Soros: "Gigantic Real Estate Bubble"

Submitted by Rich Toscano on June 24, 2006 - 6:30pm

I just came across this blurb from George Soros' latest book:

I believe we are currently in the midst of a gigantic real estate bubble. It was caused by the determination of the Federal Reserve Bank not to allow a stock market decline in 2001 to turn into a self-reinforcing rout. The federal funds rate was lowered to 1 percent. Mortgage institutions encouraged mortgage holders to refinance their mortgages and withdraw the excess equity. They lowered their lending standards and introduced new products such as adjustable rate mortgages (ARMs), “interest only” mortgages, and promotional “teaser rates.” All this encouraged speculation in residential housing units. House prices started to rise at double-digit rates. This served to reinforce speculation, and the rise in house prices made the owners feel rich; the result was a consumption boom that has sustained the economy in recent years. Again, the bubble can be attributed to a short-circuit between the value of assets and the act of valuation. This short-circuit is called the wealth effect.

Nothing qualitatively new nor surprising to readers of this site; it's just always nice to have one of the world's most successful financial market players land on our side of the debate.

(category: )

Submitted by powayseller on June 24, 2006 - 9:33pm.

A shortcircuit between the asset's value and the act of valuation? This sounds like a direct hit on appraisers. I haven't heard that one before, but it bears discussion. How could appraisers justify today's inflated prices? Shouldn't a home's appraised value be determined on the basis of fundamentals, using owner equivalent rent, i.e. the same metric that is used for the CPI?

I've been assuming that an appraisal should be what someone is willing to pay, but now I realize that I was wrong. Just because someone is willing to pay an overinfalted, temporary high misplaced price,doesn't mean the asset is worth that price. What role did appraisers play in perpetuating this bubble, and not bringing sense to the market? None of these loans could have been made if the appraiser would have stated the true value.

Submitted by sdappraiser on June 24, 2006 - 11:14pm.

Yeah... sorry about all this.

My bad.

Submitted by Bugs on June 25, 2006 - 8:56am.

I think it's a fair question if for no other reason than it's going to come up often as the market trends down. As people start losing money as a result of declining market conditions they're going to want to wonder why the appraisers didn't prevent them from making a mistake.

"How could appraisers justify today's inflated prices? Shouldn't a home's appraised value be determined on the basis of fundamentals, using owner equivalent rent, i.e. the same metric that is used for the CPI? "

One of the operative words in PSs question is "Shouldn't", which is a reference to what prices should be. In this context and by definition, what SHOULD be....isn't. Another operative word is "justify" which connotes a misunderstanding of the nature and use of an appraisal.

By regulation, the definition of value used on mortgage lending appraisals is based on the actions of the typical buyers and sellers in the market - demonstrable by the preponderance of the data - not on outside metrics. In other words, under that definition of value, the resulting appraisal is supposed to reflect what IS, rather than what SHOULD be.

As for "justify" it is important to note that an appraiser is supposed to fulfil the role of the disinterested and uninvolved third party in the transaction, not that of an advisor. It's all about "observe and report", the idea being that once the information is provided to the different parties they can make their own decisions based on their own interests.

Just a little trivia for a Sunday morning.

Submitted by bozwood on June 25, 2006 - 8:44am.

The Soros theory of reflexivity in a nutshell:

"...financial markets cannot possibly discount the future correctly because they do not merely discount the future; they help to shape it. In certain circumstances, financial markets can affect the so-called fundamentals which they are supposed to reflect."

You aren't that far off as he could hit a number of parts of this run-up, but the whole appraisal process is reflexive, almost by definition, because prior sales are used to value current sales. Once the increase begins (or decrease, I dare say) it becomes self-perpetuating as the past is helping shape the future.

Really, he could probably gone on quite a bit about how the whole real estate bubble has been reflexive. Lending works the same way as new collateral values are determined by past inflated collateral values (and a appraisals) and the whole thing spirals upward until we run out of buyers.

Anyway, as you imply, there should be a better way; maybe there will be after this is all done.

jw

Submitted by barnaby33 on June 25, 2006 - 10:24am.

An appraisal is just someone's opinion of what it can be sold for. PS, underlying value is a myth, its established by a marketplace. A marketplace is just what people are willing to pay at any given point. I think what you are confusing is current value vs future value.

I just read the post about the clairemont flipper. Based on my reading, the current value is probably somewhere in the low 500's. Does that mean that tomorrow or next month it will be so? Not at all.

