The financial crisis of 07/08 was one of – if not the – defining crises of our generation. With the benefit of nearly a decade’s worth of hindsight the fundamental causes of the crash are clear, if not obvious. Absurd levels of debt and leverage, a massive but-hardly-first-of-its-kind housing bubble, and the widespread proliferation of highly complex, poorly understood financial products all conspired to bring the global economy to the brink.

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Yet of all the many economists, politicians, institutions, and investors that really should have seen something coming, only a vanishingly small minority did. This is one of those interesting cases where predictions themselves had an iterative effect, changing the likelihood of events. People were so enamoured with the (very flawed) computer models that forecast plain sailing ahead, that they continued to indulge in incredibly risky behaviour, sowing the seeds of their eventual downfall. And when markets did start to go south, what really did the lasting damage was uncertainty about uncertainty. Bereft of their models or indeed any way of knowing who ultimately held toxic debt instruments, investors and institutions found themselves with no real way to distinguish the risky from the safe. So they shut up shop, and the result was an unparalleled credit crunch.

Of course the financial crisis is merely the latest in a long line of similarly unforeseen market crashes. The South Sea Bubble and Tulip Mania provide examples of misplaced exuberance that go right back to the very earliest days of stock trading. And just three days before the Wall Street Crash of 1929, celebrated economist and statistician Irving Fisher famously stated that “stock prices have reached what looks like a permanently high plateau”. How similar in nature were the misjudgments and poor predictions behind these crashes to the financial crisis of ‘07/08? Or was the latter a different beast entirely?

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