Luci Ellis of RBA brings a truly Aussie perspective to this whole financial stability debate.
He says we should not really think about Black Swan moments as they cannot be predicted. Instead the focus should be on Platypus moments. Platypus is a strange animal and is really bizzare to know that such an animal exists. So, if you find certain economic and financial developments as bizzare but they are true, time to take notice. It is the Platypus moment for you:
So instead of looking for the unimaginable black swan, I would advocate observing those attitudes and behaviours, as well as the data. And the test I would apply is inspired by another member of Australia’s weird and wonderful fauna – the platypus. You see, when Europeans first saw a black swan, it would have been a surprise, but I doubt it rocked their world. There are plenty of other cases where the same species of animal is a different colour in different regions. But the platypus is strange. It is a mammal, but it has a duck’s bill; it is the only mammal with venomous spurs; it lays eggs; and it is a monotreme. When European scientists first saw the stuffed body of a platypus, they found it so bizarre that they thought it was a fake.
It’s that sense of disbelief, of incredulity, that something is too ridiculous to be true, and yet it is true: that feeling is telling you something. When you have that feeling, you are having what I have come to describe as a Platypus Moment. And it is that moment, that feeling, we should be alert to. It is not just a reaction to a statement or claim you find unbelievable. The reaction is to a practice or behaviour you concede is truly occurring, but find bizarre or foolish. The motivations underlying the behaviour are not coherent. The behaviour spurred by the motivations is not internally consistent, at least not from the perspective of the system.
He recalls a Platypus moment when he heard about this happening in US:
To give a personal example, some years ago I experienced a Platypus Moment when I first read about vendor-financed down payment assistance charities in the United States. They became quite common during the housing boom there. Home-building companies would donate money to charities that in turn gave money to first-home buyers to fund their deposits. Usually these charities were quite local, so the builder that funded them often got the money back by inflating the sale price of the house. Unsurprisingly, US government housing agencies have found that borrowers who had received this kind of assistance were three times more likely to default on their mortgage as those who had not (Montgomery 2008).
‘How’, I asked myself, ‘is this even legal?’
Sometimes it will be better, and more effective, just to point out that the platypus is strange. Like black swans, they turn up more often than you expect.
Hmmm.. Central Bankers/economists taking cues from zoology, ornithology (as they are referrred as hawks, doves, pigeons etc) is interesting stuff. Bringing different perspectives from other fields to explain things is always interesting.
Hmm… Australia has so many bizzare animals – Kangaroos,