Guest Post: Greenspan Says The Financial Crisis Was Caused By A ‘Once-In-A-Century’ Event • Taleb Says Any Pilot Who Doesn’t Know About Storms Shouldn’t Be In the Cockpit

Washington’s Blog (see blog for embedded videos – I can’t figure out how to embed here).

Greenspan’s big defense is that the financial crisis was caused by a “once-in-a-century” event.

Forget about the fact that the “once-in-a-century event” couldn’t have happened if Greenspan’s Fed hadn’t:

  • Acted as cheerleader in chief for unregulated use of derivatives at least as far back as 1999 (see this and this)
  • Allowed the giant banks to grow into mega-banks. For example, Citigroup’s former chief executive says that when Citigroup was formed in 1998 out of the merger of banking and insurance giants, Greenspan told him, “I have nothing against size. It doesn’t bother me at all”
  • Preached that a new bubble be blown every time the last one bursts
  • Kept interest rates too low
  • And did alot of other hinky things

More importantly, as Nassim Taleb repeatedly points out, financial experts who don’t plan for rare events are like pilots who don’t know about storms.

There are storms out there, Taleb says, and any pilot who doesn’t know how to deal with storms shouldn’t be flying. Similarly, no one should be in a position of financial leadership if they don’t know about – and plan for – the infrequent event:

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About George Washington

George Washington is the head writer at Washington’s Blog. A busy professional and former adjunct professor, George’s insatiable curiousity causes him to write on a wide variety of topics, including economics, finance, the environment and politics. For further details, ask Keith Alexander…


  1. kssong

    greenspan&co want us to believe him.but we don’t and he may want go to church and say he is doing god’s work!
    did he say anything when he join paulson&co?
    the problem is he&co refuse to nail the problem of turning debt to money by privately owned feds and worse,turn air to money.

  2. Expat

    I know I sound like a lunatic. I know I keep writing this type of comment. I know that the DHS will arrest me if I try to return to America. But, frankly, I still believe that Greenspan, Bernanke, Bush, Cheney, and the leaders of Wall Street have caused deeper and more lasting damage to America than Osama Bin Laden or any so-called Al Qaeda. And they deserve to be arrested, tried, waterboarded and executed for high treason and theft.

    Seriously, can’t we amend the laws to make it legal to have these people convicted and then executed by being eaten alive by weasels. It’s just so fitting.

    1. NotTimothyGeithner

      The Constitution just prohibits “cruel and unusual” punishment. If we get 26 states to agree to it, we can hold some kind of weasel draft.

      1. danny

        Haha constitution. The president can just label them as enemy combatants and then put them in Guantanamo or similar. Im pretty sure he can have Greenspan assasinated if he is labeled an enemy combatant.

  3. The Raven

    “The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.”–JM Keynes


  4. WizardofLI

    Can’t he just go away to a tropical location, get a drink with a little umbrella, and enjoy himself.

  5. Bill G

    So the collapse of a tulip, stock market, housing, CRE, gold, silver, or other bubble is not forseeable? This is the kind of quality leadership we deserve as a 2nd rate nation I guess.

  6. craazyman

    It’s an indisputable fact that financial economists have conquered the business cycle. Wall Street now makes money all the way up, and all the way down. Looks like that’s proof positive to me.

    -Barney Lascaux
    Help Desk, Motel 6, Queens, New York

  7. Anon

    “…More importantly, as Nassim Taleb repeatedly points out, financial experts who don’t plan for rare events are like pilots who don’t know about storms.

    There are storms out there, Taleb says, and any pilot who doesn’t know how to deal with storms shouldn’t be flying. Similarly, no one should be in a position of financial leadership if they don’t know about – and plan for – the infrequent event”

    Thanks for sharing the analogy- It’s perfect!!! A majority of folks will definitely get it.

  8. Blurtman

    If your 60 year old wife was sporting a blonde cheerleader wig, you might tlose perspective on reality, too. ;>)

  9. edward0

    I’m enjoying watching Sir Alan’s oh so undeserved reputation for masterful central banking stewardship be reduced to the financial equivalent of a bond default. The Maestro’s seemingly endless recourse to bogus arguments is simultaneously appalling and hilarious. And it’s interesting to hear someone who was (in)famous for employing a surfeit of words to obfuscate matters, not seem to realize that saying nothing, as opposed to the tripe he seems compelled to spew, would probably do the least harm to his fast diminishing reputation.

    1. Alexandra Hamilton

      Interesting observation about Greenspan’s behaviour. Maybe this is rooted in his personality? If it is then is it not far from a type of personality-type recently described on this blog.

  10. ndk

    Even now, he’s preaching the beauties of an economic recovery sparked entirely — in his view — by a recovery in equity prices. While I would agree with him on the upward trend in both asset prices and its salutary effects on very large businesses, I would disagree on the generalized recovery both from the data and as a guy who works and with a lot of smaller ones.

