The global financial crisis has been compared to many of the natural disasters, crimes, and terrible medical conditions that people fear. Many people unfortunately experience one or more of these directly or through a close friend or relative, and most people have their own perspective on going through the financial crisis that peaked in September of 2008. In the course of organizing lists of crisis related books, academic papers, films, as well as in surveying crisis experts, I've come across many interesting analogies, metaphors, phrases, and terms. I've found many of them thought provoking, and in some cases I've had to check a dictionary, thesaurus, or other web reference. In that spirit, I offer this collection.

ONE AFTERNOON that summer, I tried to lighten up the mood at the New York Fed with an impromptu contest for the best metaphor for what was happening to the financial system. "I've heard 'the wheels coming off the bus'," I said. "We've talked about the engines falling off the plane." The usual suspects were wildfireds and earthquakes, hundred-year storms and hundred year floods. We also discussed cancer and contagion, sweaters unraveling and boulders rolling down a hill. I relayed one I had first heard from Goldman Sachs CEO Lloyd Blankfein: "The rivets are coming off the submarine."

Tim Geithner in Stress Test

"Americans have horse sense. If you have a good case, and you make it clearly and concisely, you have a fighting chance of winning in the court of public opinion. Doing so may require the use of clever analogies, slogans, or gimmicks. It will almost certainly require metaphors, for people relate more to stories than to syllogisms."

