7894bdb0_brary_of_Economics_and_Liberty__ast_Highlights_HIDE_HIGHLIGHTS
[Time] 8:37
Title of book: "This Time is Different." Meaning? Ironic, meant to capture the "we are geniuses" mentality that characterizes the boom prior to the crash. Look, those crises happen to other people and at other times, not to us; when you point out that other things are off kilter like price-to-earnings ratios or debt-to-income, reply is that the old rules of valuation don't apply; this time is different. Story varies from episode to episode but the common theme is that those rules just don't apply to us. We're smarter; we've gone as far as the Great Moderation suggests; those things happen in emerging markets; they don't happen here. It is that mentality that allows both policy makers and market participants to overlook what begins to be mounting evidence that red lights are blinking; indicators are showing--be it a bubble in the real estate market or an unsustainable current account deficit or household debt levels off the charts, or a combination. Book title: worked at the International Monetary Fund (IMF). Right after the Mexican peso crisis of 1994-1995, traveled all over Asia; Asian countries were running huge current account deficits and financing the current account with a lot of short term capital inflows. Yet perception was very complacent: in Mexico those indicators pointed to a problem, but those problems don't happen in Asia; we have high saving rates and Asian values. Major tipping point: that frame of mind is an endemic problem. Euphoria. Psychologically fascinating. Nassim Taleb podcasts. Different take on title: Can always argue that each one is different. Title applies to before the fact, but it also applies to after the fact. Have a tendency to say let's get the forensic equipment out and look deeply into what's special about this one. About this one people say it's a perfect storm; but maybe it's simpler. Book is a very forest-based approach. Example: "This time is different" applies at different points in the cycle. Have been emphasizing the psychology before the crisis, but now a different sort. Right now restructuring our banks, or more accurately not restructuring them--very similar to what Japan did in the 1990s; keep doing the same thing over again and expect a different outcome. Einstein quote, definition of insanity. Before the crisis is when it reaches its most ridiculous dimensions. Let's look at all the intricacies, develop new models, develop new regulation, and all kinds of new things to deal with the same old problem. Quote may not be Einstein's.
Reinhart on Financial Crises | EconTalk | Library of Economics and Liberty