Disaster Myopia

Disaster Myopia

Myopia is short sightedness. Basically, you can only see at arm's length. The faraway things appear blurry. Disaster Myopia basically means that you think a winning streak is gonna last forever. You focus too much on your current success and you ignore past mistakes that led you to perdition. Its like playing poker, you get a winning streak and then you refuse to quit while you are ahead. You keep thinking, I have to bleed this good luck for all its worth. When the bad luck comes then you loose all your money.

The same thing happened with the housing crisis. The fed did not feel like regulating it cause it seemed like the housing prices were gonna go up forever and ever. However, the housing bubble did burst and now all houses are worth less than what we payed for it. This has happened in many countries across the world. Yet, our disaster myopia kept us from doing what was right (i.e tighten the noose on bank loans). 

When all was going well ,instead of making certain it stayed that way, the fed relaxed its hold. When deregulation kicked in, in less than 20 years all went to hell. The banks started giving out riskier, and riskier loans. Heck, during those days, even if you were homeless guy ,that had not worked since the Berlin wall fell, you could get a loan from a bank to buy a fancy $250,000  home. You have to be an idiot to give out loans like that!!!

But disaster myopia was working its magic. Within the banks, they had developed a fancy system to measure the risk. However, the graph they made up only focused on data of recent years (again myopia). It did not take into consideration the Great Depression, the savings and loans disaster and the .com bubble. By ignoring this data, their leaders gave the go ahead to all loans. After all, they were working under the assumption that housing prices were gonna go up till doomsday. Thus, their risk prognostic failed when they were needed the most because it did not account for market failures (which they were designed to prevent).

This is the disaster myopia of which I speak of. This is also the reason why I never believed in statistics. Humans endemic can do attitude always opaques prudence. We will always suffer disaster myopia during the good days. No on wants to hear that the rising price of one's house is an illusion.

I hope that you enjoyed not reading this blog. If you did, then 5 star rating for you. Frankly, I think part of the reason we are so screwed is because we know nothing about economy. Heck, a simplified 6 month kiddy grade economic course in high school is not a true economics class. But alas, I am but a voice screaming in the desert of the internet. Good day to you...ta ta and good night.