[quote=esmith]How about we stop panicking and try to do some level-headed analysis.[/quote]
Nah the problem with that approach is that people are not level-headed and rational. If you learn nothing else from this recent housing bubble, learn that people are not rational, and that all economics that sits on top of the belief that people are rational acting agents is faulty.
Instead understand that as problems get harder to figure out, as the analysis gets tougher, we as people give up and rely on what our friends, neighbors and coworkers think. If our neighbors think that house prices only go up, then we believe that house prices only go up too. If your a CEO of a huge investment bank and if the other CEO’s at your club think that credit default swaps spread risk around making the world more safe, then you too believe that. If you’re the chairman of the federal reserve and all your academic buddies believe that lowering interest rates, printing money, and encouraging everyone to take on debt will solve all your problems, well then that’s what you believe too.
There’s no place for rational analysis here. It too much work! Much easier to just rely on what others think.