I think what got me about this post is that your underlying assumption is that there is some magic number that is the intrinsic value of an asset.

Now back to Soros, What he said was a short circuit between the value of assets and the act of valuation. Isn't valuation ultimately the buyers responsibility? Its just too damn easy to pick on appraisers, or RE agents. At best they are enablers, but the short circuit was all about the mania, a mania of buyers.

Caveat Emptor

Josh

Submitted by mixxalot on June 25, 2006 - 11:51am.

Appraisal Fraud is Rampant in San Diego
=========================

Based on things that I have read, heard and seen, there is massive appraisal fraud in San Diego! In fact, appraisers are blackballed by large realtors and real estate firms if they do not go along with inflating real estate prices to gain business. Big problem.

Submitted by sunsetbeachguy2 on June 25, 2006 - 12:00pm.

You know way back in the early 1990s dark ages of RE, If I remember correctly an appraisal comprised of 3 types of analysis.

Recent sales - obviously the most reflexive or bubble prone

Replacement costs - somewhat prone to materials price escalation due to a bubble but slightly more insulated

Value as shelter - or Owner's equivalent rent

When the 3 types of value are analyzed in composite in my mind that is a good appraisal.

During the bubble the only method that has been used is recent comparable sales and we all know what the results of reliance on that one measure of value.

Submitted by Bugs on June 25, 2006 - 1:35pm.

Ummm, You're correct about appraisals commonly using more than one approach to value, i.e, Sales Comparison, Cost and Income. However, there are many property types in which one or even two of those approaches are not commonly used in the market to determine value, and as a result, are not commonly used in appraisals for those properties.

Houses have always been valued primarily on the basis of Sales Comparison, both by the particpants in the market and the appraisers who are attempting to emulate their behavior in their appraisals. The Income Approach is almost never applicable in such an assignment and when the Cost Approach is used it tends to be applied as a secondary check against the Sales Comparison.

None of that has changed in the last 20 years I've been appraising nor in the 20 years prior to that. What has changed is the manner in which the data is collected and the analytical tools that are available for use. And those are all improvements over data sources and tools used in the past.

Of course, none of this touches the very real issue of bad appraisals doing damage in the marketplace. But virtually all of those problems are due to unethical conduct by appraisers, not problems with appraisal methodology.

Submitted by powayseller on June 25, 2006 - 4:36pm.

If appraisals just reflect what value a buyer is willing to pay or what a buyer paid in the last 6 months, instead of what a property is worth according to a valuation formula, then what is the value of an appraisal?

Furthermore, owner's equivalent rent, as used in the CPI, ought to have a role in the appraisal process.

Perhaps this bubble will cause a redefinition of appraisal methodology.

Why have realtors been picked on more than lenders or appraisers? The appraiser ought to be the voice of reason, the logical analytical perspective of a worth that lasts the test of time, and doesn't change by 10% due to buyer whims or interest rates or population changes.

Since we have witnessed stories of sellers losing 10% or more in less than 2 years of ownership, an appraisal must have a disclosure, such as, "This appraisal is good only for current conditions of population, inventory, demand, and interest rates. If any of these changes, the value of this property can increase or decrease by 10% - 25% per year".

Submitted by sdrealtor on June 25, 2006 - 7:13pm.

mixxalot: You are in fact 100% incorrect! Appraisers are not being blackballed by large realtors and real estate firms if they do not go along with inflating real estate prices to gain business because that is impossible! Realtors have no say whatsoever as to who the appraiser is. The appraiser is chosen by the lender not the Realtor or real estate firm. I have never chosen an appraiser nor have I ever influenced the selection of one in any way.

Also appraisals to my understanding are not market value statements. Their purpose is to provide the lender some level of comfort that the price a given buyer is willing to pay for a property can be supported (i.e. by other recent sales). Market value is determined by arms length negotiations beteweeen buyers and sellers.

Submitted by Bugs on June 25, 2006 - 8:41pm.

PS,

All appraisal reports are effective as of a specific date, which is defined as the "Effective Date of the appraisal." The power users of appraisals fully understand the implications of that effective date and they recognize that past performance is no guarantee of the future. Just as with any other type of financial analysis or audit, there is no way to absolutely foretell the effects of future activity on that value conclusion. That's why appraisals are considered to be a perishable product - they can become too dated to be meaningful as of a more current date in a dynamic market.

