Banks blamed the 2008 crash on impossible statistical outlier events

Evidence

A common refrain when the crisis first hit was that no one could have seen it coming. It was the financial equivalent of the meteor that wiped out the dinosaurs. All the diversification and hedging strategies that were supposed to keep banks from blowing up were, as David Viniar, the chief financial officer of Goldman Sachs put it, blindsided by “25 standard deviation moves, several days in a row.” This is similar to the “ten sigma event” claim reportedly made by John Meriweather when his hedge fund, Long Term Capital Management (LTCM), blew up in 1998. — Mark Blyth, Austerity, 103

Categorization

• XREF: The Goldman Sachs ‘25 sigma’ and LTCM ‘ten sigma’ excuses are recurring examples in critiques of financial risk management; connects to broader austerity/blame literature. — connects to: Claiming that correlated market crises are statistically impossible is plainly false — Mark Blyth, Austerity: The History of a Dangerous…, 104; Banks’ risk models treat the past as the limit of what can happen — Mark Blyth, Austerity: The History of a Dangerous…, 109; Observed storm data contained outliers contradicting the assumed normal distribution — Douglas A. Kysar, Regulating from Nowhere: Environmental…, 209
• CANDY: The ‘meteor that wiped out the dinosaurs’ framing for the financial crisis is quotable.

Broader Connections

• Claiming that correlated market crises are statistically impossible is plainly false #corroborates (0.85) — Mark Blyth, Austerity, 104
• Banks’ risk models treat the past as the limit of what can happen #expands (0.80) — Mark Blyth, Austerity, 109