Alan Blinder in After the Music Stopped

Global Financial Crisis Analogies & Metaphors

• Before the crisis reached it's most critical period, former President George W. Bush was quoted saying "Wall Street got drunk -- that's one of the reasons I asked you to turn off the TV cameras -- it got drunk and now it's got a hangover."
• Johnson & Kwak wrote about the White House Burning, but the fire analogy often suggested typically compares the crisis to large blazes like the Yellowstone fire of 1988. The suggestion is that attempts to prevent sparks and minor fires (and small financial crisis) from running their course ultimately creates a more flammable environment that results in much more damaging fires later on than would have occurred if the smaller fires (crisis) had not been artificially controlled or suppressed. The FCIC report mentions the analogy used by Larry Summers comparing financial crisis to a forest fire and the mortgage meltdown like a “cigarette butt” thrown into a very dry forest. Was the cigarette butt, he asked, the cause of the forest fire, or was it the tinder dry condition of the forest? Peter Wallison argued "high risk loans was not a 'cigarette butt;' they were more like an exploding gasoline truck in that forest." Nassim Taleb writes “Forests that never have fires are likely to be completely eradicated by fires when they happen. Forests that have regular fires are much more stable.” Ben Bernanke used the fire analogy in this IMF forum - "Once the fire is out, the public turns to the question of how to better fireproof the system." In Crisis Economics, Nouriel Roubini and Stephen Mihm write "Imagine that someone living in a huge apartment building has done something extraordinarily reckless and stupid, like smoking in bed. His apartment catches fire. Should he be bailed out? In other words, should the fire department come to rescue him? In the fire department doesn't, the entire building may go up in flames, taking the lives not only of the person who started the blaze but of hundreds of innocent people. That's basically the predicament faced by central banks and governments in the midst of the crisis."
• Citigroup CEO Chuck Prince is frequently cited for his 7/8/2007 comment referring to the firm’s leveraged lending practices: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” In After the Music Stopped, Alan Blinder (perhaps the most frequent user of metaphors I recall) writes "The high-stakes game of musical chairs turned out to be remarkably short on seats, and large swaths of the financial industry fell rudely to the floor." Others I found in Blinder's book include
  • "Did anyone get the license plate of that truck?" That's how many Americans felt after our financial system spun out of control and ran over all of us-almost literally-in 2008 ... the license plate of that truck read: L-E-H-M-A-N.".
  • The correct image for what we now call "Lehman Weekend" might be a chaotic three-ring circus at which a trio of jugglers named Benanke, Geithner, and Paulson tried to keep multiple balls in the air at once (Lehman, AIG, Merrill Lynch, and others) while an unruly herd of elephants stomped around shaking the ground, and a stiff wind threatened to blow down the circus tent.
  • "metaphor I use to illustrate the bursting of bubbles is Wile E. Coyote, that hapless enemy of Road Runner in the well-known cartoons. Wile E. Coyote in hot pursuit of the Road Runner, dashes straight of a cliff. He remains there for a while, suspended in midair, until he looks down, realizes he is supported by nothing, and crashes violently to the earth."
  • Like the crew of a sinking vessel, they [Bernanke, Geithner, Paulson] were rushing around trying to save as many passengers as possible. In a situation like that, loading up the lifeboats to their fullest capacity-or even beyond-without worrying about whether some undeserving parties jumped in is both natural and understandable.
  • Treasury's Bob Steel used a mad cow disease analogy for the financial markets: The disease may infect only a tiny portion of the beef on the market, but the infection is so frightening that consumers shun all beef.
  • "If your negligent neighbor falls asleep with a lit cigarette in his mouth, setting his house on fire, he's irresponsible and guilty. But you don't want him to perish in the blaze. Nor do you want his house setting the whole neighborhood on fire. So you call the fire department, even though it will cost taxpayers money."
• Per David Wessel in In Fed We Trust, the late Edward Gramlich said "In the subprime market, where we badly need supervision, a majority of loans are made with very little supervision ... It is like a city with a murder law, but no cops on the beat."
• Per David Wessel in In Fed We Trust, Nassim Nicholas Taleb compared the failure to see the calm masking the building of hidden risks as follows: "It was like someone sitting on dynamite and saying 'it's okay, we're safe because nothing has happened.'"
• Per David Wessel in In Fed We Trust, Ben Bernanke compared the idea of raising rates in response to rapidly rising stock or house prices to "doing brain surgery with a sledgehammer ... We cannot practice 'safe popping' at least not with the blunt tool of monetary policy." Bernanke cited his Princeton colleague Alan Blinder's quip that doing so is like "sticking a needle in a baloon; one cannot count on letting out the air slowly or in a finely calibrated way."
• Jeremy Siegel in Stocks for the Long Run (5th edition) offers the following. "The financial crisis of 2008 is illustrated by the following analogy. There is no doubt that the improvements in engineering have made the passenger car safer than it was 50 years ago. But that does not mean that the automobile is safe at any speed. A small bump on the road can flip the most advanced passenger car speeding 120 mph just as surely as an older model traveling 80 mph. During the Great moderation, risks were indeed lower, and financial firms rationally leveraged their balance sheets in response. But their leverage became too great, and all that was needed was an unexpected increase in the default rate on subprime mortgages-that 'bump on the road-to catapult the economy into crisis."
• Anat Admati, coauthor of The Bankers New Clothes writes in Too Much Debt and Not Enough Equity "the crisis the government faced in fall 2008 was less like a hurricane, and more akin to the crash of loaded trucks allowed to careen 40 miles over the speed limit. The runs and panics were due to the fragility of the financial system, which policymakers had tolerated and implicitly encouraged with flawed regulations and policies. Too little has changed since."
