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There's an old saying: Academic economists have successfully predicted nine of the last five major recessions.

That is: One possible answer to the question in the title is: "Because actually the available information didn't make it clear what would happen and when; you thought it did, but actually you just got lucky."

Whether that's actually the case here is of course difficult to tell. On the one hand, hindsight bias (http://en.wikipedia.org/wiki/Hindsight_bias) makes it likely that it won't feel like it is, even if it is. On the other hand, uh, it does indeed feel like the crisis was pretty predictable. (But I bet that most people who are now saying "well, that was hardly surprising" failed, just as FWIW I failed, to short the market heavily or anything. Not-being-surprised is cheap.)



But that still means that Greenspan was wrong. He said that no-one predicted this crash and this is clearly wrong.

Even if the people that did predict it were the kind of people that always predict recessions, they still should have caused a little bit of head scratching in the Fed and in the top banks and the rating agencies. Somebody could have actually done some simple arithmetic to determine whether the average person can afford the average house. I mean this is not difficult stuff.


The correct quote is by the late great Paul A. Samuelson and he said:"The stock market has forecast nine of the last five recessions"

The rest of your comment is right on the mark.


I have to agree with the idea that he just got lucky.

If he was really so sure of his assessment back then then why didn't he short sell a bucket load of these mortgage backed securities?


He came up with the credit default swap trade where you buy insurance against mortgage backed securities failing.

This was really a great trade because his losses were capped at around 5% a year while his upside was huge, imagine a 6:1 payout.


> If he was really so sure of his assessment back then then why didn't he short sell a bucket load of these mortgage backed securities?

"The market can stay irrational longer than you can stay solvent." is the traditional response.

The problem was "obvious" in 2001.




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