Maybe the current downturn will have a change in lender's usage of appraisals, but it probably won't affect appraisal methodology at all. This isn't a methodology problem, it's a problem with the usage. If the users of appraisals wanted appraisals that used outside metrics to provide some sort of "investment value" opinion, appraisers are well equipped to provide those types of answers. The issue is not whether or not such a question could be answered in an appraisal; but whether or not such a question is perceived by these users to be meaningful to their decision-making process and whether they were willing to pay for the work involved. We can provide lots of different types of answers to these users, but we can't ask the questions for them.

SDR,
It seems you and I have some room for disagreement here. Just as with the political parties, we are probably going to split down party lines based on our affiliations.

Your comment about market value originating between a buyer and seller perfectly illustrates my point about the difference between the definitions of value commonly used by realty agents vs. what appraisers are supposed to use. That transaction has several other qualifiers besides the willing buyer and willing seller before we consider it indicative of market value - miss even one of those other filters and it doesn't qualify under our definition.

As for pressure being brought to bear...
Appraisers can and do get blackballed by realty agents and there are some loan originators who will take direction from realty agents as to which appraisers will "cooperate" on a specific deal. I've seen more than one example of an uncooperative loan originator choosing to maintain their relationship with a realty agent at the expense of their relationship with the appraiser. I wouldn't say it's widespread but we hear first hand accounts of it happening on a regular basis. Of course, it's far more likely that an uncooperative appraiser will get blackballed by the loan originator based strictly on their own interests, but realty agents are not always uninvolved with that type of extortion.

Regardless, under threat of blackball or not, appraisers have no excuse for allowing these threats to interfere with their responsibilities. Losing work as a result of refusing to perform unethical acts is so common that it's practically part of our job description - it literally happens every day for some appraisers. It's still no excuse. We regard our own black sheep to be a much greater threat to our profession than any dishonest client or other involved party. PS is exactly right when she says we should all be very critical of the appraisers for their failures because they ARE supposed to be the voice of reason.

Submitted by sdrealtor on June 25, 2006 - 9:08pm.

I agree with you and PS that appraisers need to be held accountable as the voice of reason. Personally I have never had any influence on appraiser selection. As you pointed out, the Realtor can put pressure on the loan originator (I never have) but ultimately it is the loan originator that selects the appraiser and needs to be held accountable if they bow to the pressure of a realtor.

As for disagreeing on what establishes value, I think we don't. I defined market value (i.e. the value determiened by the free market) while you defined appraised value (the value determined by a licensed appraiser after reviewing market data and trends). I have had many sales where the appraised value has been higher than the market value. Some would say my clients got a good deal, I just say they got a price that was dictated by the open market. I have only had one home not appraise and it was because there were no comparable sales in the tract within a year that could be used in a rapidly rising market. While the appraiser couldnt justify the price with recent comps, my client saw what else was available and understood the limitations of the appraisal process. They were only financing about about 30% of the purchase and an appraisal $10,000 below their price didnt concern them. After they purchased, several more properties sold in the tract all significantly higher than they paid. This was a case where market value could easily be justified while appraised value could not.

Submitted by lasvegasnewlist on June 26, 2006 - 4:24am.

If you took the appraiser out of the home purchase, and went strictly to an auction, with bid and ask, the run up in prices would have been market driven, just like that of an art auction. The art house sets the minimum price, the buyers have an appraisal from an expert, and then they go on bidding, sometimes far beyound the minimum or appraisal.
That's a free market.

The educated stay ahead of the curve, the greedy and the fools get slaughtered.

Submitted by powayseller on June 26, 2006 - 6:32am.

Bugs, it sounds like an appraiser is just doing the job he is asked to do. As is the realtor. As is the lender. Are we left with saying that Greenspan caused all this? Aren't there any responsible stewards along the way?

My purpose in these questions is to ask how we can prevent future homeowners from the pain that is about to descend upon them.

Submitted by carefullyobserving on June 26, 2006 - 8:02am.

I don't think you can. People who get burned in this cylce will hopfully learn a lesson and be a little more cautious during the next upswing. However, there will be an entirely new population at that point in time that won't remember this down turn and the speculation will start all over again. You will not be able to point your finger at one person or group of individuals that caused this market. It is no one person's fault. If you feel you must blame it on something, blame it on greed. To some extent, that is something that exists within all of us.

Submitted by sdappraiser on June 26, 2006 - 8:58am.

"My purpose in these questions is to ask how we can prevent future homeowners from the pain that is about to descend upon them."

