Wednesday, June 22, 2011
That is like saying you have only had one car accident in your whole life, and since it was just last year it is impossible for you to have another one this year! That was the sort of logic employed by the actuaries at AIG. The U.S. housing market had trended higher for decades. A drop in the housing market was all but impossible since it had not happened for so long. Such an event was an outlier, a black swan event that couldn't be predicted.
Cause and Effect
But, guess what? If we don't solve the economic issues that caused our problem the last time around, it is not just likely to happen again, it is guaranteed to happen again. It reminds me of the very definition of insanity - doing the same thing over and over again, each time expecting a different result! Despite the level of denial, actions do have consequences. The markets are no different. Sometimes sooner, sometimes later, mismanagement, just like corruption, takes it's toll and growth becomes stunted.
Clearly, these are the same people who think the markets are some random event. To them there is no trend, or pattern. They see no discernible cause and effect. There is no logical explanation for what happens. After all, if everything is random, then clearly, there is no accountability. Sounds like the case, or lack of it, for global warming. We can't hold industry and consumers accountable and demand they change their ways since the disappearance of the ice cap at the north pole is merely some random event.