[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.82,0:00:02.33,Default,,0000,0000,0000,,Once upon a time
Dialogue: 0,0:00:02.33,0:00:08.98,Default,,0000,0000,0000,,we lived in an economy of financial growth and prosperity.
Dialogue: 0,0:00:08.98,0:00:12.67,Default,,0000,0000,0000,,This was called the Great Moderation,
Dialogue: 0,0:00:12.67,0:00:16.08,Default,,0000,0000,0000,,the misguided belief by most economists,
Dialogue: 0,0:00:16.08,0:00:19.38,Default,,0000,0000,0000,,policymakers and central banks
Dialogue: 0,0:00:19.38,0:00:22.71,Default,,0000,0000,0000,,that we have transformed into a new world
Dialogue: 0,0:00:22.71,0:00:26.57,Default,,0000,0000,0000,,of never-ending growth and prosperity.
Dialogue: 0,0:00:26.57,0:00:31.31,Default,,0000,0000,0000,,This was seen by robust and steady GDP growth,
Dialogue: 0,0:00:31.31,0:00:34.31,Default,,0000,0000,0000,,by low and controlled inflation,
Dialogue: 0,0:00:34.31,0:00:36.55,Default,,0000,0000,0000,,by low unemployment,
Dialogue: 0,0:00:36.55,0:00:40.46,Default,,0000,0000,0000,,and controlled and low financial volatility.
Dialogue: 0,0:00:40.46,0:00:47.09,Default,,0000,0000,0000,,But the Great Recession in 2007 and 2008,
Dialogue: 0,0:00:47.09,0:00:50.57,Default,,0000,0000,0000,,the great crash, broke this illusion.
Dialogue: 0,0:00:50.57,0:00:55.59,Default,,0000,0000,0000,,A few hundred billion dollars of losses in the financial sector
Dialogue: 0,0:00:55.59,0:00:59.67,Default,,0000,0000,0000,,cascaded into five trillion dollars
Dialogue: 0,0:00:59.67,0:01:01.56,Default,,0000,0000,0000,,of losses in world GDP
Dialogue: 0,0:01:01.56,0:01:05.36,Default,,0000,0000,0000,,and almost $30 trillion losses
Dialogue: 0,0:01:05.36,0:01:09.31,Default,,0000,0000,0000,,in the global stock market.
Dialogue: 0,0:01:09.31,0:01:14.50,Default,,0000,0000,0000,,So the understanding of this Great Recession
Dialogue: 0,0:01:14.50,0:01:19.86,Default,,0000,0000,0000,,was that this was completely surprising,
Dialogue: 0,0:01:19.86,0:01:21.21,Default,,0000,0000,0000,,this came out of the blue,
Dialogue: 0,0:01:21.21,0:01:24.12,Default,,0000,0000,0000,,this was like the wrath of the gods.
Dialogue: 0,0:01:24.12,0:01:25.92,Default,,0000,0000,0000,,There was no responsibility.
Dialogue: 0,0:01:25.92,0:01:27.84,Default,,0000,0000,0000,,So, as a reflection of this,
Dialogue: 0,0:01:27.84,0:01:31.45,Default,,0000,0000,0000,,we started the Financial Crisis Observatory.
Dialogue: 0,0:01:31.45,0:01:35.39,Default,,0000,0000,0000,,We had the goal to diagnose in real time
Dialogue: 0,0:01:35.39,0:01:37.76,Default,,0000,0000,0000,,financial bubbles
Dialogue: 0,0:01:37.76,0:01:43.61,Default,,0000,0000,0000,,and identify in advance their critical time.
Dialogue: 0,0:01:43.61,0:01:46.97,Default,,0000,0000,0000,,What is the underpinning, scientifically, of this financial observatory?
Dialogue: 0,0:01:46.97,0:01:51.60,Default,,0000,0000,0000,,We developed a theory called "dragon-kings."
Dialogue: 0,0:01:51.60,0:01:54.80,Default,,0000,0000,0000,,Dragon-kings represent extreme events
Dialogue: 0,0:01:54.80,0:01:58.08,Default,,0000,0000,0000,,which are of a class of their own.
Dialogue: 0,0:01:58.08,0:02:00.92,Default,,0000,0000,0000,,They are special. They are outliers.
Dialogue: 0,0:02:00.92,0:02:04.36,Default,,0000,0000,0000,,They are generated by specific mechanisms
Dialogue: 0,0:02:04.36,0:02:07.24,Default,,0000,0000,0000,,that may make them predictable,
Dialogue: 0,0:02:07.24,0:02:10.14,Default,,0000,0000,0000,,perhaps controllable.
Dialogue: 0,0:02:10.14,0:02:13.97,Default,,0000,0000,0000,,Consider the financial price time series,
Dialogue: 0,0:02:13.97,0:02:16.14,Default,,0000,0000,0000,,a given stock, your perfect stock,
Dialogue: 0,0:02:16.14,0:02:18.50,Default,,0000,0000,0000,,or a global index.
Dialogue: 0,0:02:18.50,0:02:20.55,Default,,0000,0000,0000,,You have these up-and-downs.
