by Robert Benincasa

NPR's numbers guru Robert Benincasa sends this post:

A new briefing paper gives lawmakers yet more tools for solving the financial crisis — or maybe for endless arguing and limited action. The 10-page report, from the Congressional Research Service, offers a handy list of 26 causes. Each cause comes in a neat one-paragraph thumbnail and includes a punchy counter-argument.

On the housing bubble: "The crisis was triggered by the bubble bursting, as it was bound to do."

Counter-argument: "It is difficult to identify a bubble until it bursts, and Fed actions to suppress the bubble may do more damage to the economy than waiting and responding to the effects of the bubble bursting."

After the jump, argument and counter-argument on "Black Swan Theory."

 

The argument for the Black Swan Theory:

This crisis is a once-in-a-century event, caused by a confluence of factors so rare that it is impractical to think of erecting regulatory barriers against recurrences. According to Alan Greenspan, such regulation would be "so onerous as to basically suppress the growth rate of the economy and ... [U.S.] standards of living." Testimony before the House Oversight and Government Reform Committee, Oct. 23, 2008.

The counter-argument:

"Some might be tempted to see recent events in the financial markets as just such black swans. But this would be quite wrong, in our view. Many of the flaws that have led to current turbulent conditions have not ridden on the back of a black swan. Instead, they are the result of weaknesses and failings in the interpretation of risk analysis and the process of oversight." (Booth and Mazzawi)