“A theorem: In matters of military contingency, the expected, precisely because it is expected, is not to be expected. Rationale: What we expect, we plan and provide for; what we plan and provide for, we thereby deter; what we deter does not happen. What does happen is what we did not deter, because we did not plan and provide for it, because we did not expect it.”
- Sir Michael Quinlan, cited in ‘The Secret State: preparing for the worst; 1945-2010’ by Peter Hennessy. Hat-tip to S.G.
Another theorem: two years after the failure
of Lehman Brothers, literally anything is possible. In financial markets, the
boundaries of possibility had previously been circumscribed by a limited number
of core beliefs or assumptions: that debt rated ‘investment grade’ was sound;
that credit ratings agencies were broadly competent and, as state-sanctioned
quasi-monopolies, acted objectively on behalf of the public good; that
developed world government debt was essentially riskless; that investment
businesses that became insolvent could be wound down in an orderly manner; that
regulation of the financial sector existed; that banks operated on a broadly
level playing field with the rest of the economy; that financial markets were
largely benign structures that operated efficiently; that bankers were
motivated by considerations other than greed and self-preservation. In shorter
form, that free market capitalism worked.
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