No one could have predicted

Jacob Weisberg wrote

The assumption that the rating agencies knew their business, a key enabler of the subprime meltdown, is analogous to the view before the Iraq war that Saddam Hussein had WMD. There are a lot of people now who scoff about what an obvious fallacy that was and not many who can point to doubts expressed at the time. But even if Rubin had better understood the risks Citi traders were taking and been in a position to do something about it, he almost certainly would not have said, “sell the AAA-rated CDOs.” Nor would anyone else have.

When Weisberg writes “not many” he means “none of the guys I hang out with” which means “no one who counts” or “none of the cool kids.”
Via Brad DeLong who wrote “in addition to Robert Shiller and Dean Baker, three people who can point to doubts expressed at the time come to mind: Raghuram Rajan, Alan Greenspan, and me.
What are we, chopped liver?”

But that’s not 2 % of it. The set of nobodies who don’t count included majorities in the House and the Senate and George W Bush Jr.

In September 2006, Congress passed the Credit Rating Agency Reform Act, after hearings and investigations that began in the wake of the Enron meltdown. The measure gave authority to the Securities and Exchange Commission to designate, regulate and investigate rating companies.

The law also prohibits notching, the threat of unsolicited bad ratings unless an agency is hired to assess a security. It also requires the rating companies to disclose any potential conflicts of interest.

That is a law passed in congress tightening regulation of ratings agencies, because congress was concerned about conflicts of interests. Weisberg may have assumed that the ratings agencies knew what they were doing. Actually congress seems to have agreed, and decided that the ratings agencies knew they were cashing in their reputations as quick as they could.

But I mean who can keep track of every little bill signed into law.

Notice he is talking about any time when AAA CDOs still had yields close to treasuries, that is not just the 1990s, when Rubin was at Treasury, but most of the period (including September 2006) when he was at Citibank.

That oversight isn’t even the grossest intellectual error in the brief passage I quoted. From one sentence to the next “not many” becomes not “anyone.” Obviously there were people effectively shorting AAA CDOs by investing heavily in CDSs on AAA CDOs. One is named John Paulson who has been in the news a bit lately. Andrew Lahde and Michael Burry are two others. Weisberg’s claim “not have said, “sell the AAA-rated CDOs.” Nor would anyone else have.” Is false and anyone who has been paying any attention knows it.

Weisberg sees no difference between saying a probability is low and that it is zero. So if the probability that a financier picked at random sys “sell the AAA-rated CDOs” is low then it is zero. I have one bit of financial advice – don’t take financial advice from Jacob Weisberg. When talking about the financial crisis he assumes that low probability events never happen.