VideoVincent Ryan, CFO Magazine
December 1, 2008
- We can't see the future, but we can judge our predictions
Thanks for a very informative article. The mortgage finance failure and the credit crunch has sometimes been portrayed as a 'why-didn?t-anyone-see-it-coming event.' As Greenspan suggests, in the quote you cite, it wasn't.
He says: 'We just cannot see events that far in advance. There are always a lot of people raising issues, and half the time they're wrong.' So, he?s not saying, we didn't have any prediction of the financial crisis. He?s saying, people are predicting everything and one doesn't know whom to believe. A crunch was forecast, but more good times were also forecast, so who's to say who's going to be right?
Background is, as Greenspan implies, there were many who predicted the credit crunch. The Times of London ran a piece: '10 People Who Predicted the Financial Meltdown' (October 12). Allowing for a fairly loose definition of 'predicted,' the article shows that among those who foresaw the crunch were: Vince Cable, deputy leader of the Liberal Democrats (2003); US congressman Ron Paul (2003); Stephen Roach, senior executive at Morgan Stanley (2004); Christopher Wood ? chief strategist of a broking firm in the Asia-Pacific Market (2005); and Nouriel Roubini, economics professor at NYU (2006)? and there were many others.
So it?s not that the warnings were not there. It was that not enough people, Greenspan included, believed them enough to act on them. In other words, there are two halves to the prediction problem: the ability to see the full spectrum of what may happen, including unexpected outcomes; and the ability to act on what we see.
This really changes the game for business decision makers (forecast consumers). The problem isn't that the future will go unpredicted. Everything is predicted. The problem is which forecasts to believe.
The book I've put out, (Future Savvy, Amacom Press, NY) shows decision-makers how to apply systematic forecast filtering to reveal strengths and weakness in the predictions they encounter: how to weigh competing forecasts, how to tell a good forecast from a bad one, how to know which to believe.
-Adam Gordon
http://www.futuresavvy.net
Posted by Adam Gordon, Author, Future Savvy, Amacom, NY, 2009 | Dec 19, 2008 12:34 PM ET
- Do Research not Forecast
When you forecast you tend to place variables as being fixed and allow certain to be variable but in reality all are variable so any forecast is bound to be unreliable. Really you need to research on the ground and have various indicators stuck to the ground in various industries along the supply chain and across it as well.
Posted by Jon Tay | Dec 2, 2008 4:28 AM ET
- Forecasting Models
I think that is a key issue in all spheres of development, 'predicting the future'. Why do we seek astrologers...to know what lies ahead. What is the need for budgeting and depreciation cost...to allocate funds for future expenses. One of the interesting forecasting models that I have seen is the Stochastic Goal Programmed Model for Capital Budgeting Decisions (by J.D. Agarwal). There are various other models created by various economists but I found this model more applicable in the current scenario with highly variable RoE and RoI.
Posted by Gaurav Shukla | Dec 1, 2008 10:47 PM ET
