Greenspan … added that the financial crisis could not have been foreseen.
“It is just not feasible to forecast a financial crisis,” he said. “A financial crisis by definition is a sharp abrupt, unexpected decline in asset prices.”
Notice that he says if it is unexpected, then it *can’t* be forecast. That is if the risk bearing capacity weighted average investor doesn’t forecast something then it isn’t forecastable. Greenspan is asserting that financial markets are efficient by definition. He displays no willingness to allow data or evidence any role in answering the question.
Only that which is rational is real. The key policy relevant question is answered by definition, that is, by authority. Efficient is whatever markets are, and also what they should be, therefore markets are what they should be – by definition.
This is dogma, this is faith, this is medieval thinking. Galileo lived in vain. The enlightenment arrived in the Fed when Bernanke replaced Greenspan.
via Atrios. More ranting after the jump.
Also “Former Federal Reserve Chairman Alan Greenspan said that the recent stock market decline is “typical” of a recovery,” If a decline is typical then it is forecastable. If a decline is typical during a recovery, then financial markets are inefficient. I see no basis for the claim (which, I amdit, was constructed with only one actually quoted word).
Note how the efficient markets hypothesis is switched on and off for convenience. Something which could have been prevented with tighter regulation must have been unpredictable. Something which might or might not alarm people was predictable and isn’t news. I am fairly sure that no one believes that financial markets are efficient. It is just a debating trick. It can be assumed at will in order to make absurd arguments. It is absurd and has high status, for some reason, so it is a license to make clearly false claims which are not dismissed.