Skip to content
Notify of
Inline Feedbacks
View all comments
18 years ago

I get so annoyed w/ mindless
I get so annoyed w/ mindless chatter from economists who probably are briliant, but can’t talk about the truth for fear of getting reprimanded. I just wrote an editorial to the Union-Tribune, and among others, criticized Alan Gin for his mindless rosy reports.

Getting back to Poole…he’s basically stuck with saying this stuff. He’s a marketing manager/salesman for the economy. He’s not there to tell us the truth. That would destroy the dollar, and cause a run and a panic. It would cause economic collapse, wouldn’t it?

Can you imagine what would happen to the economy if he said (and I’m exaggerating a bit), “We are just dropping off the cliff of the largest housing bubble in our country’s history. There is a high risk of bank default, pension fund collapse, and about 25% of homeowners will face foreclosure. We’ll see massive layoffs in construction, real estate, retail, and the restaurant industry. Sell your stocks in these industries, look for another job if you must, leave the country…Your best bet is to sell your house while you still can get enough to meet your mortgage obligation. If you file bankruptcy, any unpaid mortgage balance is treated by the IRS as income, and taxed accordingly. We’re sorry this is happening, but as you know, we don’t regulate the financial markets, and they are the ones who lent you the money to buy your houses and spend your equity. Brace yourselves for a recession. Although the next few years will be rough, we will emerge stronger. Oh, and if you’re worried about a banking collapse, just buy gold. We’ll be cranking up the printing presses and your dollars will be devalued. Now folks, how do you like the new Open fed market committee, where we are Open with you on everything?”

He can’t say anything remotely similar to this.

Most Americans aren’t even going to read this anyway, since they’re too busy watching reality TV shows. Those that do, should know by now that state-funded economists are politicians first, as you said.

I hope large investors pay attention to hints in the Fed’s speeches, so they know they must reduce their risk in buying these speculative financial products. If the Fed can at least give some hints, and MBS products are priced for higher risk, lending standards would tighten up. That will be a beginning to slowing this all down, and ensuring the safety of the financial markets. I’m just worried about who will wind up with the losses when millions of homeowners are in foreclosure.

18 years ago

Jeremy Grantham, founder of
Jeremy Grantham, founder of Grantham Mayo Van Oterloo (which manages about $80 billion in assets), noted in a recent research piece (in so many words), “Unlike the Federal Reserve, I have no problem whatsoever identifying a bubble: a bubble occurs whenever an asset group’s prices move more than two standard deviations from that asset’s long-term mean trend line. By that measure, we have had 29 asset bubbles globally since World War II. 27 of the 29 ultimately reverted to below-trend prices. The two that didn’t are the U.S. stock market bubble and the global property bubble which we are currently witnessing. History suggests they will… eventually.”

I would agree completely with Grantham’s definition of a bubble. What prohibits the Fed from using such simple, powerful logic? The applause meter, that’s what. The Fed no longer targets inflation or the economy when setting interest rate policies; it targets whatever policy generates the most applause from Wall Street. The last Fed chairman with any true integrity was Paul Volcker… I weep for the future.

18 years ago

rich, at the lowest points
rich, at the lowest points of your graph, what is the approximate multiple of median home price vs. median household income? thanks.

18 years ago

I had been thinking that we
I had been thinking that we would hit that same low point again with the next bottom, i.e. 7.5x per capita income, but what happens if the low point is hit during a recession, and the foreclosure rate during those years is double that of previous low points due to exotic financing? What would be a reasonable low point based on the higher risks this bubble took on?