Dialogue: 0,0:02:20.55,0:02:24.11,Default,,0000,0000,0000,,A very good measure of the risk of this financial market
Dialogue: 0,0:02:24.11,0:02:26.53,Default,,0000,0000,0000,,is the peaks-to-valleys that represent
Dialogue: 0,0:02:26.53,0:02:28.83,Default,,0000,0000,0000,,a worst case scenario
Dialogue: 0,0:02:28.83,0:02:32.50,Default,,0000,0000,0000,,when you bought at the top and sold at the bottom.
Dialogue: 0,0:02:32.50,0:02:36.25,Default,,0000,0000,0000,,You can look at the statistics, the frequency of the occurrence
Dialogue: 0,0:02:36.25,0:02:38.61,Default,,0000,0000,0000,,of peak-to-valleys of different sizes,
Dialogue: 0,0:02:38.61,0:02:41.16,Default,,0000,0000,0000,,which is represented in this graph.
Dialogue: 0,0:02:41.16,0:02:44.19,Default,,0000,0000,0000,,Now, interestingly, 99 percent
Dialogue: 0,0:02:44.19,0:02:47.98,Default,,0000,0000,0000,,of the peak-to-valleys of different amplitudes
Dialogue: 0,0:02:47.98,0:02:51.44,Default,,0000,0000,0000,,can be represented by a universal power law
Dialogue: 0,0:02:51.44,0:02:54.89,Default,,0000,0000,0000,,represented by this red line here.
Dialogue: 0,0:02:54.89,0:02:59.04,Default,,0000,0000,0000,,More interestingly, there are outliers, there are exceptions
Dialogue: 0,0:02:59.04,0:03:00.94,Default,,0000,0000,0000,,which are above this red line,
Dialogue: 0,0:03:00.94,0:03:04.70,Default,,0000,0000,0000,,occur 100 times more frequently, at least,
Dialogue: 0,0:03:04.70,0:03:08.85,Default,,0000,0000,0000,,than the extrapolation would predict them to occur
Dialogue: 0,0:03:08.85,0:03:12.79,Default,,0000,0000,0000,,based on the calibration of the 99 percent remaining
Dialogue: 0,0:03:12.79,0:03:15.04,Default,,0000,0000,0000,,peak-to-valleys.
Dialogue: 0,0:03:15.04,0:03:19.64,Default,,0000,0000,0000,,They are due to trenchant dependancies
Dialogue: 0,0:03:19.64,0:03:23.15,Default,,0000,0000,0000,,such that a loss is followed by a loss
Dialogue: 0,0:03:23.15,0:03:26.12,Default,,0000,0000,0000,,which is followed by a loss which is followed by a loss.
Dialogue: 0,0:03:26.12,0:03:29.23,Default,,0000,0000,0000,,These kinds of dependencies
Dialogue: 0,0:03:29.23,0:03:34.84,Default,,0000,0000,0000,,are largely missed by standard risk management tools,
Dialogue: 0,0:03:34.84,0:03:37.77,Default,,0000,0000,0000,,which ignore them and see lizards
Dialogue: 0,0:03:37.77,0:03:41.59,Default,,0000,0000,0000,,when they should see dragon-kings.
Dialogue: 0,0:03:41.59,0:03:45.50,Default,,0000,0000,0000,,The root mechanism of a dragon-king
Dialogue: 0,0:03:45.50,0:03:48.64,Default,,0000,0000,0000,,is a slow maturation towards instability,
Dialogue: 0,0:03:48.64,0:03:50.26,Default,,0000,0000,0000,,which is the bubble,
Dialogue: 0,0:03:50.26,0:03:52.89,Default,,0000,0000,0000,,and the climax of the bubble is often the crash.
Dialogue: 0,0:03:52.89,0:03:56.52,Default,,0000,0000,0000,,This is similar to the slow heating of water
Dialogue: 0,0:03:56.52,0:03:59.42,Default,,0000,0000,0000,,in this test tube reaching the boiling point,
Dialogue: 0,0:03:59.42,0:04:01.91,Default,,0000,0000,0000,,where the instability of the water occurs
Dialogue: 0,0:04:01.91,0:04:05.25,Default,,0000,0000,0000,,and you have the phase transition to vapor.
Dialogue: 0,0:04:05.25,0:04:08.92,Default,,0000,0000,0000,,And this process, which is absolutely non-linear --
Dialogue: 0,0:04:08.92,0:04:11.20,Default,,0000,0000,0000,,cannot be predicted by standard techniques --
Dialogue: 0,0:04:11.20,0:04:15.38,Default,,0000,0000,0000,,is the reflection of a collective emergent behavior
Dialogue: 0,0:04:15.38,0:04:17.76,Default,,0000,0000,0000,,which is fundamentally endogenous.
Dialogue: 0,0:04:17.76,0:04:20.97,Default,,0000,0000,0000,,So the cause of the crash, the cause of the crisis
Dialogue: 0,0:04:20.97,0:04:24.16,Default,,0000,0000,0000,,has to be found in an inner instability of the system,
Dialogue: 0,0:04:24.16,0:04:30.19,Default,,0000,0000,0000,,and any tiny perturbation will make this instability occur.
