Analyzing the 2008 panic I

We will be analyzing and talking about the 2008 panic for decades to come, looking back.
The first real good commentary and analytical articles are now appearing, this is a sign that the most immediately dramatic part might be over. We are now beginning to be able to look back on this.

I recommend this one by Michael Rozeff:

Finance professionals are bewitched by numbers, complex mathematics, and elegant models. They think they can measure risk objectively. This is why they are surprised when a seemingly rare event occurs that they think shouldn’t have happened in 10 million years.”

This observation (and the entire article) is especially relevant to Norway as the people who are managing the Norwegian oil fund “Norges Bank Investment Management” is under this illusion that they know the risks they are taking down to the third, fourth or fifth decimal point.
Unfortunately, therefore, they do not understand, or they misunderstand rather, the risk they are taking, and that is why they have been burned and will be burned even more.
The people at NBIM appear to have control, nice offices, titles, speeches, presentations – it is their legitimately that is at stake. The NBIM CEO Ynge Slyngstad is a tall handsome authoritative figure, with an imposing posture and voice, another cheap trick to persuade the public into believing this is safe and that “they know what they are doing” (a 4 foot, ugly, bald, squeamish guy would just not do the trick on TV) – when in fact they don’t know what they are doing.
The main objection is that they are econometricians, mathematicians – more than philosophers.
One of the smartest guys I know in Norway works there, but he is smart in a very narrow sense.
What I would like to see from NBIM would be an extremely humble, broad based approach. Not insistence on decimal points. But that is just not how the marketplace for NBIM works.
As far as we know there isn’t even one Austrian Economists on the team at Norges Bank Investment Management, that alone is a most dire warning sign.
Our prediction at Farmann is that most Norwegians will never see anything near the USD 100 000 (maybe twice or three times this at a future peak) that they each proportionally “have” in the oil fund, or more precisely – the return of this capital.

Hans Lysglimt, Gran Canaria Spain December 26, 2008.

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