Did I fail to foresee the financial crisis? Absolutely. Brad DeLong gives some reasons that also go for me.

I was “expecting,” in the sense of anticipating that it was they were both likely enough and serious enough that public policymakers should be paying significant attention to guarding the risks that it would create:

(1) A collapse of the dollar produced by a panic flight by investors who recognized the long-term consequences of the U.S. trade deficit…

I was not expecting…

the fact that highly-leveraged banks working on the originate-and-distribute model of mortgage securitization had originated but had not distributed: that they had held on to much too much of the risks that they were supposed to find other people to handle…

the panic flight from all risky assets–not just mortgages–upon the discovery of the problems in the mortgage market…

the engagement in regulatory arbitrage which had left major banks even more highly leveraged than I had thought possible.

I will add that I was definitely not expecting Freddie Mac and Fannie Mae to have ventured so far away from the idea of investment-quality mortgages that they had enough exposure in subprime loans to wipe out their capital.

The original demand for a “Why I was wrong” post comes from Calculated Risk (I thought this was Tanta, no?), who chastises me for having gotten snarky in August of 2006 about Nouriel Roubini’s claim that the odds of a recession by the end of the year were 50 to 70 percent.

Excuse me? Does the third quarter of 2008 count as “the end of the year” in 2006? I think that my old post that Tanta dredged up illustrates exactly why Roubini and Krugman were not taken more seriously. They made extravagant doomsday predictions in good times and bad. Krugman has been screaming “Depression! Liquidity Trap!” for seven years now. At this point, I would concede that the probability of those events has increased from one in a million to one in a thousand. That’s not quite a license for him to say, “I told you so.”