Dialogue: 0,0:04:30.19,0:04:33.89,Default,,0000,0000,0000,,Now, some of you may have come to the mind
Dialogue: 0,0:04:33.89,0:04:36.52,Default,,0000,0000,0000,,that is this not related to the black swan concept
Dialogue: 0,0:04:36.52,0:04:39.45,Default,,0000,0000,0000,,you have heard about frequently?
Dialogue: 0,0:04:39.45,0:04:41.87,Default,,0000,0000,0000,,Remember, black swan is this rare bird
Dialogue: 0,0:04:41.87,0:04:45.28,Default,,0000,0000,0000,,that you see once and suddenly shattered your belief
Dialogue: 0,0:04:45.28,0:04:47.75,Default,,0000,0000,0000,,that all swans should be white,
Dialogue: 0,0:04:47.75,0:04:51.30,Default,,0000,0000,0000,,so it has captured the idea of unpredictability,
Dialogue: 0,0:04:51.30,0:04:52.80,Default,,0000,0000,0000,,unknowability, that the extreme events
Dialogue: 0,0:04:52.80,0:04:55.64,Default,,0000,0000,0000,,are fundamentally unknowable.
Dialogue: 0,0:04:55.64,0:04:57.36,Default,,0000,0000,0000,,Nothing can be further
Dialogue: 0,0:04:57.36,0:04:59.100,Default,,0000,0000,0000,,from the dragon-king concept I propose,
Dialogue: 0,0:04:59.100,0:05:03.72,Default,,0000,0000,0000,,which is exactly the opposite, that most extreme events
Dialogue: 0,0:05:03.72,0:05:06.94,Default,,0000,0000,0000,,are actually knowable and predictable.
Dialogue: 0,0:05:06.94,0:05:10.44,Default,,0000,0000,0000,,So we can be empowered and take responsibility
Dialogue: 0,0:05:10.44,0:05:12.66,Default,,0000,0000,0000,,and make predictions about them.
Dialogue: 0,0:05:12.66,0:05:15.86,Default,,0000,0000,0000,,So let's have my dragon-king burn this black swan concept.
Dialogue: 0,0:05:15.86,0:05:17.49,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:05:17.49,0:05:20.43,Default,,0000,0000,0000,,There are many early warning signals
Dialogue: 0,0:05:20.43,0:05:22.31,Default,,0000,0000,0000,,that are predicted by this theory.
Dialogue: 0,0:05:22.31,0:05:24.68,Default,,0000,0000,0000,,Let me just focus on one of them:
Dialogue: 0,0:05:24.68,0:05:27.83,Default,,0000,0000,0000,,the super-exponential growth with positive feedback.
Dialogue: 0,0:05:27.83,0:05:28.99,Default,,0000,0000,0000,,What does it mean?
Dialogue: 0,0:05:28.99,0:05:31.16,Default,,0000,0000,0000,,Imagine you have an investment
Dialogue: 0,0:05:31.16,0:05:34.31,Default,,0000,0000,0000,,that returns the first year five percent,
Dialogue: 0,0:05:34.31,0:05:37.47,Default,,0000,0000,0000,,the second year 10 percent, the third year 20 percent,
Dialogue: 0,0:05:37.47,0:05:40.01,Default,,0000,0000,0000,,the next year 40 percent. Is that not marvelous?
Dialogue: 0,0:05:40.01,0:05:43.41,Default,,0000,0000,0000,,This is a super-exponential growth.
Dialogue: 0,0:05:43.41,0:05:45.35,Default,,0000,0000,0000,,A standard exponential growth corresponds
Dialogue: 0,0:05:45.35,0:05:49.09,Default,,0000,0000,0000,,to a constant growth rate, let's say, of 10 percent
Dialogue: 0,0:05:49.09,0:05:52.57,Default,,0000,0000,0000,,The point is that, many times during bubbles,
Dialogue: 0,0:05:52.57,0:05:56.17,Default,,0000,0000,0000,,there are positive feedbacks which can be of many times,
Dialogue: 0,0:05:56.17,0:05:59.87,Default,,0000,0000,0000,,such that previous growths enhance,
Dialogue: 0,0:05:59.87,0:06:03.36,Default,,0000,0000,0000,,push forward, increase the next growth
Dialogue: 0,0:06:03.36,0:06:05.86,Default,,0000,0000,0000,,through this kind of super-exponential growth,
Dialogue: 0,0:06:05.86,0:06:08.97,Default,,0000,0000,0000,,which is very trenchant, not sustainable.
Dialogue: 0,0:06:08.97,0:06:12.03,Default,,0000,0000,0000,,And the key idea is that the mathematical solution
Dialogue: 0,0:06:12.03,0:06:15.67,Default,,0000,0000,0000,,of this class of models exhibit finite-time singularities,
Dialogue: 0,0:06:15.67,0:06:19.02,Default,,0000,0000,0000,,which means that there is a critical time
Dialogue: 0,0:06:19.02,0:06:22.22,Default,,0000,0000,0000,,where the system will break, will change regime.
Dialogue: 0,0:06:22.22,0:06:25.50,Default,,0000,0000,0000,,It may be a crash. It may be just a plateau, something else.
