January 06, 2009
"I Told You So" and Other Just-So Stories
Posted by Fred Tung

Further to co-blogger David Zaring's excellent post, I'm getting a little weary of financial crisis stories in the popular press of the "so-and-so-saw-it-coming-and-why-didn't-the-rest-of-you(us)" variety.  Here's another Michael Lewis article (another long one) that heralds the end of Wall Street as we know it, and profiles hedge fund manager Steve Eisman, who began shorting the US mortgage market in 2005 and made a killing.  Now, I think Michael Lewis is a terrific writer, and this latest piece is definitely Bubblelg_2 worth a read (funny, insightful, the usual).  And I know nothing about Steve Eisman except what I read in the piece; he's probably a great investor.  But if a meteor struck Far Rockaway tomorrow and wiped it off the face of the map, we could probably find someone that predicted it decades ago, explaining to us how all the signs were there.  In short, there's always a wild survivorship bias in "I-Told-You-So" post-crisis coverage. 

Seeing it coming is no big trick.  Timing is the thing.  Remember they were calling the dot-com bubble as early as '96--when folks were using "burn rate" as a proxy for growth--but all the folks who got out too early gave up some big gains over the next few years  before the bubble popped in 2000.  Too bad no one lionizes the (probably legions of) folks that shorted too soon and lost their shirts, or the folks that were about to make a mint but shorted too late.  It would be fun to read profiles of those people, too.

A better piece reviews a recent book--Mr. Market Miscalculates--by James Grant of Grant's Interest Rate Observer.  While touting Mr. Grant's prescience on matters financial, it readily admits his mis-timings, both of the dot-com bubble burst and the mortgage meltdown.  At the end of the day, I'm with David.  Anyone who thinks the financial meltdown and its solutions are simple is . . . well, simple.
[Bubbles by Debbie & Stan's Saltwater Clip Art Collection.]

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