Those who understand the fragility of the capitalist system (such as the late Hyman Minsky) based on human tendency to follow the leader (even if it leads over a cliff, were not surprised at the current financial collapse. But I do not think anyone understands psychology well enough to predict the exact tipping point (or the exact point of eventual recovery of investor and business confidence).
If Greenspan had had a little behavioral economics in his background, he would have known that if is impossible for the financial sector to police itself. Any financial manager who had seen these new pieces of paper for the casino that it was would have lost customers. They would have been right, but out of a job. Both school districts and so-called sophisticated investors like Swiss Banks can not afford individually to opt out while others are seen as making out like bandits. That is why we have collective institutions like government so that we can be ruled by our cool moments of macro vision and not our emotions in the rough and tumble of the daily market.
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