Dialogue: 0,0:06:25.50,0:06:27.77,Default,,0000,0000,0000,,And the key idea is that the critical time,
Dialogue: 0,0:06:27.77,0:06:30.30,Default,,0000,0000,0000,,the information about the critical time is contained
Dialogue: 0,0:06:30.30,0:06:35.78,Default,,0000,0000,0000,,in the early development of this super-exponential growth.
Dialogue: 0,0:06:35.78,0:06:40.14,Default,,0000,0000,0000,,We have applied this theory early on, that was our first success,
Dialogue: 0,0:06:40.14,0:06:43.70,Default,,0000,0000,0000,,to the diagnostic of the rupture of key elements
Dialogue: 0,0:06:43.70,0:06:46.23,Default,,0000,0000,0000,,on the iron rocket.
Dialogue: 0,0:06:46.23,0:06:49.05,Default,,0000,0000,0000,,Using acoustic emission, you know, this little noise
Dialogue: 0,0:06:49.05,0:06:51.35,Default,,0000,0000,0000,,that you hear a structure emit, sing to you
Dialogue: 0,0:06:51.35,0:06:55.04,Default,,0000,0000,0000,,when they are stressed, and reveal the damage going on,
Dialogue: 0,0:06:55.04,0:06:57.48,Default,,0000,0000,0000,,there's a collective phenomenon of positive feedback,
Dialogue: 0,0:06:57.48,0:06:59.17,Default,,0000,0000,0000,,the more damage gives the more damage,
Dialogue: 0,0:06:59.17,0:07:01.65,Default,,0000,0000,0000,,so you can actually predict,
Dialogue: 0,0:07:01.65,0:07:03.79,Default,,0000,0000,0000,,within, of course, a probability band,
Dialogue: 0,0:07:03.79,0:07:05.70,Default,,0000,0000,0000,,when the rupture will occur.
Dialogue: 0,0:07:05.70,0:07:08.14,Default,,0000,0000,0000,,So this is now so successful that it is used
Dialogue: 0,0:07:08.14,0:07:12.50,Default,,0000,0000,0000,,in the initial phase of [unclear] the flight.
Dialogue: 0,0:07:12.50,0:07:15.31,Default,,0000,0000,0000,,Perhaps more surprisingly, the same type of theory
Dialogue: 0,0:07:15.31,0:07:18.04,Default,,0000,0000,0000,,applies to biology and medicine,
Dialogue: 0,0:07:18.04,0:07:21.73,Default,,0000,0000,0000,,parturition, the act of giving birth, epileptic seizures.
Dialogue: 0,0:07:21.73,0:07:25.36,Default,,0000,0000,0000,,From seven months of pregnancy, a mother
Dialogue: 0,0:07:25.36,0:07:31.02,Default,,0000,0000,0000,,starts to feel episodic precursory contractions of the uterus
Dialogue: 0,0:07:31.02,0:07:35.12,Default,,0000,0000,0000,,that are the sign of these maturations
Dialogue: 0,0:07:35.12,0:07:38.55,Default,,0000,0000,0000,,toward the instability, giving birth to the baby,
Dialogue: 0,0:07:38.55,0:07:40.92,Default,,0000,0000,0000,,the dragon-king.
Dialogue: 0,0:07:40.92,0:07:43.53,Default,,0000,0000,0000,,So if you measure the precursor signal,
Dialogue: 0,0:07:43.53,0:07:49.75,Default,,0000,0000,0000,,you can actually identify pre- and post-maturity problems
Dialogue: 0,0:07:49.75,0:07:51.22,Default,,0000,0000,0000,,in advance.
Dialogue: 0,0:07:51.22,0:07:54.98,Default,,0000,0000,0000,,Epileptic seizures also come in a large variety of size,
Dialogue: 0,0:07:54.98,0:07:58.26,Default,,0000,0000,0000,,and when the brain goes to a super-critical state,
Dialogue: 0,0:07:58.26,0:08:01.84,Default,,0000,0000,0000,,you have dragon-kings which have a degree of predictability
Dialogue: 0,0:08:01.84,0:08:07.34,Default,,0000,0000,0000,,and this can help the patient to deal with this illness.
Dialogue: 0,0:08:07.34,0:08:09.53,Default,,0000,0000,0000,,We have applied this theory to many systems,
Dialogue: 0,0:08:09.53,0:08:12.38,Default,,0000,0000,0000,,landslides, glacier collapse,
Dialogue: 0,0:08:12.38,0:08:15.95,Default,,0000,0000,0000,,even to the dynamics of prediction of success:
Dialogue: 0,0:08:15.95,0:08:20.34,Default,,0000,0000,0000,,blockbusters, YouTube videos, movies, and so on.
Dialogue: 0,0:08:20.34,0:08:23.47,Default,,0000,0000,0000,,But perhaps the most important application
Dialogue: 0,0:08:23.47,0:08:25.84,Default,,0000,0000,0000,,is for finance, and this theory
Dialogue: 0,0:08:25.84,0:08:29.28,Default,,0000,0000,0000,,illuminates, I believe, the deep reason
Dialogue: 0,0:08:29.28,0:08:31.97,Default,,0000,0000,0000,,for the financial crisis that we have gone through.
