How we can predict the next financial crisis

Two delusions characterized the Great Crash of 2007-2008 which wiped $5 trillion off global GDP and $30 trillion off world stock markets, according to risk analyst Didier Sornette, author of ‘Why Stock Markets Crash: Critical Events in Complex Financial Systems’.

1. It could never happen: we had supposedly entered the age of “economic moderation” buttressed by never-ending growth, low unemployment and low financial volatility otherwise known as the ‘Goldilocks economy’—not too hot, not too cold, but just right.

2. We couldn’t possibly have seen the Crash coming: it was a rare ‘Black Swan’ event, an unpredictable outlier, a freak wave of economic destruction.

While the first myth has been comprehensively debunked, the second myth persists among economists, central bankers and policymakers around the world, the French economist told TEDGlobal 2013 conference in Edinburgh. We were somehow helpless in the face of “the wrath of the Gods…there was no responsibility.” See the TED Talk below – well worth a look.

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