when I can't remember a name!

Max Walsh springs to mind.


----------



## Trembling Hand (3 August 2009)

Trembling Hand said:


> Funny this is though i don't think from what i have read he has done that well though.
> 
> Especially when you take into account the bears sit out the rally or are always trying to pick the tops and have their heads handed to them.
> 
> Could be wrong though. Fans will set us straight.




LOL.

Reading this I would be lucky if anyone could understand what the hell I was trying to say!!


----------



## Agentm (4 August 2009)

Knobby22 said:


> Who actually accurately predicted this downturn and where are they on the economic compass?
> An MRPA paper (Netherlands university) has looked into this. http://mpra.ub.uni-muenchen.de/15892/
> 
> I have summarised below:
> ...




knobby

how does each of the different models you discuss simply answer and explain whats going to happen next

taking into consideration china is increased money supply and credit from a steady 16% PA to its present 28% since the crash 

imho whats happening in china is not something one can sustain when your closing down factories, your commercial properties are double or triple what the needs and capabilities are and real estate is being built far beyond what the demands are..

seriously interested in peoples views on this one.. its one you simply ignore only at your own peril 

china is the bubble





TIA


----------



## Knobby22 (5 August 2009)

I haven't got time at the moment to discuss. Maybe you should start a thread titled "What happens next?".  Generally in my opinion it depends what governments do next.

Knobby


----------



## wayneL (5 August 2009)

A bit of a tangent, but just had to put this somewhere:


----------



## Trembling Hand (5 August 2009)

Wayne LOL


----------



## Bushman (5 August 2009)

I went and saw Prof. Nouriel Roubini speak last night (at the CFA Society of Melbourne). An amazing intellect - he spoke for an hour without using slides or notes. His eloquent argument and razor-sharp recall of current economic data will stay with me. 

His key-note message: 'green shoots amongst the yellow weeds'. 

In a nutshell: 
1. He expects a U or W global recovery at best with anemic US GSP growth of >1% p.a. for the next few years. His outlook is even more bearish for Europe and Japan; 
2. He expects US unemployment to peak at 11%; also he commented on the rise of part-time workers and how this is not reflected in the head-line unemployment rate. 
3. He expects US housing to have a 'peak-to-trough' fall of 40%!! (We are currently at 27% so still more pain). At the trough, roughly 50% of US home owners will be in a negative equity positition. (Points 2 & 3 are his chief 'big yellow weeds' that spells further saving and less consumption by US consumers.)    
4. He noted the impact of China and India but notes that the combined Chinindian population of 2.2b still only accounts for 1/6th of global consumption. Without US/Europe/Japan global growth will splutter along. 
5. He noted the risk of stagflation has increased with the ever growing US-budget deficit (expected to be 14% of US-GDP in 2010!!!!!!). 
6. He notes that while Australia's household indebtedness is in fact greater than the US, we have escaped the housing melt-down due to the fact that we do not have non-recourse mortgages (i.e. jingle mail). Also we are the 'lucky country' in terms of resources but watch out for Chinese stockpiling. 
7. He also mentioned the massive supply-side stimulus in China and how this could lead to a bubble or two in the future! This would be an untested scenario for Chinese banking. 

However the good news is the post-Lehman depression indicators (i.e. drop off in industrial production, factory orders, commodities etc) have passed and hence the rally in the share market. 

These are my main recollections. As I said, Roubini is a keen intellect! The Dr. Doom media rubbish is a bit much given his original predictions of a US housing crash proved quite bullish in the end. 

PS: his key message to budding young economists: invest in your education!!

Cheers
B'man


----------

