Why Did So Many Fail To Predict The Crisis?

[Timmy]

And here is why:

Gordon Gekko: The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullsh!t. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market. And you're a part of it. You've got that killer instinct. Stick around pal, I've still got a lot to teach you.

"Greed is good" Did he really say this?

Nice.
I gotta see that movie again.

 

[Aussiejeff]

Seems confidence is high.

CONSUMER confidence surged in July to its highest level in one and a half years, as Australians continued to be optimistic about the outlook for the domestic economy.
The Westpac-Melbourne Institute index of consumer sentiment rose 9.3 per cent in the month to 109.4 points, seasonally adjusted, from 100.1 points in June.

The July reading showed optimists "decisively'' out-numbered pessimist for the first time since December 2007.

It also came the index in June marked its second largest monthly rise since 1974, when the survey began.

But there's nothing like another market crash to put a stop to that

Funnily enough, yesterday afternoon Bill Evans (Westpac's head TV media honcho in Finance) actually dismissed these results from his very own bank analysts over the short-medium term, stating something along the lines that Australian consumer debt was still climbing at record unsustainable levels.

I agree with him entirely on that.

Added to that, IMO, the decision by the "Fair"?? Wage Commission to deny the lowest paid workers of Oz (approx. 1.5 million) any possibility of a catch-up payrise until at least March next year will smack down Westpac's airy-fairy "consumer sentiment" index at the next call, since I suspect lower paid workers will be nowhere near as "confident" next time WestPacMan cometh calling.

My

 

[dhukka]

Why Did So Many Fail To Predict The Crisis?

Failed predictions can be Career Killers.
Simple really.

You have to be kidding, it would be difficult to come up with an industry that has less accountability than economics. It's almost as if being wrong half the time is a prerequisite to being an economist. If failed predictions killed careers, you'd turn on CNBC and see a couple of reporters sitting around talking to themselves because all the so-called professional prognosticators would be out of a job. Shane Oliver of AMP would have have lost his job a decade ago.

 

[Gordon Gekko]

Nice.
I gotta see that movie again.

They are starting to make part 2!!
OLiver Stone
Michael Douglas
Shia Leblouf

Sweet!!!!

 

[Knobby22]

In my opinion most economists did not see this coming because they were tied to their university teachings on "classical" economics which assumes a lot of twaddle such as market participants being informed and acting correctly.

If you look at the critics before the crash, they were mostly university professors and people more from the fringe. The IMF, who can't seem to get 3month forecasts right, pompously do not even admit to being wrong, over and over again, this last year.

I keep hearing the latest critics who such as Misha and others who can't believe that their economic truths are bull and just attack every other view around them, especially Keynsians. They should take a good hard look at themselves and adjst their view of reality to reality rather than the fantasy world they seem to live in.

 

[wayneL]

In my opinion most economists did not see this coming because they were tied to their university teachings on "classical" economics which assumes a lot of twaddle such as market participants being informed and acting correctly.

If you look at the critics before the crash, they were mostly university professors and people more from the fringe. The IMF, who can't seem to get 3month forecasts right, pompously do not even admit to being wrong, over and over again, this last year.

I keep hearing the latest critics who such as Misha and others who can't believe that their economic truths are bull and just attack every other view around them, especially Keynsians. They should take a good hard look at themselves and adjst their view of reality to reality rather than the fantasy world they seem to live in.

Knobby,

1/ By Misha, do you mean MISH AKA Mike Shedlock?

2/ Do you mean Misha(MISH) was/is correct or incorrect?

3/ Do you believe the Keynesian pox on humanity is the correct approach?

I'm just not clear.

 

[Trembling Hand]

the so-called professional prognosticators would be out of a job. Shane Oliver of AMP would have have lost his job a decade ago.

No no. His job isn't as an economist though. It one more similar to the pied piper.

 

[xyzedarteerf]

They are starting to make part 2!!
OLiver Stone
Michael Douglas
Shia Leblouf

Sweet!!!!

yep looking fwd to this one...Feb 2010 release filming starts next month.

source

"In the film, Gekko (Douglas) has served his prison sentence and is warning everyone about the fall of Wall Street. No one listens to him so he devotes himself to mending his relationship with his estranged daughter. LaBeouf plays an ambitious, young Wall Street trader who is engaged to Gekko's daughter. The film spans from June 2008 to the federal bail out.

