Financial Fuss (8) - Perfect Storm

Almost no one expected what was coming. It’s not fair to blame us for not predicting the unthinkable.— Daniel H. Mudd, former chief executive, Fannie Mae

The clever people are now saying that they were caught our by abnormal market conditions. They are not to blame, but deserve to be rescued, because they have been hit by the perfect storm. This is just a crazy excuse for their foolishness.

The fall in house prices is not an abnormal market condition. It is what normally happens at the end of the boom. The collapse of a bank that is leveraged to the point where its liabilities are thirty to forty times greater than its capital is not abnormal. It was inevitable.

The credit crunch is not a perfect storm. It is the normal functioning financial markets after period of irrational exuberance. It is what normally happens when government agency stuff things up.