

The story of the financial crisis, from one of the people who predicted it - samh
http://www.debtdeflation.com/blogs/2009/09/15/it%e2%80%99s-hard-being-a-bear-part-four-good-economic-theory/

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natch
Maybe someone who knows more than me about this can tell me: why, on panels of
industry experts deconstructing the crisis, do we constantly hear the
assertion that nobody saw this coming? And what really confuses me, is why do
the experts participating in such panels/media interviews/round tables not
challenge that assertion?

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fnid
The people who saw it coming are not saying no one saw it coming. Ron Paul and
those who study the Austrian School saw it and acknowledge it.
<http://en.wikipedia.org/wiki/Austrian_School>

I think some of the people saying no one saw it coming are the engineers of
this crisis. No one wants to admit they saw it coming and continued to build
it -- especially if they benefited from the crisis. It's been argued that the
banks created this mess _intentionally_ because they need a large enough
catastrophe to be bailed out by the tax payers.

If you acknowledge that you saw it coming, then the next question is, "Why
didn't you do something or say something?" When faced with that question,
people appear in a very negative light.

And if _no one_ saw it coming, then you can't be held responsible. It's a
freak of nature. An act of God. Uncontrollable.

What if I said, "I saw it coming?"

Would you believe me? What's my evidence? How can I prove I saw it coming? If
I saw it coming why didn't I say or do something about it?

It's easier to go with the herd and say not only did I not see it, but no one
saw it. To have seen it coming and kept going causes cognitive dissonance and
it hurts. Avoid it with ignorance.

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tedunangst
"What did you do about it?" is really the kicker. The foresight to say
something bad is coming without being able to predict when doesn't impress
many people.

Anyone with a level head knew there was a housing bubble. But if you're
working as an investor, you don't get paid to sit back and watch your rivals
get rich while you're waiting for the pop.

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khafra
Unfortunately, this doesn't provide any useful actions to the individual; by
his own admission, he would've invested as if expecting a depression in 1987.

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fnid
This article just spurred a thought about our health care crisis.

How are they connected? Debt enabled consumers to pay more for products, so
the price of the product increased. They could pay more, because the monthly
payments were low -- even for very large mortgages.

The same thing happens in the stock market. One of the original reasons the
stock market collapsed before the great depression was that traders were over
leveraged. You could leverage up 10x back then.

This level of leverage is possible today in the commodities market and I
predict a similar collapse of the commodities market due to this. We saw a
little of this as oil speculators deleveraged their holdings.

Back to health care. Health insurance enables large expenditures of health
care costs for a low monthly payment. Because consumers can buy large amounts
of health care for not a lot of money, they spend more, doctors spend more,
hospitals spend more.

Insurance companies _cut out the tumor of debt_ by canceling the insurance
plans for those who over extend themselves and cost the insurance company more
than their monthly payments can afford.

I'm not sure where I'm going with this. I suppose a) health care bubble fueled
by low monthly payments. b) collapse of health care bubble will reduce
innovation in health care industry. c) insurance companies will over extend
themselves and increase risk for shareholders and the insured...

I don't know, just something that popped into my mind that seems to be a
common pattern here...

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samh
The analogy begins :

You have just come from your annual medical checkup, where your doctor assures
you that you are in robust health.

Walking jauntily down the street, you bump into a practitioner of alternative
medicine. He takes one look at you and declares “You have a serious tumour! It
must be removed or you will die”.

You ignore him as you always have, and continue your merry way down the
street. One day later, a stabbing pain suddenly cripples you, and you collapse
to the pavement.

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onreact-com
I prefer the original headline: "It’s Hard Being a Bear (Part Four): Good
Economic Theory"

