Dominoes vs. popcorn (via @andrewrsorkin)

There’s something about the popcorn analogy. The dominoes one has been so over-used that this struck me as a particularly smart way to put the Lehman crisis. Andrew Ross Sorkin quoting Ed Lazear in this piece on the 5th anniversary of the financial crisis:

Ed Lazear, chief economic adviser to President George W. Bush, told a group of students at the University of Chicago Booth School of Business, however, that thinking about the crisis as a series of dominoes may be the wrong analogy.

“Under the domino theory of contagion, one domino falls and knocks over the other dominoes, and they all topple, and you’ve got a mess on your hands,” he said. “That’s pretty much what we were thinking in saving Bear Stearns. That looked like the way to go. Unfortunately, the model was not dominoes; it was popcorn.

“When you make popcorn, you heat it up in a pan and, as the kernels get hot, they pop. Taking the first kernel to pop out of the pan doesn’t do anything. The other kernels are still getting hot, the heat is on, and they’re going to pop no matter what,” he said.


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