Last month in Dubai, The Carlyle Group’s co-founder David Rubenstein made this presentation. It examines the root causes of the global financial crisis — and warning signs leading up to it — as well as the impact on markets and the private-equity industry.

We find it interesting that, even in hindsight (and even as presented in this excellent presentation), the so-called warning signs seem not at all predictive.

We would argue that last summer’s (a) decline in mortgage-backed securities prices and (b) collapse of two subprime-CDO funds were symptoms of the crisis. They augured worse to come, yes, but the trouble had already started — as marked by these events.

How, then, could one have foretold the crisis itself?

We can trace the origins of what happened — is happening — and describe them in detail. We can chart and graph them and document the crisis’s early days. But over a year later, our best forecasting methodologies fail even to “predict” this crisis in hindsight.

Unless someone, somewhere, is sitting on a black box, grinding out returns based on private advances in modern portfolio or statistical theory — of which none are known to have occurred since 1972. We plan to write more about the shortcomings of modern financial modeling and statistical theory in a future post. It may be a long post.

Has anyone read any books devoted to this topic? ♦