    But whether he’s right or wrong, he’s preaching the same utterly unfounded and dangerous nonsense that he always has: just keep asset prices rising, and the rest of the economy will sort itself out. It feels more and more like the economic edition of psychoanalysis every time I see him, or those in his intellectual circle, speak.

  11. attempter

    I guess he and Dimon need to coordinate better.

    They both say its just a force of nature, but Dimon said it “happens every 5-7 years” or something like that.

    Better get their stories straight.

    1. Alexandra Hamilton

      They think of themselves as ‘masters of the universe’ and yet it’s never their fault when it goes wrong and it always goes wrong.
      Yet he is still refered to as the Maestro.

  12. sam hamster

    But how does Greenspan’s re-emergence translate into another argument for the end of Medicare and the privatization of Social Security?

  13. TradingDiary

    It is annoying how politicians around the world have been washing their hands of any responsibility for anything to do with the recent financial crisis.

    In the UK Prime Minister Gordon Browns standard line is that it is a ‘global crisis caused by America’ so there was nothing he could do. This despite the fact that before he became PM he was chancellor for over 10 years, and would therefore have been perfectly placed to reduce the UK’s exposure to these problems.

    Is there any such thing as an honest politician in power?

  14. kevinearick

    We’ve seen the finance show in a top-down, command and control, divide and conquer, fully integrated system. The directors are told what to think, the managers are told what to think, the workers are told what to think, and it doesn’t work, because the cartel operators have to be told what to think, and the professors can only regurgitate the past, because they have been cut off. Have a nice day.

    We see that the vortex has been built from the bottom up over time, and anything built at the top, under the direction of a top-down system becomes an inverted pyramid, subject to recursive cleavage when the cost of stabalizing it with economic activity exceeds environmental parameters.

    In a symbiotic system, the planet built deserts and forests, so why is the Chinese economy creating desert, and what is the effect of encouraging a hoard to move to the edge of a techtonic plate, while importing a hoard of mass to serve it, in an economic activity economy?

    We’ll let the pot boil while Congress gets an earful and and the Fed considers starting the printing presses.

    If they start the presses, you may as well stay in the house. stop making payments. rent out the rooms. keep the money. grow a garden. grow some tobacco and pot if legal. cut back to part-time or quit your job. learn something about motor control. and get up to speed as quickly as possible on your next career.

    we are at the point where script has to be printed, and better you than the Fed, for everyone. You’ll be doing yourself and the economy a huge favor.

    Print as much as the Fed prints, and do something constructive with it. try different things until something catches on. Just leave whatever you touch a little better than you found it and you will do a helluva lot better than the government.

    don’t worry about the detractors. if this process continues from the top down, all equities will fall by 75%, all the entitlement checks will halt, and nearly everyone is going to learn that they are dependent on the government transfer system in one way or another.

    cut out all the middlemen.

    provide low income housing, clean a park, provide security in a dangerous neighborhood, start a supply business, whatever you are particularly adapted to do that is not being done.

    find real market demand not being met, anywhere, it’s all over the place, and supply it better than anyone else can based on whatever unique skills you have or can develop.

    sooner or later, your profit is going to intersect with declining asset values and you will be able to pay that mortgage. you can only go up; they can only go down.

    or let it crash.

    the load has to be moved from real estate, which is not a productive investment, to effective goods and services, which are productive investments, and the banks are going to fight that loss of control, destroying as much as they have to. if the typical unprotected worker makes $10/hr, total mortgage costs cannot exceed $400/mo. unprotected wages have to go up, asset prices have to go down, until net productive individual decisions change the course of the economy. most will likely want to re-start the old economy, with incremental changes, right up until it’s completely dead, when it will be too late.

    1. kevinearick

      community script:

      withdraw all the cash. stick it in a community service bank and re-issue the same amount in community script. that way you can convert the old US dollars into new US dolars if the Fed goes that route.

      as the community script has to be reconverted back into US script for external trade, you will see how much wealth is being sucked out of the community, and where it is going, the basis for more appropriate community decisions.

    2. Skippy

      the load has to be moved from real estate, which is not a productive investment…

      Yep has tobe the biggest flim flam head job ever pulled off, yet how, not numericaly but, mentaly do people let go of this religion, of property as a means of ([non]productive) [ass]et wealth creation.

      Skippy…the evolution of money has peaked if you ask me, soon to go the way of the dino, mathamaticaly boosted electrons, a single human cannot engage in the conversation with out ever more powerful computors (I have a beast sitting next to me [soon to be 10TBs of data]). Speed ki9lls, no wonder modren humans love stimulants so much these days…eh.

