Black Swans and the Omnibubble

It seems strange to associate swans and the Omnibubble, though there is a method here, though it's not madness.  Before we talk about birds and bubbles, let's talk about normalcy bias.  Normalcy bias is a mental state people enter when facing disaster.  People assume that because an event has not occurred it cannot occur.  When the event does occur, people are consumed with a paralysis and are unable to take action.  This phenomenon is typical during natural disasters.  There may be an evolutionary reason for normalcy bias.  During times of stress, the brain tends to process information slower.

Now on to the birds...Black swan events are those of low probability but high impact.   Even though the black swan seemingly appears out of nowhere, the public rationalizes that the event was predictable.  We've entered a period where the probability of a black swan increases daily.  The bursting of the Omnibubble will precipitate the black swan.   The public will be unprepared for the ensuing financial events.

When facing the financial crisis of 2008, many firms never accounted for the failure of financial institutions or exotic financial products since the mathematical models did not allow for such an outcome.  All they could do was wait for governments and central banks to save them.  By the same token, governments and central banks were ill-prepared to deal with the crisis, a crisis to which they contributed.   While some air came out of the 2008 Omnibubble, it got quickly reflated by our financial wizards.  That attempt at financial and economic salvation has produced greater economic inequality.   The public rebelled.  Remember the Occupy movement?  It seems like so long ago yet now we're witnessing something of a similar ilk in France.

When the black swan appears, normalcy bias suggests the public will be paralyzed and demand government fix things.  Will the public accept the solutions from a decade ago?  Who's going to come to the aid of the financial wizards in that case?

I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them. Thomas Jefferson