Dialogue: 0,0:08:31.97,0:08:36.02,Default,,0000,0000,0000,,This is rooted in 30 years of history of bubbles,
Dialogue: 0,0:08:36.02,0:08:39.73,Default,,0000,0000,0000,,starting in 1980, with the global bubble
Dialogue: 0,0:08:39.73,0:08:41.82,Default,,0000,0000,0000,,crashing in 1987,
Dialogue: 0,0:08:41.82,0:08:44.19,Default,,0000,0000,0000,,followed by many other bubbles.
Dialogue: 0,0:08:44.19,0:08:46.90,Default,,0000,0000,0000,,The biggest one was the "new economy" Internet bubble
Dialogue: 0,0:08:46.90,0:08:48.82,Default,,0000,0000,0000,,in 2000, crashing in 2000,
Dialogue: 0,0:08:48.82,0:08:50.87,Default,,0000,0000,0000,,the real estate bubbles in many countries,
Dialogue: 0,0:08:50.87,0:08:53.65,Default,,0000,0000,0000,,financial derivative bubbles everywhere,
Dialogue: 0,0:08:53.65,0:08:55.94,Default,,0000,0000,0000,,stock market bubbles also everywhere,
Dialogue: 0,0:08:55.94,0:08:59.89,Default,,0000,0000,0000,,commodity and all bubbles, debt and credit bubbles --
Dialogue: 0,0:08:59.89,0:09:02.61,Default,,0000,0000,0000,,bubbles, bubbles, bubbles.
Dialogue: 0,0:09:02.61,0:09:05.24,Default,,0000,0000,0000,,We had a global bubble.
Dialogue: 0,0:09:05.24,0:09:09.49,Default,,0000,0000,0000,,This is a measure of global overvaluation
Dialogue: 0,0:09:09.49,0:09:13.49,Default,,0000,0000,0000,,of all markets, expressing what I call
Dialogue: 0,0:09:13.51,0:09:16.68,Default,,0000,0000,0000,,an illusion of a perpetual money machine
Dialogue: 0,0:09:16.68,0:09:20.63,Default,,0000,0000,0000,,that suddenly broke in 2007.
Dialogue: 0,0:09:20.63,0:09:24.86,Default,,0000,0000,0000,,The problem is that we see the same process,
Dialogue: 0,0:09:24.86,0:09:27.59,Default,,0000,0000,0000,,in particular through quantitative easing,
Dialogue: 0,0:09:27.59,0:09:30.78,Default,,0000,0000,0000,,of a thinking of a perpetual money machine nowadays
Dialogue: 0,0:09:30.78,0:09:35.18,Default,,0000,0000,0000,,to tackle the crisis since 2008 in the U.S., in Europe,
Dialogue: 0,0:09:35.18,0:09:37.47,Default,,0000,0000,0000,,in Japan.
Dialogue: 0,0:09:37.47,0:09:39.86,Default,,0000,0000,0000,,This has very important implications
Dialogue: 0,0:09:39.86,0:09:43.94,Default,,0000,0000,0000,,to understand the failure of quantitative easing
Dialogue: 0,0:09:43.94,0:09:45.81,Default,,0000,0000,0000,,as well as austerity measures
Dialogue: 0,0:09:45.81,0:09:48.62,Default,,0000,0000,0000,,as long as we don't attack the core,
Dialogue: 0,0:09:48.62,0:09:53.81,Default,,0000,0000,0000,,the structural cause of this perpetual money machine thinking.
Dialogue: 0,0:09:53.81,0:09:56.43,Default,,0000,0000,0000,,Now, these are big claims.
Dialogue: 0,0:09:56.43,0:09:59.31,Default,,0000,0000,0000,,Why would you believe me?
Dialogue: 0,0:09:59.31,0:10:02.19,Default,,0000,0000,0000,,Well, perhaps because, in the last 15 years
Dialogue: 0,0:10:02.19,0:10:05.38,Default,,0000,0000,0000,,we have come out of our ivory tower,
Dialogue: 0,0:10:05.38,0:10:08.12,Default,,0000,0000,0000,,and started to publish ex ante --
Dialogue: 0,0:10:08.12,0:10:11.45,Default,,0000,0000,0000,,and I stress the term ex ante, it means "in advance" —
Dialogue: 0,0:10:11.45,0:10:13.58,Default,,0000,0000,0000,,before the crash confirmed
Dialogue: 0,0:10:13.58,0:10:16.27,Default,,0000,0000,0000,,the existence of the bubble or the financial excesses.
Dialogue: 0,0:10:16.27,0:10:19.99,Default,,0000,0000,0000,,These are a few of the major bubbles
Dialogue: 0,0:10:19.99,0:10:24.47,Default,,0000,0000,0000,,that we have lived through in recent history.
Dialogue: 0,0:10:24.47,0:10:27.31,Default,,0000,0000,0000,,Again, many interesting stories for each of them.
Dialogue: 0,0:10:27.31,0:10:30.02,Default,,0000,0000,0000,,Let me tell you just one or two stories
Dialogue: 0,0:10:30.02,0:10:32.07,Default,,0000,0000,0000,,that deal with massive bubbles.
