Efficient market theory could not imagine internally-generated systemic crisis

Evidence

The problem with the new instruction sheet was that by seeing only equilibrium and efficiency arising out of the trading decisions of supersmart actors, it ignored the possibility of a crisis arising from any source apart from moral hazard or some large exogenous and usually state-induced political shock. It simply could not imagine that the meshing of elements that were each intended to make the world safe, such as mortgage bonds, CDSs, and banks’ risk models, could make the world astonishingly less safe. — Mark Blyth, Austerity, 130

Categorization

• XREF: Echoes the reader’s noise/communication interests: systems that assume equilibrium cannot model the emergent dangers of component interaction. — connects to: The efficient-markets hypothesis simultaneously justifies state failure and enabled the financial crisis — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 150; Claiming that correlated market crises are statistically impossible is plainly false — Mark Blyth, Austerity: The History of a Dangerous…, 104; The efficient-markets hypothesis erased discussion of bubbles and speculation — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 749 (+11 more)

Broader Connections

• The efficient-markets hypothesis simultaneously justifies state failure and enabled the financial crisis #expands (0.90) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 150
• Market actions based on efficient-market models can create anomalies those models cannot explain #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1166
• Claiming that correlated market crises are statistically impossible is plainly false #expands (0.85) — Mark Blyth, Austerity, 104
• The efficient-markets hypothesis erased discussion of bubbles and speculation #expands (0.85) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 749
• Fundamentally unrelated market phenomena can suddenly move in lock-step within a global microstructure #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1088
• The financial system failed to foresee crisis because its risk theory denied catastrophes #expands (0.80) — Mark Blyth, Austerity, 100