 

[noco]

Peter Costello, our greatest Australian Treasurer, Predicted a TSUSAMI of world economic turmoil before the 2007 election.

He even told the the Labor Party's fearless leader Kevin Rudd, BUT WE ALL KNOW what Kevvie thinks of Peter Costello. What would he know after all Peter Costello got us into this mess says Wayne Swan.

 

[Temjin]

Why Did So Many Fail To Predict The Crisis?

Failed predictions can be Career Killers.
Simple really.

Really??

Jim Cramer is still around. His predictions are amazingly wrong and still fail to admit he was wrong.

And of course, we have the Yank's Chopper Ben.

http://www.boom2bust.com/2009/05/06/i’d-be-broke-if-ben-bernanke-were-my-financial-adviser/

some of the older comments from him

Lest we forget some of his other notable predictions, such as:

“Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.
U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, ‘largely reflect strong economic fundamentals,’ such as strong growth in jobs, incomes and the number of new households.”
​

-Washington Post, October 27, 2005

“A leveling out or a modest softening of housing activity seems more likely than a sharp contraction…”
​

-in testimony to a House Financial Services Committee, Thursday, February 16, 2006, (source: Washington Times, February 16, 2006)

“We think that, by the spring, early next year, that as these credit problems resolve and as we hope, the housing market begins to find a bottom, that the broader resiliency of the economy which we are seeing in other areas outside of housing will take control and will help the economy recover to a more reasonable growth pace.”
​

-in testimony to the Joint Economic Committee on Thursday, November 8, 2007 (source: “Nightly Business Report,” Thursday, November 8, 2007)

“The Federal Reserve is not currently forecasting a recession.”
​

-after a speech given in Washington, D.C., on Wednesday, January 9, 2008 (source: AFP, Thursday, January 10, 2008)

“My baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of (Fed) and fiscal stimulus begin to be felt.”
​

-in testimony to the U.S. Senate Committee on Banking, Housing, and Urban Affairs on February 14, 2008 (source: FederalReserve.gov)
​

Yet, amazing enough, there have been calls recently (still trying to find the posts) from other economists that Bernanke has been doing a great job and they support him to be re-elected in to the office again by next year Jan.

His career is FAR from failing, at least in the short term.

 

[Knobby22]

Knobby,

1/ By Misha, do you mean MISH AKA Mike Shedlock?

2/ Do you mean Misha(MISH) was/is correct or incorrect?

3/ Do you believe the Keynesian pox on humanity is the correct approach?

I'm just not clear.

Hi Wayne.

Yes, I mean Mike Shedlock.
I find his views saying that no amount of fiscal stimulus will work is false. He is of the classical view that we should have a scorched earth policy and whatever is left will be strong. This will cause unemployment in the US go to 25% and bring on the depression and possibly a world war. History showed it failed first time, let's not repeat it.

With point 3. We need a third way. Man is a herd animal. Once everyone is headed down the gloom or boom path we just make it worse that it needs to do. I am sort of post Keynsian, not politician Keynsian.

I believe that governments should run robust surpluses in good times and not run up debt to feed booming times to win an election.

i also believe that if times get tough you encourage people to be optimistic by giving them temporary tax cuts of bonuses and they should go to everyone especially the poorer people in society who will spend it. Secondly, in the medium term start building infrastructure that makes the economy more efficient and keeps people working.

During good times, the government should stay out of things as much as possible except to balance out distortions caused by other economies. They should also legislate to stop financiers profiteering while leaving their bank/company in a situation where they will go broke should a shock occur.

The USA is looking at copying Australia's success in keeping real estate going by enhancing the first home buyers grant. In good times there shouldn't be a first home buyers grant but in bad times it keeps things rolling.

We are going well in Australia, much due to good regulation and getting in stimulus before the collapse. Retail spending is actually up!!

Look at today's unemployment figures, that the rest of the world would beg for.

Unemployment up 0.1% to 5.8%. "Basically the trend rate seems to be slowing it's rise. Even if it continues at current rate it will only be 7% by June 2010. If participation rate continues it's drop and the graph shows it peaking in May then it could be 6.5%. In any case doesn't seem to be the huge problem everyone has been saying it will be." (I am quoting Mord from Chimes in Exile here).