      PS. I feel lucky to have watched my grandfather (born in the early 1900s) tend his farm.

      1. kevinearick

        at least the cable company slowed down on those commercial interrupts. for a few months, half the population couldn’t load a page with a picture on it.

        ever see a low-end, 2-yr-old computer with the original software, run on cable? all it does is load operating system and security code.

        The Republic Utility

        1. Skippy

          Try 7 year old AGP upgraded as far as it could go, always running near 95%+ CPU and banging its head on 100% RAM…lol (lots of shit code beaming around out there…eh)…was OK for net surfing but, finally got tired of it and went i7 960 x58 3.2 w/mobo to suit / 128GB SSD /6 x 1TB HDD, now that I’m going librarian.

          Skippy…my parallels never touch any thing, that has touched the web.

  15. Norman Morley

    Another revisionist trying to rewrite factual History with excuses. This Kabuki being played out by the Republicans of note, boggles the senses of this 71 year old man. Greenspan twiddled his thumbs, while assuring all, everything was well. Classic strategy, distract the masses from what is really taking place, the “Looting of the Treasury”. Another candidate for the “Wall of Shame” that should be erected somewhere in Washington D.C. for future generations to see who the players that:. . . . . . . . . . . . ., the viewer can insert his/her opinion.

  16. fresno dan

    In a related publication, another exalted savant, maestro, and rewriter of history, Lord Green Allenpants, has determined that John Wilkes Booth did not kill the 16th president of the United States, Abraham Lincoln – it was the bullet.
    Responding to critics, Allenpants states that it is too simplistic to attribute to Booth, agency for the course of a projectile in the milieu of mid 19th century America. Lord Allenpants also notes that the correlation coefficient with regard to projectiles, presidents, and “living” (Green notes that “living” although easy to recognize, it difficult to define)is too uncertain to reach any conclusion in the near term. Finally, Allenpants points to the Baltic cardboard box shipping index, which shows no trend that would have portended such a disturbance to the political structure at that juncture.

  17. VenusVictrix

    In a real “accident”, the Captain goes down with the ship.

    In contrast, Greenspan jumped ship and landed a cushy and presumably very high-paying job providing “economic forecasting” services for Paulson & Co., in spite of his obviously dismal record.

    As one of the most successful hedge funds in the world, manager John Paulson is also one of the most highly compensated hedge fund managers. Is he so stupid that he would hire an idiot? Or is Greenspan a lot smarter than he lots on to.

    Looks like he got a great golden parachute, thus he did not go down with the ship, and therefore we should conclude that the economic catastrophe which occurred under Greenspan’s watch was not an accident.


      Your conclusion makes sense…this was no accident! Ayan Rand’s novel, Atlas Shrugged, posed the question “Who is John Galt?” We can now observe that the man who successfully stopped the world’s economic engine (the credit freeze of 2008) was in fact…

      The man who once preached the validity of the gold standard, and who was sworn into the Fed. while standing along side Miss Rand. Read the book and you’ll understand why…collaspe!

      It’s my understanding that his services to Paulson & Co. retain their value essencially in the form a non-compete agreement…he can’t ride in on his unicorn and wave his magic wand for anyone else, anymore. The curtain’s been pulled, and the wizzard of the “Emerald City” is no longer available for business. Load the Gold in Sacks is now running this show.

      Call it conspiracy theory, an active imagination, or whatever you will, but no one should be convinced that Greenspan missunderstood the eventual effect(s) of DEREGULATION – big banks swallowing up other big banks and insurance companys in the 90’s (along with well informed financial product/risk insurance consumers being replaced with the uninformed), REGULATION – community reivestment act, along with Barney, FEDDIE & FANNIE’s wild expansion plans and the resulting moral hazard of all that wonderfull thinking/feeling (nuff said), INNOVATION – derivatives (dispersed to an unregulated international derivatives market)…yeh right, the Interanational players had no idea what they were getting into there, and FINANCIALIZATION – resulting from the assoicated side payments of bundling fractionally valued, and fluctuating, non-collateralized assets over and over and over again (the musical chairs school of thought). But we’re still not done by long shot — Alt. A recasts now loom in the background (the next financial time bomb to go off). Don’t worry, you won’t be hearing about them in the financial news until the shoe has already dropped…the boys and girls in the media are all-in on the hand that’s being delt/played.

      Greenspan’s no idiot…he’s a believer (back to Atlas Shrugged). I suppose we could continue to label him as the Maestro, but let’s also keep it real, he got by with a little help from his freinds, as well as a few useful idiots.

  18. Seal

    Actually this is a twice in 360 year occurrence that last happened in February 1907. That led to the establishment of the Monster from Jekyll Island in 1913. It’s likely this second occurrence in October 2005 will lead to the dis-establishment of the Monster in about the same time period – 2011.

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