THE FINANCIAL CRISIS–TIME TO MAKE COFFEE?

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.