It was the best of times, it was the worst of times

No one expected it

Lifetime strongest global economy
Early in 2007, the financial sector saw all that it had made and it saw that it was good. Due to the liberation of markets, the economy had reached a level of stability so far unprecedented; the economies that took the most aggressive measures reaped the biggest rewards. Secretary of the Treasury Hank Paulson told President Bush: "This is far and away the strongest global economy I've seen in my business lifetime". One year later he said "This is the most serious thing that we faced". note note

No one expected it
Late in 2007, former Chairman of the Federal Reserve Alan Greenspan said that the collapse of the US subprime market "was a shocker because no one expected it". link
In the late 1980s, America lived through the Savings and Loan crisis, with Greenspan as an enthusiastic advocate for the fraudsters. On a smaller scale, it was a forerunner of the subprime crises. With fictitious profits through grotesquely overvalued assets; with looting through absurd salaries, fees, bonuses and other perks; with losses left to taxpayers and investors.
From the great depression till June 2005, America lived through 29 market bubbles; except for what was then the ongoing stock and housing bubbles they had all burst. If no one expected the collapse, that would be a shocker. note

We told you so
In 2008, the Bush administration penned a memo entitled G.S.E.'s We told you so about how they had seen the problems years ago; about how the Democrats had blocked their attempts to gain control over the situation. They were referring to a 2003 report from the Office of Federal Housing Enterprise Oversight, warning that Fannie and Freddie risked becoming insolvent because of irresponsible lending practices and risk management; this in turn could have a domino effect, causing liquidity shortages in the market. The Bush administration did not mention that on the day the report was published, Bush's White House personnel fired the author. note
In 2001-2003, reports and books warned for a subprime collapse. link In 2005, a professor from Yale warned OCC and FDIC, both bank regulators, about loose lending standards. He was brushed off. This was repeated the same year, at the annual Federal Reserve Jackson Hole conference; for the last time chaired by Greenspan. A former chief economist at the IMF warned about the financial system being in danger of meltdown. He was met with withering criticism and dismissed as a financial reactionary. note But already in 2004, Morgan Stanley started to bet against the bubble. And in the end of 2006 it was common knowledge on Wall Street, with heavy betting on a collapse. note

It wasn't our fault
So how did the financial sector explain the crash? It wasn't their fault. It was just bad luck. It was something so improbable, we would probably have to wait for longer than the age of the universe for it to happen again. And they expect us to believe that they understand economics? note

© Anders Floderus