"The best way to achieve complete strategic surprise is to take an action that is either stupid or completely contrary to your self-interest"

--- A sign then-Deputy National Security Advisor (and current Secretary of Defense) Robert Gates had on his desk at the time of the Iraqi invasion of Kuwait in 1990, according to Richard Haass in War of Necessity, War of Choice: A Memoir of Two Iraq Wars, Simon & Schuster 2009, p. 59

Humans create their cognitive powers by creating the environments in which they exercise those powers

--- Edwin Hutchins, Cognition in the Wild (1996) p. 169

Quote in context:

. . . in watching the ant [in a complicated path across a beach], we learn more about the beach than about what is inside the ant. And in watching people thinking in the wild, we may be learning more about their environment for thinking than about what is inside them. Having realized this, we should not pack up and leave the beach, concluding that we cannot learn about cognition here. The environments of human thinking are not “natural” environments. They are artificial through and through. Humans create their cognitive powers by creating the environments in which they exercise those powers. At present, so few of us have taken the time to study these environments seriously as organizers of cognitive activity that we have little sense of their role in the construction of thought.

"Sailors know that it is not the open ocean that sinks ships, it’s all that hard stuff around the edges"

--- Edwin Hutchins, Cognition in the Wild, MIT Press 1995, p. 20

"Economists will have to learn to live with messiness"

--- Nobel economics laureate Paul Krugman in a NY Times column "How Did Economists Get It So Wrong?", 2 September 2009.

After outlining the causes of economics' failure to foresee the crash, Krugman writes

 It’s much harder to say where the economics profession goes from here. But what’s almost certain is that economists will have to learn to live with messiness. That is, they will have to acknowledge the importance of irrational and often unpredictable behavior, face up to the often idiosyncratic imperfections of markets and accept that an elegant economic “theory of everything” is a long way off. In practical terms, this will translate into more cautious policy advice — and a reduced willingness to dismantle economic safeguards in the faith that markets will solve all problems.

Towards the end of the piece he writes

Economics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system. If the profession is to redeem itself, it will have to reconcile itself to a less alluring vision — that of a market economy that has many virtues but that is also shot through with flaws and frictions. The good news is that we don’t have to start from scratch. Even during the heyday of perfect-market economics, there was a lot of work done on the ways in which the real economy deviated from the theoretical ideal. What’s probably going to happen now — in fact, it’s already happening — is that flaws-and-frictions economics will move from the periphery of economic analysis to its center.

.... and

So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit — and this will be very hard for the people who giggled and whispered over Keynes — that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics.

For an interesting discussion among Sante Fe Institute researchers prompted by this piece, see http://blog.santafe.edu/?p=150 (thanks to Rich Thanki for the link)

"Any experience deeply felt makes some men better and some men worse"

--- journalist Murray Kempton (1917 - 1998), Part of Our Time: Some Ruins and Monuments of the Thirties, Modern Library Ed edition (November 24, 1998) ), A Prelude, p. 7

"Any experience deeply felt makes some men better and some men worse. When it has ended, they share nothing but the recollection of a commitment in which each was tested and each to some degree found wanting. They were not alike when they began, and they were not alike when they finished. T. S. Eliot says in one of his Quartets that time is no healer, because the patient is no longer here. The consequences of the journey change the voyager so much more than the embarking or the arrival."

Peter Pringle's obituary in the The Independent has another nice quote: "There's no excuse for kicking somebody unless he's up"

“Banks had lots of tools to create leverage, but not many to manage risk”

--- VC Roger Portnoy quoted in "Silo but deadly", The Economist, December 5th 2009, on the role of IT systems in the financial crisis.

“Banks had lots of tools to create leverage, but not many to manage risk,” says Roger Portnoy of Daylight Venture Partners, a venture-capital firm that invests in risk-management start-ups.

The article goes further to report that some think IT played a more fundamental role in the crisis:

"Because things are so interconnected, largely thanks to technology, a problem in one part of the system can quickly lead to problems elsewhere. The global financial markets have evolved over the years into an inherently unstable network, says Till Guldimann, a strategist at SunGard, a software and IT services firm. The rapid unwinding of positions by ultra-fast quantitative-trading programs at the start of the credit crunch in August 2007 is one example of this cascading effect."

... though it may go deeper still:

"Many banks have become too complex to be managed properly, says Glenn Woodcock, a director at Andromeda Capital Management and a former head of credit-risk infrastructure at RBS. IT alone cannot fix that problem for them."

"There is a big shift from holding a phone to your ear to holding it in your hand"

--- David Edelstein of the Grameen Foundation, quoted in "Beyond voice", part of The Economist's special report on telecoms in emerging markets, September 26, 2009

“There is a big shift from holding a phone to your ear to holding it in your hand,” says David Edelstein of the Grameen Foundation. “It opens the door to information services. It’s not the web, but it’s a web of services that can be offered on mobile devices.”