THE FINANCIAL CRISIS–TIME TO MAKE COFFEE? I expressed disbelief in yesterday’s post that financial institutions could be so oblivious to credit risk, but things are always more obvious in retrospect. I posted here about a whole baseball team not noticing that the ball and strike count was wrong and pointed out that in bridge when there is an illegal play right out in the open from dummy, the remedy is to brew another pot of coffee. It seems to me that almost everything that has happened in the financial crisis happened right out in the open where everybody could see it. Almost nobody called attention to the problems. Warren Buffet commented on the risks from derivatives. There were some efforts to make changes regarding FNMA and Freddie Mac. In December 2006, I posted a warning by Larry Summers that something big and bad might happen and about the unknown consequences of large-scale liquidations. As Dick Weisfelder commented on that post, there were a number of warnings about housing bubbles. And, of course, as I posted several times, Nissam Taleb warned often that a Black Swan is more probable than we think. But at the end of 2006. Summers wrote that “financial markets are pricing in an expectation of tranquillity as far as the eye can see.” And at that time, as I said, the risks were all out in the open.

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  1. Howard Johnson says:

    Holland would seem a small market for book translations. Yet I noticed that a Dutch translation of The Black Swan is being sold over here. I wonder if that’s a reflection on some combination of the Dutch character, the current state of financial markets and the economics of small lot publishing or simply that Taleb has become a world-wide best seller?

  2. Philip says:

    There may be a relatively large market for for economics books in the Netherlands. Dutch economists rank with those of much larger countries, such as France and Germany.

  3. elmer says:

    I briefly googled Roubini and he was predicting much of what happened in an interview in late 2006. To be sure, he then thought the recession would start in early 2007, but still. I think there were also economists writing that there was a non-trivial chance of big trouble. Elmer

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