Powayseller, are you a socialist or originally from a socialist country? It's a serious question that I think might help explain a bit of your reasoning.

Why do you feel there is a need to protect the masses and why is it your responsibility to do so?

Submitted by barnaby33 on June 26, 2006 - 10:20am.

I think that your question, "then what is the value of an appraisal?" Is a logical followup to my post. The problem is that as with most large financial decisions there are many answers. To me an appraisal is just someone else's opinion of what the property will fetch at todays prices given current market conditions. Ultimately however it is an opinion, not any kind of objective fact. The only objective fact is your willingness to part with your hard earned(hopefully) cash to buy a property. If you don't know any better you shouldn't be buying. Car dealers don't have to tell you that your car depreciates 15% when you drive it off the lot, its understood.

We seem to come right back to the question of what is value? Value is what you will pay for something. Its like I tell people around me. You can talk about caring, but its what you spend your time on that matters to you.

Why must an appraisal contain a disclosure? At best it would be boilerplate CYA that most people would gloss over. I am not against this per se, but it wouldn't change anything; not in our current system.

I can't touch the issue of appraisal fraud for two reasons. One, it seems patently obvious that it has been rampant and two I am not an appraiser. Its like being deeply religious. You don't have any proof, but to you its so obvious you act as if it were fait accompli.

Josh

Submitted by docteur on June 26, 2006 - 2:42pm.

Value is what the market will bear, period. There is no intrinsic value in anything. Prices change as market conditions change.

And residential real estate markets are based on previous sales, regardless of how ridiculous those sales may seem. Appraisers are simply reporting market activity and allowing the public to make choices based on the data they present.

I have to ask those of you who sold your homes thinking the market was going to crash or was topping: How did you value your home for sale? Did you seek the services of an appraiser or a realtor or did you use comps? Or, did you use reasonable rental income assumptions? Maybe you used replacement value?

And if you thought the market was overpriced when you sold, did you make a downward adjustment on your price? Did you disclose to your buyers that you thought this market was topping and they were going to lose money in a few years?

Or did you sell because you thought the market was overvalued and you wanted to maximize your gain and protect your equity/profit?

You sold to maximize value and you did it because you thought values were going to fall. That's capitalism at work. Your buyers bought because they thought values might continue to rise (or maybe they just needed a home and they thought yours was a fair price - whatever the market bears is a fair price.) Did you advise your buyers of your reasons for selling, like you think realtors or appraisers should do now?

I seriously doubt it.

I agree with Bugs: Buyer beware. You are making your own decisions based on the data you have received.

I think it is easy to sling poop at others after the fact but we all have to look at our motivations when profit is involved. Looking for a scapegoat in appraisers, lenders, realtors, builders or speculators is laying blame and avoiding responsibility for our own actions.

We manufactured this market en masse by our actions (selling out to the next greater fool) or by our inactions (not buying because we felt the market was overvalued) and we need to own the consequences of those actions at what ever level we participated in creating this present condition.

And as far as wanting real estate professionals to be more accountable for their actions remember this: "Ask no more of others than you are willing to do yourself."

Submitted by powayseller on June 26, 2006 - 5:19pm.

"Did you advise your buyers of your reasons for selling, like you think realtors or appraisers should do now?"

I did not tell my buyers my reason for selling. Unfortunately for them, none of the professionals involved in the deal, the people who have a professional obligation to lead them, let them know about the risks they were facing.

"And as far as wanting real estate professionals to be more accountable for their actions remember this: "Ask no more of others than you are willing to do yourself."

I disagree. It is not my professional and fiduciary duty to advise my buyers about the real estate market. It is the duty of the agents: realtor, lender, appraiser.

Nonetheless, I benefitted at the expense of my buyers. I mentioned several months ago that I felt guilty about selling my house. As I felt guilty selling my stocks once. I made money at their expense. I discussed this with several people at the time, and they told me it was only fre trade, capitalism, the way our system works. They had access to the same articles I had. I, and my buyers, were just consumers. None of us had professional inside information or market analysis. I made my decision based on piggington.com. I would think that professionals have access to more updated and higher level information, and could provide better advice for their client.

The appraiser gets his $300 regardless of whether the house comes in at list price or not. Why doesn't he just state the intrinsic value? There needs to be some reform in the purpose of an appraisal.