Dialogue: 0,0:10:32.07,0:10:34.41,Default,,0000,0000,0000,,We all know the Chinese miracle.
Dialogue: 0,0:10:34.41,0:10:37.48,Default,,0000,0000,0000,,This is the expression of the stock market
Dialogue: 0,0:10:37.48,0:10:40.36,Default,,0000,0000,0000,,of a massive bubble, a factor of three,
Dialogue: 0,0:10:40.36,0:10:42.53,Default,,0000,0000,0000,,300 percent in just a few years.
Dialogue: 0,0:10:42.53,0:10:45.73,Default,,0000,0000,0000,,In September 2007,
Dialogue: 0,0:10:45.73,0:10:49.38,Default,,0000,0000,0000,,I was invited as a keynote speaker of a macro hedge fund
Dialogue: 0,0:10:49.38,0:10:51.82,Default,,0000,0000,0000,,management conference,
Dialogue: 0,0:10:51.82,0:10:55.88,Default,,0000,0000,0000,,and I showed to the conference a prediction
Dialogue: 0,0:10:55.88,0:11:00.07,Default,,0000,0000,0000,,that by the end of 2007, this bubble
Dialogue: 0,0:11:00.07,0:11:02.04,Default,,0000,0000,0000,,would change regime.
Dialogue: 0,0:11:02.04,0:11:05.13,Default,,0000,0000,0000,,There might be a crash. Certainly not sustainable.
Dialogue: 0,0:11:05.13,0:11:10.37,Default,,0000,0000,0000,,Now, how do you believe the very smart,
Dialogue: 0,0:11:10.37,0:11:15.80,Default,,0000,0000,0000,,very motivated, very informed macro hedge fund managers
Dialogue: 0,0:11:15.80,0:11:17.76,Default,,0000,0000,0000,,reacted to this prediction?
Dialogue: 0,0:11:17.76,0:11:19.71,Default,,0000,0000,0000,,You know, they had made billions
Dialogue: 0,0:11:19.71,0:11:22.55,Default,,0000,0000,0000,,just surfing this bubble until now.
Dialogue: 0,0:11:22.55,0:11:24.13,Default,,0000,0000,0000,,They told me, "Didier,
Dialogue: 0,0:11:24.13,0:11:27.17,Default,,0000,0000,0000,,yeah, the market might be overvalued,
Dialogue: 0,0:11:27.17,0:11:29.06,Default,,0000,0000,0000,,but you forget something.
Dialogue: 0,0:11:29.06,0:11:31.42,Default,,0000,0000,0000,,There is the Beijing Olympic Games coming
Dialogue: 0,0:11:31.42,0:11:33.68,Default,,0000,0000,0000,,in August 2008, and it's very clear that
Dialogue: 0,0:11:33.68,0:11:36.87,Default,,0000,0000,0000,,the Chinese government is controlling the economy
Dialogue: 0,0:11:36.87,0:11:38.22,Default,,0000,0000,0000,,and doing what it takes
Dialogue: 0,0:11:38.22,0:11:42.67,Default,,0000,0000,0000,,to also avoid any wave and control the stock market."
Dialogue: 0,0:11:42.67,0:11:45.14,Default,,0000,0000,0000,,Three weeks after my presentation,
Dialogue: 0,0:11:45.14,0:11:47.27,Default,,0000,0000,0000,,the markets lost 20 percent
Dialogue: 0,0:11:47.27,0:11:49.53,Default,,0000,0000,0000,,and went through a phase of volatility,
Dialogue: 0,0:11:49.53,0:11:52.26,Default,,0000,0000,0000,,upheaval, and a total market loss of
Dialogue: 0,0:11:52.26,0:11:54.52,Default,,0000,0000,0000,,70 percent until the end of the year.
Dialogue: 0,0:11:54.52,0:11:57.40,Default,,0000,0000,0000,,So how can we be so collectively wrong
Dialogue: 0,0:11:57.40,0:12:01.54,Default,,0000,0000,0000,,by misreading or ignoring the science
Dialogue: 0,0:12:01.54,0:12:04.37,Default,,0000,0000,0000,,of the fact that when an instability has developed,
Dialogue: 0,0:12:04.37,0:12:06.82,Default,,0000,0000,0000,,and the system is ripe, any perturbation
Dialogue: 0,0:12:06.82,0:12:10.50,Default,,0000,0000,0000,,makes it essentially impossible to control?
Dialogue: 0,0:12:10.50,0:12:15.21,Default,,0000,0000,0000,,The Chinese market collapsed, but it rebounded.
Dialogue: 0,0:12:15.21,0:12:19.96,Default,,0000,0000,0000,,In 2009, we also identified that this new bubble,
Dialogue: 0,0:12:19.96,0:12:22.55,Default,,0000,0000,0000,,a smaller one, was unsustainable,
Dialogue: 0,0:12:22.55,0:12:26.18,Default,,0000,0000,0000,,so we published again a prediction, in advance,
Dialogue: 0,0:12:26.18,0:12:30.51,Default,,0000,0000,0000,,stating that by August 2009, the market will correct,
Dialogue: 0,0:12:30.51,0:12:33.19,Default,,0000,0000,0000,,will not continue on this track.
