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Global Financial Crisis Analogies, Metaphors, and Vocabulary

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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

Global Financial Crisis Vocabulary

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

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 Follow GKarz on Twitter
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Founder, Proficient Investment Management, LLC

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