Chapter 1: A Catastrophic Failure of Prediction Summary and Analysis

In the fall of 2008, the stock market was crashing, formerly esteemed companies were failing, credit markets were not functioning, houses in Las Vegas lost 40 percent of the their value, unemployment was soaring, billions had been committed to saving the financial institutions and the government had lost credibility with the people. All this and a presidential election was just two weeks away.

Financial institutions, credit rating agencies and the government had failed but what was also to blame were failures in predictions. It is a natural thing for people to focus on what they want to hear and want to be true. We sometimes ignore unpleasant realities to our great peril. One of the causes of the economic collapse was that the top credit rating agencies had given AAA ratings to thousands...