• In Street Fighters, Kate Kelly discusses Tim Geithner and Hank Paulson's discussions about Bear Stearns "using a dramatic analogy: They couldn't 'spray enough foam on the runway' to prevent this jetliner from crashing."
• Ed Lazear argued that the government initially began treating failing institutions as if they were like dominoes knocking each other over one by one, but they then decided the situation was more like kernels of corn popping (independently) as the temperature rose.
• Ricardo Caballero also moves from dominoes, but to an avalanche theory (in Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome) by comparing the economy to a sand hill. "At first a tiny grain of sand dropped on the hill causes no aggregate effect, but as the slope of the hill increases, eventually one grain of sand can be sufficient to cause an avalanche. Caballero also coins the phrase "sudden financial arrest" (comparable to the medical term "sudden cardiac arrest") and believes "There are striking and terrifying similarities between the sudden failure of a heart and that of a financial system."
• The FCIC report suggested that the merger of large financial firms were comparable to a "shotgun wedding" and later compared the events later in the crisis to "aftershocks" (implying an earthquake analogy).
• Henry Paulson described the crisis as a financial version of around-the-clock triage, while (per Stress Test) "The markets to use Ben's medical analogy, were in anaphylactic shock." Geithner also credits Gary Gorton for comparing the crisis to the "kind of understandable hysteria that breaks out after E. coli turns up in someone's hamburger. The problem might be poorly inspected ground beef in a single factory, but individual consumers have no way of knowing if the burger or even the steak is bacteria free." Per David Wessel in In Fed We Trust, Geithner used the runway-foaming metaphor to explain the strategy for containing the damage from Lehman's inevitable bankruptcy. Wessel also credits Kevin Warsh with "We hoped a lot of the underbrush was cleared away so that when the fire started there wouldn't be an inferno."
• Neel Kashkari suggests we had a financial heart attack and says we survived, but we're still obese. On 60 minutes, when a reporter asked if "the economy had a heart attack in that moment" Hank Paulson was replied, "I would say this: whether it had a heart attack or not, the arteries were clogged" (per David Wessel in In Fed We Trust).
• William Isaac wrote that we ended up in situation that was allowed "to develop into a crisis that has spread like a cancer throughout the financial system," while Robert Rodriguez suggests that monetary policy can create an "environment of cancers in the system and we will not know what the negative effects are until later (just like we didn't know about the bad credit underwriting in the last cycle)."
• In their FCIC Dissent, Hennessey, Holtz-Eakin, and Thomas compared the crisis to ailments by summarizing "If contagion is like the flu, then a common shock is like food poisoning."
• Guofu Zhou and Yingzi Zhu (in Is the Recent Financial Crisis Really a “Once-in-a-Century” Event?) compare infrequent events to the probability of dying "On any given day or in any given year, death is a small-probability event; over a hundred years, however, such an event is almost certain to occur."
• Bruce I. Jacobs in an article with a title that offers another analogy (Tumbling Tower of Babel: Subprime Securitization and the Credit Crisis) compares financial securities activities to "a shell game, the risk itself seemed to disappear in the shifting. But the underlying systematic risk remained and, magnified by huge amounts of leverage, blew up the very foundations of the financial system and, in turn, the economy."
• Stress Test credits Ken Garbade (economist at the New York Fed) for "comparing the financial system that September to an egg standing on its end. Any breeze could have blown it over."
• The FCIC majority report (page 21) compared the government's response to putting "fingers in the dike" while the damn was breaking.
• Tyler Cowen and others compare housing and subprime loans "to the proverbial canary in the coal mine" (in A Simple Theory of the Financial Crisis; or, Why Fischer Black Still Matters).
• Stan Liebowitz compares the Mortgage Meltdown to a Train Wreck.
• Foote, Gerardi, and Willen asked whether the events were more like malaria or more like an earthquake.
• Was the crisis more comparable to a Black Swan (popularized by Taleb, but suggested by others - Taleb compares the crisis to a white swan), a Black Turkey (Laurence Siegel), a Fat Turkey (Booth and Mazzawi), or a Dragon-King (Didierre Sornette)?
• While many think the sickness has been treated and the patient is recovering, Ross Levine compares crisis research to "An autopsy" and asks was the death a result of an accident, suicide, or negligent homicide?
• Joseph Tibman wrote about The Murder of Lehman Brothers while Barry Ritholtz suggests Lehman Brothers was just the first trailer in the trailer park that the tornado hit. Nomi Prins suggests there was a Pillage, while Robert Scheer suggests there was a Stickup.
• While many firms and banks passed away during the crisis, Yalman Onaran compares some of the prominent survivors to Zombies.
• Larry Summers compares crisis to a power failure, or all the telephones being shut off for a time (the network would collapse, connections would go away, and output would drop rapidly) and suggests some economists would argue that electricity is only 4% of the economy and that if you lost 80% of electricity, you couldn't lose more than 3% of the economy.
• Giampaolo Galli and Alberto Mingardi wrote in Lax Regulation Didn't Cause This Crisis "The U.S. regulatory landscape may resemble a jungle, but only because of all the choking vines."
• Bill Bernstein compares the pumping of liquidity by the Federal Researve into the system to "aiming this garden hose at a bucket that’s 20 yards away, which is the economy. It’s getting some water in the bucket, but it’s getting a whole lot more water on the surrounding pavement. And the surrounding pavement is risky assets."
• Binyamin Appelbaum in discussing crisis commentary suggests "Accounts of the financial crisis, in particular, have assumed the character of Mr. Potato Head kits. There is a box of standard explanations, and each writer picks the ones he finds most appealing."
• Crisis Analogies, Round Two in Barron's (5/8/2010) mentions "financial weapons of mass destruction," "buying insurance on a burning house," "selling a car with no brakes and then taking out life insurance on the driver," and Charlie Munger discussing credit-default swaps reminded him of two elderly California ladies convicted in 2007 of buying life insurance policies on vagrants and then running them over with their car.