Seriously, some of the hard core US economists make me want to throw a brick on their head. Example - What should happen if the US is having a surplus? Spend money on defence, infrastructure, save for a rainy day or have tax cuts. Answer: Have tax cuts.

OK, the economy needs a boost and we are in debt. What should we do? Have tax cuts.

Um, we are in depression now, riots are happening in the street as the populace attack the walled suburbs of the wealthy. What's the answer? Have tax cuts.

They seem pretty simple minded to me!

We need a new economic theory that realises that the simple models of classical economics don't work and realises that we tend to go over a cliff like lemmings reguarly.

Wayne, did you see the series "The Ascent of Money" ? He had it right. I love how he had Reagan and Bush say the same things and make the same mistake with US property and Fannie Mae etc. The parrallels were amazing.

 

[Knobby22]

Another thing.

The banks should be allowed to go broke to scare the others into line. The government should help some of them and cull the rest. No bank or insurance company should be allowed to be too big that they destroy competition and cannot be allowed to fail. I get annoyed in the US how everyone is keen to protect bondholders. Bad luck in my view.

In other words if you are wealthy and invest too riskly then don't ask the government to bail you out. There seems to be too much socialism going on in the US and Australia and it should be stopped. It's probably in Britain too.

 

[Sean K]

Another thing.

The banks should be allowed to go broke to scare the others into line. The government should help some of them and cull the rest.

Hasn't this occurred?

The significant thing so far, in my mind, is that the governments have saved institutions who, if completely failed, would create unknown economic hardship on the entire populace in the very short term.

They've created a buffer.

Now, it's time to dig themselves out of it. Somehow.

Continuing to print money may not be the answer...

 

[Knobby22]

Hasn't this occurred?

The significant thing so far, in my mind, is that the governments have saved institutions who, if completely failed, would create unknown economic hardship on the entire populace in the very short term.

They've created a buffer.

Now, it's time to dig themselves out of it. Somehow.

Continuing to print money may not be the answer...

No they only let Lehman's go formally broke. A few of the others like Citibank and some of the Euro banks are just Zombie Banks- walking dead.
It didn't work in Japan, won't work now.

 

[Sean K]

No they only let Lehman's go formally broke. A few of the others like Citibank and some of the Euro banks are just Zombie Banks- walking dead.
It didn't work in Japan, won't work now.

Ah, OK. I thought some other banks had gone broke, and they'd provided some other assistance elsewhere. My mistake.

 

[Uncle Festivus]

Hi Wayne.

Yes, I mean Mike Shedlock.
I find his views saying that no amount of fiscal stimulus will work is false. He is of the classical view that we should have a scorched earth policy and whatever is left will be strong. This will cause unemployment in the US go to 25% and bring on the depression and possibly a world war.

The US unemployment rate (using pre Carter methodology) is already 20%, and they are already in a depression, only no politician dares utter the word; like getting Rudd or Swan to say the R word??

Another thing.

The banks should be allowed to go broke to scare the others into line. The government should help some of them and cull the rest. No bank or insurance company should be allowed to be too big that they destroy competition and cannot be allowed to fail. I get annoyed in the US how everyone is keen to protect bondholders. Bad luck in my view.

In other words if you are wealthy and invest too riskly then don't ask the government to bail you out. There seems to be too much socialism going on in the US and Australia and it should be stopped. It's probably in Britain too.

So you say a scorched earth policy is wrong but it's OK to let the core of the financial system to collapse, just to scare them in to line?

The AU gov has just 'allowed' the 4 pillars of our banking system to have the best competitive advantage in a generation ie no opposition now. In fact now they are too big too fail also. Quite a dilemma if/when the stimulis drip runs out and bad loans, which are already increasingly being provisioned for, start to increase at a faster rate? We are setting ourselves up for the same bubbles down the track with our own pretend government sponsored sub-prime fiasco.

Deja vu - a government backed entity who helped first home buyers, now gone broke - Freddie Mac? Only our Freddie Mac is the government! So why are we now failing to see what is imminent in the property market?

 

[shag]

Hasn't this occurred?