As far as socialist, I don't think I am. I just have compassion for pain. I feel bad for people who don't have health insurance, kids who are neglected, and adults out of work. And the millions of people about to face foreclosure, bankruptcy, and unemployment.

I have no qualms about looking for blame. Courts do this too, don't they? They also seek to punish the wrong-doer.

Although lenders, realtors, and appraiser have not broken any laws by contributing to the bubble, you think I have by selling my house? Perhaps... I should not have sold my house? I should not have bought it either at a 30% markup from the prior year? Perhaps I should have stayed out of the market altogether, decreasing liquidity in the housing market. So you are against capitalism and free trade.

My thought is we ought to figure out what went wrong, so we can improve the system, and prevent another bubble. Government has plenty of consumer regulation to protect people. We need disclosures in asset bubbles, as we have disclosures in car sales, mutual funds, insurance policies, loan docs....

The last thing this country needs is another asset bubble.

Back to the point I started with, quotation by George Soros.
"Again, the bubble can be attributed to a short-circuit between the value of assets and the act of valuation. This short-circuit is called the wealth effect."

Submitted by contentrenter on June 26, 2006 - 6:39pm.

Things are "worth" what people will pay for them.

A short-sleeved knit shirt with a collar is "worth" about $20, if it's well made, unless it has an alligator on it, in which case it's worth $50. A silver bracelet is worth $50 unless it's obviously from Tiffany, in which case it's worth $200. If you don't believe me, ask eBay. eBay provides an interesting view of the market at work, undiluted by appraisers.

I'm sure we all care about the suffering of others. But if appraisers are only asked to give us fair market value right now -- i.e., what someone else would probably be willing to pay for a specific property right now -- then they can't possibly be to blame for telling the truth.

Submitted by powayseller on June 26, 2006 - 9:08pm.

Was the alligator T-shirt worth $25 several years ago, appreciating in value 25% annually, and peaking at $50? Did it then start losing in value at 10% annually? Do people buy enough of shirts like this that their retirement and financial security are affected by the current value of the shirt, making it even more crucial to get the pricing right?

Or, consider that a house is worth $300K unless it's in LaJolla and then it's worth $1 million. Today at least.

No blame on appraisers, but their scope of work should be modified to give an intrinsic value. Otherwise, what is the point of an appraisal if you're basically supporting the market price? The market price is what the buyer is willing to pay, so why do you need an appraisal? Just to satisfy the lender that the buyer is not completely out of line on the offer?

Submitted by Bugs on June 26, 2006 - 11:11pm.

Again, you're speaking in terms of "should be". As we were saying before, there are no guarantees in life, and this goes double for financial investments. The reason there's money to be made in the first place is because the investor is assuming a certain amount of risk. If there was no risk there would likely be no reward. The more potential for profit there is, the more risk is usually involved. It's up to the player to familiarize themselves with the risks and to not blindly believe in the sure thing.

When a middle-aged couple knowingly gambles away their nest egg on some high-yield investment stocks it's a sad thing that they made such a mistake but I don't hear a whole lot of outrage directed at the companies who offer the stock or the brokers who sell it. You pay to play, you take your chances. Play long enough and you'll end up losing once in a while. If you're both good and lucky your wins will outweigh your losses. If not, well, somebody has to put up the purse - it doesn't just magically appear.

Besides, how can one possibly foretell the future with any degree of certainty or offer a warranty that could cover the unforeseen? Ask most appraisers in 1996 and they would never have believed that values would have increased as much as they did for as long as they did. Neither did anyone else, including even the most optimistic of the permabulls. Nobody could have known the Fed was going to lower interest rates the way they did or what the results would be. All anyone can do is deal with the here and now and take a swing on what's going to happen in the near future. The farther out into the future we go the less certain we can be about it's turns.

America is not and hopefully never will become the Nanny State that coddles us from cradle to grave. Our Bill of Rights does not say we have the right to life, liberty safety, and security.

Submitted by powayseller on June 27, 2006 - 8:50am.

It seems so unfair that the Fed is jeopardizing the financial security of tens of millions of Americans, just so they could avoid a recession in 2001. I really need to read a book on manias, so I can make peace with this.

I'm still puzzled that our government leaders created in the masses a temporary false sense of financial prosperity. The Fed had to know that the higher and longer this bubble went on, the more painful the fallout. This is gross negligence on the part of our supposed faithful servants. I made out good on this, but that doesn't give me comfort. I still feel bad for the masses. Of course, the Fed is not a government agency at all, is it? It's a privately owned group of banks, so they made their money as they should in a capitalist society. The Treasury Department and the President have no such excuse.