Dialogue: 0,0:12:33.19,0:12:36.34,Default,,0000,0000,0000,,Our critics, reading the prediction,
Dialogue: 0,0:12:36.34,0:12:40.26,Default,,0000,0000,0000,,said, "No, it's not possible.
Dialogue: 0,0:12:40.26,0:12:41.75,Default,,0000,0000,0000,,The Chinese government is there.
Dialogue: 0,0:12:41.75,0:12:44.43,Default,,0000,0000,0000,,They have learned their lesson. They will control.
Dialogue: 0,0:12:44.43,0:12:46.24,Default,,0000,0000,0000,,They want to benefit from the growth."
Dialogue: 0,0:12:46.24,0:12:49.90,Default,,0000,0000,0000,,Perhaps these critics have not learned their lesson previously.
Dialogue: 0,0:12:49.90,0:12:53.73,Default,,0000,0000,0000,,So the crisis did occur. The market corrected.
Dialogue: 0,0:12:53.73,0:12:56.06,Default,,0000,0000,0000,,The same critics then said, "Ah, yes,
Dialogue: 0,0:12:56.06,0:12:57.91,Default,,0000,0000,0000,,but you published your prediction.
Dialogue: 0,0:12:57.91,0:12:59.57,Default,,0000,0000,0000,,You influenced the market.
Dialogue: 0,0:12:59.57,0:13:02.70,Default,,0000,0000,0000,,It was not a prediction."
Dialogue: 0,0:13:02.70,0:13:06.06,Default,,0000,0000,0000,,Maybe I am very powerful then.
Dialogue: 0,0:13:06.06,0:13:08.10,Default,,0000,0000,0000,,Now, this is interesting.
Dialogue: 0,0:13:08.10,0:13:11.04,Default,,0000,0000,0000,,It shows that it's essentially impossible until now
Dialogue: 0,0:13:11.04,0:13:13.17,Default,,0000,0000,0000,,to develop a science of economics
Dialogue: 0,0:13:13.17,0:13:16.31,Default,,0000,0000,0000,,because we are sentient beings who anticipate
Dialogue: 0,0:13:16.31,0:13:20.37,Default,,0000,0000,0000,,and there is a problem of self-fulfilling prophesies.
Dialogue: 0,0:13:20.37,0:13:24.11,Default,,0000,0000,0000,,So we invented a new way of doing science.
Dialogue: 0,0:13:24.11,0:13:26.82,Default,,0000,0000,0000,,We created the Financial Bubble Experiment.
Dialogue: 0,0:13:26.82,0:13:29.49,Default,,0000,0000,0000,,The idea is the following. We monitor the markets.
Dialogue: 0,0:13:29.49,0:13:33.66,Default,,0000,0000,0000,,We identify excesses, bubbles.
Dialogue: 0,0:13:33.66,0:13:36.96,Default,,0000,0000,0000,,We do our work. We write a report
Dialogue: 0,0:13:36.96,0:13:41.23,Default,,0000,0000,0000,,in which we put our prediction of the critical time.
Dialogue: 0,0:13:41.23,0:13:43.81,Default,,0000,0000,0000,,We don't release the report. It's kept secret.
Dialogue: 0,0:13:43.81,0:13:46.67,Default,,0000,0000,0000,,But with modern encrypting techniques,
Dialogue: 0,0:13:46.67,0:13:50.70,Default,,0000,0000,0000,,we have a hash, we publish a public key,
Dialogue: 0,0:13:50.70,0:13:54.65,Default,,0000,0000,0000,,and six months later, we release the report,
Dialogue: 0,0:13:54.65,0:13:57.05,Default,,0000,0000,0000,,and there is authentication.
Dialogue: 0,0:13:57.05,0:14:01.82,Default,,0000,0000,0000,,And all this is done on an international archive
Dialogue: 0,0:14:01.82,0:14:06.02,Default,,0000,0000,0000,,so that we cannot be accused of just releasing the successes.
Dialogue: 0,0:14:06.02,0:14:09.41,Default,,0000,0000,0000,,Let me tease you with a very recent analysis.
Dialogue: 0,0:14:09.41,0:14:12.67,Default,,0000,0000,0000,,17th of May, 2013, just two weeks ago,
Dialogue: 0,0:14:12.67,0:14:14.35,Default,,0000,0000,0000,,we identified that the U.S. stock market
Dialogue: 0,0:14:14.35,0:14:16.74,Default,,0000,0000,0000,,was on an unsustainable path
Dialogue: 0,0:14:16.74,0:14:20.54,Default,,0000,0000,0000,,and we released this on our website on the 21st of May
Dialogue: 0,0:14:20.54,0:14:22.58,Default,,0000,0000,0000,,that there will be a change of regime.
Dialogue: 0,0:14:22.58,0:14:27.37,Default,,0000,0000,0000,,The next day, the market started to change regime, course.
Dialogue: 0,0:14:27.37,0:14:28.86,Default,,0000,0000,0000,,This is not a crash.