The significant thing so far, in my mind, is that the governments have saved institutions who, if completely failed, would create unknown economic hardship on the entire populace in the very short term.

They've created a buffer.

Now, it's time to dig themselves out of it. Somehow.

Continuing to print money may not be the answer...

im pretty sure u r correct. some smaller banks did go bust in states, plus the fed said this would be so.
re banks this is interesting.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10583310
it worked well in nz, no fees, profit for gov, brought competition back a little(all bar kiwi and pidly southland etc r aus owned in the place and being made to recoupe loses from here, out of the nz public).
i found kiwibank a useless mess, but thats me. no base fees and my mates swear by it.
it only has 5 or 6pc of population but its growing. bugger paying fees and 1pc over market for morgages. it would b grt for aus. the model would work well here too.
the only good thing the decade of labour did for nz.

as an example of how they rort the shaky isles, i was paying 10.95pc on morgage there, while only 6.7pc here, and the rates were typical. it would have been worse without kiwibank.

 

[Temjin]

Hi Wayne.

Yes, I mean Mike Shedlock.
I find his views saying that no amount of fiscal stimulus will work is false. He is of the classical view that we should have a scorched earth policy and whatever is left will be strong. This will cause unemployment in the US go to 25% and bring on the depression and possibly a world war. History showed it failed first time, let's not repeat it.

The view of "fiscal stimulus" will NOT work is not only shared by Mike Shedlock alone, but by many other "alternative thinking" economists who have long predicted this crisis prior to its collapse.

Remember, Mike Shedlock IS NOT AN AUSTRIAN economist. He is aware of their theories but do not actively promote it. He does not see the possibility of hyperinflation anytime in the near future. His views are strongly in line with Steven Keen's thesis on debt deflation.

With regards to the scorched earth policy. This is how free market should work. Let bad business FAILs and let the GOOD business take over the mess and buy the good parts of the bad. Yes, unemployment will go sharply up, and yes, people will suffer.

The BIGGEST problem with the banking system is that we still have too much BAD DEBT in the system. Do you realise how much are still there even after so many write downs have occured in the last 2 years? There will be NIL economic recovery as long as these debt are in the system.

The moral of the story is that if there are anything that is too big to fail, then they are too big already. Businesses who become insolvent through bad commercial practices SHOULD BE FORCED TO FAIL, period. Using tax payer money to reward those who "failed" is certainly not the answer to a sustainable economic recovery.

Just look at Japan as your example. How much bailouts have they done with respective to their economy? (amount of $$$ over their GDP) It's at least a few times over what US have done thus far, and still they are facing a deflation after over a decade.

We need a new economic theory that realises that the simple models of classical economics don't work and realises that we tend to go over a cliff like lemmings reguarly.

Wayne, did you see the series "The Ascent of Money" ? He had it right. I love how he had Reagan and Bush say the same things and make the same mistake with US property and Fannie Mae etc. The parrallels were amazing.

There are plenty of economic theories around that clearly explained the cause of the crisis and how it should be solved. Unfortunately, political and social pressures have prevented these "alternative" thinkings from becoming mainstream.

If I was in classical economics and am in a position of power, and that my career and life is DEPENDANT ON IT, do you think I would NOT abuse my power to prevent those "alternative" thinking a--holes from ruining my life? No way, I would denial every theories they put out until I'm dead.

 

[Julia]

as an example of how they rort the shaky isles, i was paying 10.95pc on morgage there, while only 6.7pc here, and the rates were typical. it would have been worse without kiwibank.

Ah, but how beneficial for depositors. As usual, all the emphasis is on the borrowers and little recognition of the need to reward people who have been prudent enough to save.

 

[shag]

Ah, but how beneficial for depositors. As usual, all the emphasis is on the borrowers and little recognition of the need to reward people who have been prudent enough to save.

true but they do try to keep the spread low. if u want better deposit rates, go to another bank if they actually offer ok rates on top of hi morgage rates.
but most dosh comes friom overseas, like aus, but worse to support a property rush/greed.
i like it but im still with national in nz, which is anz owned now.
id rather have morgage plus stock portfolio myself. bugger banks. i could pay off both morgages i guess.
ive never had dosh in bank deposit, despite having plenty. dont like banks, rather own part of a company.