So, like the Queen asked, why didn't anyone see it coming?
"At every stage," replied Professor Luis Garicano, showing Her Majesty the London School of Economics' new £71 million ($140m) faculty building in November 2008, "someone was relying on somebody else and everyone thought they were doing the right thing."
The British press snarled and barked at his sorry excuse for an answer. But given a few days – and then a few months, and then a few years – the economics profession finally got its explanation together...
"The simple response is that many people did see it coming." - Prof.Garicano, defending himself in The Guardian a week later
"Many people did foresee the crisis...but nobody wanted to believe [it]." - Open letter to the Queen, summarizing a Royal Academy seminar of experts, July 2009
"The answer is extremely simple: no-one believed it could happen." - Mervyn King, governor of the Bank of England, BBC Today lecture, July 2012 (no doubt reprising his own 2009 audience with Her Majesty)
So many people, such simplicity! But oh, so much disbelief too!
Contrary to what celebrity-economists would have you think, most people did in fact see the crash coming. Ask anyone you know. I promise they'll say they knew what was coming. It's just that, well, they didn't do anything about it. It wouldn't have been a crash if they had. Because they would have got out of the way, or – if they had any say in the matter – they would have done something (raising interest rates, trading more cautiously, reining back lending standards) to stall the bubble long in advance.
But contrary to the professionals again, a few people most definitely did believe it would happen. What else do you think drove the 150% rise in gold and silver investing prices in the half-decade before Northern Rock blew up? Reviewing global finance in the August 2007 edition of his Gloom, Boom & Doom newsletter, Marc Faber – a long-time advocate of buying gold – listed 13 clear warnings of trouble ahead, starting with the 2001-2006 period.
"Ultra-expansionary US monetary policies," wrote Faber of Alan Greenspan's response to the Tech Stock Bust, "with artificially low interest rates lead to bubbles all over the world and in every imaginable asset class.
"First Warning: The price of gold more than doubles..."
That red line marks the credit crunch of Aug. 9, 2007, which all too rapidly for the all-knowing disbelievers became the Northern Rock bank run of Sept. 14. Over the preceding half-decade gold and silver had doubled in price. Over the following five years, they've both gone on to triple again.
About the Author
Adrian Ash runs the research desk at BullionVault. Formerly head of editorial at Fleet Street Publications – London's top publisher of financial advice for private investors – he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to a number of investment websites.