Posted on 03/02/2008 3:30:08 AM PST by TigerLikesRooster
How a Bubble Stayed Under the Radar
By ROBERT J. SHILLER
ONE great puzzle about the recent housing bubble is why even most experts didn’t recognize the bubble as it was forming.
Alan Greenspan, a very serious student of the markets, didn’t see it, and, moreover, he didn’t see the stock market bubble of the 1990s, either. In his 2007 autobiography, “The Age of Turbulence: Adventures in a New World,” he talks at some length about his suspicions in the 1990s that there was irrational exuberance in the stock market. But in the end, he says, he just couldn’t figure it out: “I’d come to realize that we’d never be able to identify irrational exuberance with certainty, much less act on it, until after the fact.”
With the housing bubble, Mr. Greenspan didn’t seem to have any doubt: “I would tell audiences that we were facing not a bubble but a froth — lots of small local bubbles that never grew to a scale that could threaten the health of the overall economy.”
The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.
Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble. In this connection, it is helpful to refer to an important bit of economic theory about herd behavior.
(Excerpt) Read more at nytimes.com ...
Ping!
Alan Greenspan created it and ignored it, and then his WIFE pushed and talked the economy "down",
from the national television service,where she works for the MSM who also talk the economy "down"
every single night, now that the MSM husband-Greenspan left.
One question remains that hasn’t really been addressed. How much of that bubble was really inflation (the quiet devaluation of the dollar)?
Many here on “FR” warned about it...but where batted down as doom and gloomers.
I, myself wondered how this could keep going on...only being armed with anecdotal information.
My own opinion? This whole thing is conspiratorial, the “powers that be” knew exactly what they were doing.
The Bubble is another result of Clinton idiotcy, everyone deserves a house, no one should be judged on their credit worthiness, and a culture of every crook needs love.
Long before the bubble's collapse the internet was full of articles warning that the housing market just might be an unsustainable bubble. These potential problems were foreseen and ignored.
I have a two word solution to this: Dave Ramsey
Yup. Thomas Sowell’s been writing about it for years. Like most things the government does, it ends up having the opposite effect that was desired.
...Or armed with basic math, especially when the no-down-payment Interest-Only ARM's appeared. This was the point where anyone should have seen a looming train wreck..the numbers simply could not work. The situation was not "Missed", it was hidden in derivatives. Why would the players complain as they busily cashed comission and bonus checks? Why would the Government say anything when these were producing tax revenues? Why would the "Victims" complain when they could keep taking money out of the house, and get the two Hummers, the boat, and the vacation?
Now I see ads from smart money who bought gold at $600 looking for idiots to buy it at a thousand. What pays for those Network Ads?
Idiots, the few who missed the RE Bubble. There is no shortage of them.
You got that right.
But but but, what about our debt-and-consumption based Keynesian economy?
Id love to blame it on Clinton, either one. But how exactly is this the result of Clinton idiotcy?
I just read ‘Trading for a Living’ by Alexander Elder. He’s a psychiatrist by training, but went into stocks and commodities. He goes to great lengths to define market charts as simply a reflection of mass psychology, and insists that the successful trader constantly evaluate his own mental and emotional state against the mob mentality.
Someone posted a great powerpoint illustration of the housing meltdown recently- let me see if I can find it.
FYI: I told several people 2 years ago that the housing sector was rising on a bubble like never before....I was aware of the BS sub-prime and 'flipping' Ponzi schemes.
Eventually the tower would fall. People's incomes simply were not rising no where near the rate to justify the unheard jumps in home prices.
Besides that, I saw and still see the hundreds of empty McMansions in the new subs in the Raleigh area with many of the same ones still sitting empty going on now for 2 years.
The gov and the GOP and the media can say what they want, we have stagflation and it is going to get worse.
I am not referencing one news item or market condition or one commodity. My statements are based upon personal observation and the many little stories out there, especially the whining from state and local governments about revenue shortfalls is their 'little' spending programs and the last qtr with the last 2 months of retail sales reports.
Sears just reported a 44% 4th qtr loss in earnings from the previous year. A late announcement indicating the 2007 Holiday Retail Season was not good even though on-line sales increased.
For the fiscal year, Sears suffered a similar slowdown, earning $826 million, or $5.70 per share. That's down more than 44 percent from the previous year's profit of $1.5 billion, or $9.58 per share.
It's the net effect and the entire country I am looking at as to the serious slowdown we are in and soaring inflation in food, housing, and energy....the things all of us need.
I should would like to get the numbers on personal bankruptcy and business bankruptcy numbers that the gov haves for the last 6 months.....hmmmmm...notice how there's no mention of those statics to compare with as a bell-weather?
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