Greenspan On Why Current Crisis Wasn’t Foreseen

[crash2006]

The essential problem is that our models — both risk models and econometric models — as complex as they have become, are still too simple to capture the full array of governing variables that drive global economic reality,” Greenspan writes. He goes on to say that bubble discontinuities, by their nature, can’t be predicted, and must pop on their own. “If, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own,” he writes. “Paradoxically, to the extent risk management succeeds in identifying such episodes, it can prolong and enlarge the period of euphoria. But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response.’

http://blogs.wsj.com/economics/2008/03/17/...real_time_blogs

[Injin]

http://blogs.wsj.com/economics/2008/03/17/...real_time_blogs

I see the current mess wasn't anything to do with him then.

Odd that.

[bubbleturbo]

Blah blah blah. . . was not me guv . . . . .blah blah blah. . a big boy came along and made me do it. . . .blah blah blah. . . . . . .

[Not Long Now]

Blah blah blah. . . was not me guv . . . . .blah blah blah. . a big boy came along and made me do it. . . .blah blah blah. . . . . . .

Analysis paralysis with all this econometric nonsense. Has anyone ever studied econometrics?? It's no wonder they missed the bleedin' obvious. They lent too much, to too many, on ridiculous terms.

You don't need to be an bleedin' expert to spot that, or employ ridiculously complex statistical models to try and understand even more ridiculously complex financial products.

If we could all see that such lending was unsustainable: why couldn't he?

[thecrashingisles]

The essential problem is that our models — both risk models and econometric models — as complex as they have become, are still too simple to capture the full array of governing variables that drive global economic reality,” Greenspan writes.

He speaks as if this is an original observation. I thought the whole reason that a command economy cannot work is that it's not possible to 'capture the full array of governing variables'. You'd think that a capitalist would understand this.

He goes on to say that bubble discontinuities, by their nature, can’t be predicted, and must pop on their own. “If, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own,” he writes. “Paradoxically, to the extent risk management succeeds in identifying such episodes, it can prolong and enlarge the period of euphoria. But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response.’

I'm not even sure that it should be called speculation when the markets were rigged in such a way as to make it inevitable. The only speculation involved was in predicting when the bubble would burst. There was no comparison with the dot-com bubble which did actually involve putting money behind companies, albeit irrationally.

[crash2006]

melt down the start of summer 2008 mark my words. and some one owns me an appologie about end of feb start of march.

Edited March 17, 2008 by crash2006

[headmelter]

melt down the start of summer 2008 mark my words.

Do you think we have that much time?

[Not Long Now]

Do you think we have that much time?

I think May is more of a realistic timescale. "Sell in May, then go away".

[crash2006]

Do you think we have that much time?

Depends for what, finance debt etc... no.

[crash2006]

http://www.housepricecrash.co.uk/forum/ind...ic=65843&hl=

just one of many

Edited March 17, 2008 by crash2006

[eric pebble]

Analysis paralysis with all this econometric nonsense. Has anyone ever studied econometrics?? It's no wonder they missed the bleedin' obvious. They lent too much, to too many, on ridiculous terms.

You don't need to be an bleedin' expert to spot that, or employ ridiculously complex statistical models to try and understand even more ridiculously complex financial products.

If we could all see that such lending was unsustainable: why couldn't he?

Spot on NLN. The vast proliferation over the globe of Mortgage Fraud and LIAR LOANS - whether in the USA, Spain, Bulgaria etc etc. - there lies the key to all our woes. It really is that simple. Anyone who breathed was allowed to borrow "money" plucked out of thin air in order to join the World's Greatest Ever Pyramid Selling Scam - the "housing market" - and join in the madness. Therein lies the bulk of the causes of our problems. Those "loans" were hived off - profit drawn - hulk of what was poison was sold on dressed as "AAA" grade "asset" - and then used again and again down a long line as "AAA" - when all along it was "ZZZ". The guys who started off the whole process had long ago scarpered, cashed in - and converted it into gold......... They now await the right time to cash in again - when the rest of us are entirely at their mercy. It really is that shocking.

Edited March 18, 2008 by eric pebble

[crash2006]

Spot on NLN. The vast proliferation over the globe of Mortgage Fraud and LIAR LOANS - whether in the USA, Spain, Bulgaria etc etc. - there lies the key to all our woes. It really is that simple. Anyone who breathed was allowed to borrow "money" plucked out of thin air in order to join the World's Greatest Ever Pyramid Selling Scam - the "housing market" - and join in the madness. Therein lies the bulk of the causes of our problems.

ramp up the price, till no one can afford then bust it make sure they pay the difference, keep the property land etc... and make the people pay the rent oh how great it is. Reminds me of land owners you dont want to work out you go.

[South Lorne]

...probably part of the reason for not seeing it was the amount of fraud involved in many cases at the point of sale.....followed by the deception in the poisoned wraps......his fault was to be too trusting of human nature.....

[Michael]

Greenspan is the tosser who said we'd entered a ''new paradigm'' !

[Guest Bart of Darkness]

Greenspan On Why Current Crisis Wasn’t Foreseen

Have they ruled out stupidity as an explanation?

[MarkG]

Greenspan On Why Current Crisis Wasn’t Foreseen

Have they ruled out stupidity as an explanation?

As I see it, there are really two options:

1. Greenspan is a retard and really believes this nonsense.

2. Greenspan knew full well what he was doing, but believes we're retards and will believe this nonsense.

Either way, he's likely to go down in history as the man who destroyed America; the real question is whether history will see him as a villain or hero.

[GBdamo]

It's hard to see anything coming when their heads are burried so deep in the trough.

Damo

[brainclamp]

The long period of insanely low rates have left the US economy with a massive trade imbalance, turned its currency into some unstable south american like analogue, and ensured years of financial growth based on fake profits massive speculation and capacity biuld, and fraud which is now unwinding.

The US should have entered a deeper recession where savings were rebuilt in 2001 and the trade deficit neutered.

There is a lot of work on bubbles - Minsky tells you how to model a bubble

Greenspan delibrately removed all risk from the market with these below inflation borrowing rates to reflate the economy to full employment regardless of what that employment was built from.

[IMHAL]

As I see it, there are really two options:

1. Greenspan is a retard and really believes this nonsense.

2. Greenspan knew full well what he was doing, but believes we're retards and will believe this nonsense.

Either way, he's likely to go down in history as the man who destroyed America; the real question is whether history will see him as a villain or hero.

Villain or Hero?

In the west he will be see as a Villain in the ranks of Al Queda he will be their greatest terrorist!

Al Greenspans approach was obviously to let the market do whatever it likes - so long as it goes up - and when it fails blow another bubble. If that does not work then its Ok coz we can take the tax payers money to solve the problem. It a policy any chimp could type.

The role of a FED policy maker is to regulate the markets for stability - just as the governments task is to regulate society for stability - that means non destructive policies - with both freedoms and responsibilities in equal measure with the threat of punishment of being out of bounds.

Al Greenspan was the modern day 'Wizard of Oz' - a tiny clueless man who spoke in riddles hiding behind an institution that gave him station.

HAL

[Leonard Hatred]

Greenspan delibrately removed all risk from the market with these below inflation borrowing rates to reflate the economy to full employment regardless of what that employment was built from.

Agreed. Greenspan is a lying old c***. He actively chose not to do his job properly, and blew up a massive asset bubble that subsequently collapsed. I bet he gets off being held to blame.

[cynic]

Greenspan On Why Current Crisis Wasn’t Foreseen

Have they ruled out stupidity as an explanation?

They're probably trying to model stupidity.