Dialogue: 0,0:14:28.86,0:14:31.46,Default,,0000,0000,0000,,This is just the third or fourth act
Dialogue: 0,0:14:31.46,0:14:34.32,Default,,0000,0000,0000,,of a massive bubble in the making.
Dialogue: 0,0:14:34.32,0:14:37.42,Default,,0000,0000,0000,,Scaling up the discussion at the size of the planet,
Dialogue: 0,0:14:37.42,0:14:38.44,Default,,0000,0000,0000,,we see the same thing.
Dialogue: 0,0:14:38.44,0:14:41.36,Default,,0000,0000,0000,,Wherever we look, it's observable:
Dialogue: 0,0:14:41.36,0:14:44.59,Default,,0000,0000,0000,,in the biosphere, in the atmosphere, in the ocean,
Dialogue: 0,0:14:44.59,0:14:48.50,Default,,0000,0000,0000,,showing these super-exponential trajectories
Dialogue: 0,0:14:48.50,0:14:51.13,Default,,0000,0000,0000,,characterizing an unsustainable path
Dialogue: 0,0:14:51.13,0:14:53.75,Default,,0000,0000,0000,,and announcing a phase transition.
Dialogue: 0,0:14:53.75,0:14:55.45,Default,,0000,0000,0000,,This diagram on the right
Dialogue: 0,0:14:55.45,0:14:58.45,Default,,0000,0000,0000,,shows a very beautiful compilation of studies
Dialogue: 0,0:14:58.45,0:15:02.16,Default,,0000,0000,0000,,suggesting indeed that there is a nonlinear -- possibility
Dialogue: 0,0:15:02.16,0:15:06.31,Default,,0000,0000,0000,,for a nonlinear transition just in the next few decades.
Dialogue: 0,0:15:06.31,0:15:09.93,Default,,0000,0000,0000,,So there are bubbles everywhere.
Dialogue: 0,0:15:09.93,0:15:11.90,Default,,0000,0000,0000,,From one side, this is exciting
Dialogue: 0,0:15:11.90,0:15:14.66,Default,,0000,0000,0000,,for me, as a professor who chases bubbles
Dialogue: 0,0:15:14.66,0:15:19.41,Default,,0000,0000,0000,,and slays dragons, as the media has sometimes called me.
Dialogue: 0,0:15:19.41,0:15:22.46,Default,,0000,0000,0000,,But can we really slay the dragons?
Dialogue: 0,0:15:22.46,0:15:24.61,Default,,0000,0000,0000,,Very recently, with collaborators,
Dialogue: 0,0:15:24.61,0:15:27.31,Default,,0000,0000,0000,,we studied a dynamical system
Dialogue: 0,0:15:27.31,0:15:30.22,Default,,0000,0000,0000,,where you see the dragon-king as these big loops
Dialogue: 0,0:15:30.22,0:15:34.14,Default,,0000,0000,0000,,and we were able to apply tiny perturbations at the right times
Dialogue: 0,0:15:34.14,0:15:39.07,Default,,0000,0000,0000,,that removed, when control is on, these dragons.
Dialogue: 0,0:15:39.07,0:15:42.00,Default,,0000,0000,0000,,"Gouverner, c'est prévoir."
Dialogue: 0,0:15:42.00,0:15:47.80,Default,,0000,0000,0000,,Governing is the art of planning and predicting.
Dialogue: 0,0:15:47.80,0:15:50.55,Default,,0000,0000,0000,,But is it not the case that this is probably
Dialogue: 0,0:15:50.55,0:15:54.45,Default,,0000,0000,0000,,one of the biggest gaps of mankind,
Dialogue: 0,0:15:54.45,0:15:57.71,Default,,0000,0000,0000,,which has the responsibility to steer
Dialogue: 0,0:15:57.71,0:16:00.42,Default,,0000,0000,0000,,our societies and our planet toward sustainability
Dialogue: 0,0:16:00.43,0:16:05.27,Default,,0000,0000,0000,,in the face of growing challenges and crises?
Dialogue: 0,0:16:05.27,0:16:09.77,Default,,0000,0000,0000,,But the dragon-king theory gives hope.
Dialogue: 0,0:16:09.77,0:16:13.34,Default,,0000,0000,0000,,We learn that most systems have pockets of predictability.
Dialogue: 0,0:16:13.34,0:16:18.24,Default,,0000,0000,0000,,It is possible to develop advance diagnostics of crises
Dialogue: 0,0:16:18.24,0:16:21.79,Default,,0000,0000,0000,,so that we can be prepared, we can take measures,
Dialogue: 0,0:16:21.79,0:16:24.55,Default,,0000,0000,0000,,we can take responsibility,
Dialogue: 0,0:16:24.55,0:16:27.30,Default,,0000,0000,0000,,and so that never again will
Dialogue: 0,0:16:27.30,0:16:31.15,Default,,0000,0000,0000,,extremes and crises like the Great Recession
Dialogue: 0,0:16:31.15,0:16:35.56,Default,,0000,0000,0000,,or the European crisis take us by surprise.
Dialogue: 0,0:16:35.56,0:16:37.04,Default,,0000,0000,0000,,Thank you.
Dialogue: 0,0:16:37.04,0:16:43.33,Default,,0000,0000,0000,,(Applause)