Global Financial Crisis Vocabulary

Plenty of commentators have suggested getting familiar with relatively uncommon terms, like contagion and the following terms.

• Irrational Exuberance was popularized by Federal Reserve Board Chairman Alan Greenspan, but it was Robert Shiller that wrote the book and warned before the crisis (although there were also others that predicted financial Armageddon or Apocalypse ahead of the Crash).
• George Akerlof (Nobel Prize winner and Husband of Janet Yellin) and Robert Shiller wrote about the role of Animal Spirits (which I summarize here) in the economy and in crisis.
• As the crisis played out, Ben Bernanke took unprecedented actions to respond to what were called exigent circumstances while attempting to halt the meltdown.
• Judge Jed S. Rakoff summarizes the legal terms “willful blindness” and “conscious disregard” in discussing why there have been no high level executives prosecutions in connection With the financial crisis.
• The late Peter Bernstein suggested everyone become familiar with the term Hysteresis regarding greed and vast underestimation of risk (and more recently mentioned by Ezra Klein and Paul Krugman among others).
• John Taft suggests revisiting the term Stewardship.
• Gretchen Morgenson and Josh Rosner blame the crisis on Reckless Endangerment.
• Kevin Dowd argues government and financial attempts at Alchemy were responsible, and more recently Neil Irwin wrote about The Alchemists.
• Brendan Moynihan suggests this is the result of Financial Origami.
• Barry Eichengreen introduces us to the term Exorbitant Privilege.
• Paul Sperry believes is was perverse incentives.
• Many have blamed toxic securities, Francis Longstaff blames toxic policies and incentives.
• Many have asked who was Complicit, and while Hersh Shefrin points to common Psychological Pitfalls, Clive Boddy argues it was Corporate Psychopaths.

One of the many crisis debates is whether the explanation of the crisis is complex (multi factorial), or simple (one of many narratives). For instance, Allan Sloan writes "Instead of a discussion about what happened, we've gotten into a government-vs.-free-market shoutfest. These fragmented days, many people tend to see things in black and white terms, in ways that reinforce what they want to believe. The real world is more complicated than that. Black and white have their places -- but to understand the financial meltdown, you need to see some gray."

I've seen several documentations of the pattern of financial crisis occurrences over fairly consistent time periods. (1) Roger Lowenstein has an interesting footnote in The End of Wall Street about the tendency of crisis to occur in 7 years cycles (attributed to Jamie Dimon and JP Morgan's 2007 annual report), (2) Henry Paulson also notes a pattern in On the Brink, and (3) Frank Partnoy documents a chain of derivatives blow-ups. But the old analogy of military strategists mistakenly preparing to fight the last war looms in the background. As Stanley Fischer summarizes, "General's prepare for the last war. Economists prepare for the last crisis."

Importantly, a large percentage of commentators I've surveyed believe the crisis in it's broadest sense continues to this day. While clearly we want to prevent a recurrence, the conditions that existed prior to the crisis have changed and the risk remain that actions could have unintended consequences and potentially address risks that aren't currently present. The bottom line is we need to prepare for the future and prevent future crisis rather than trying to revise history or prepare to re-fight the last war.

Coincidentally, both Warren Buffett and Andrew Lo compared the crisis to World War II, but in different ways. As the crisis was unfolding, Warren Buffett suggested we were experiencing an economic Pearl Harbor (Warren Buffett on dateline). After the fact, Andrew Lo concludes in Reading About the Financial Crisis: A 21-Book Review, "Like World War II, no single account of this vast and complicated calamity is sufficient to describe it."

Professor Lo also compared conflicting crisis cause analysis to Akira Kurosawa’s classic 1950 film Rashomon, in which four individuals who participated in various aspects of the crime described it in contradictory ways. "At the end of the film, we’re left with several mutually inconsistent narratives, none of which completely satisfies our need for redemption and closure." Somewhat similarly, Nye Lavalle offers another analogy to me in summarizing why we have so many explanantions and narratives for the crisis - "If 20 students were asked to read the same book and then write a book report, if you get 20 different versions, are any of them wrong? No, because human beings are born with different genetic temperaments and each interpretation is their own. People will interpret information based on their own temperament, experiences, and beliefs." Of course there isn't just one book on the topic of the financial crisis - there have been more than 350.

Gary Karz, CFA
Host of InvestorHome
Founder, Proficient Investment Management, LLC

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