Soon enough, some of these data points will become personal, affecting families that I know, and it will be even more painful to watch the falling prices, foreclosures, bankruptcies, and job losses.

Submitted by kewp on June 27, 2006 - 9:29am.

Some interesting comments from Wikipedia:

"In the 1920s, the widespread use of the home mortgage and credit purchases of automobiles and furniture boosted spending but created consumer debt. People who were deeply in debt when a price deflation occurred were in serious trouble --even if they kept their jobs--and risked default."

"The crash followed a speculative boom that had taken hold in the late 1920s, which had led millions of Americans to invest heavily in the stock market, even borrowing money to buy more stock. Banks lent heavily to fund this share-buying spree.

The rising share prices encouraged more people to invest, as they hoped the shares would rise further, thus fueling further rises, and creating an economic bubble."

It's deja-vu all over again.

Submitted by CAwireman on June 27, 2006 - 12:23pm.

Its the bank ! not the appraisor in my opinion. The appraisor is sort of like the car that is going with the flow of traffic on a fast freeway. Aren't appraisors typically self employed folks without any heavy regulatory guidelines to show compliance with?

The banks, however, since they are in the position of loaning money they get from the government, should be acting responsibly and should be saying "No" when the prices get too high. Yes, this is "Shoulding" the situation but, you'd think that the backstop to a market turned on its head would be the banking institutions. But, they, not to miss the opportunity to grant large loans, are equally as guilty of going with the flow of traffic, but agian by virtue of the close tie to government as well as growing banking regulation (ever hear of Sarbanes Oxley....)would be the voice of sanity that could have kept prices more stable - if the banks refused to loan money on overpriced homes, the valuation wouldn't have risen so dramatically.

Its the bank and not so much the appraisor.

Submitted by powayseller on June 27, 2006 - 2:50pm.

It's the investors who bought MBS for a low risk premium, and not the bank.

How many banks hold the loans? Mostly they are sold off and packaged as MBS. If there had been less global liquidity, investors would have demanded a risk premium, such as 8% for an ARM or 10% for a zero down loan.

It's the greedy investors who bought the loans, not the banks. Although there are plenty of banks holding ARMs, and they are facing a collapse similar to the recent S&L crisis.

Submitted by Carlsbadliving on June 27, 2006 - 3:16pm.

It's the greedy investors who bought the loans, not the banks.

Since when are all investors greedy? Have you never invested in anything? I guess that makes us all greedy. I think you need to stop placing blame everywhere except for where it belongs... on the buyers. They're the ones who made the poor decision to take out an ARM/IO and will have to live with the consequences. I don't think someone that invested in some MBS can be blamed for what happened.

It's no different than someone with oil stocks? Are you going to blame them for global warming.

Submitted by Bugs on June 27, 2006 - 3:50pm.

Blaming "the system" for not preventing the individual from making bad financial decisions is like blaming the government for not having a helmut law. All you Harley riders know what I'm talking about here, right? What would happen if the government limited the types of financial investments we could make? You'd have revolution in the streets, probably with the political conservatives leading the way.

I mean, where does our culture of blame stop? Are credit card companies responsible for the problems people create for themselves by misusing their credit cards? Are the automakers and their dealers responsibile for the public's insatiable appetite for the biggest, baddest, manliest SUV available? As individuals we must all own the consequences of our actions, otherwise we'll just keep making the same mistakes over and over again.

Submitted by powayseller on June 27, 2006 - 10:12pm.

Consumer safety groups exist to protect us from corporations selling us unsafe goods and services. There are plenty of laws to protect consumers from unsafe food, medicine, etc. Consumper Product Safety Commission, testing car crash safety, FDA, banking regulations and loan disclosure forms, seat belt law, fair lending law that requires you do NOT turn away a minority renter, equal employment laws at the office, lemon law for used cars, building inspectors to verify you build your house according to government code, SEC, laws requiring disclosure for mutual funds, debtor laws, criminal laws, homeowner's association rules, IRS rules about how much of your money you have to pay the government, assisted suicide laws, labor laws, education laws, rules about importing fruit into the country, .... There are millions of laws that regulate how we live, what we buy, how we act. Isn't it obvious that we have a ton of government laws, some of which are invasive?

The purpose of the laws: to protect us consumers who are either too stupid or powerless without this protection.

To these laws, let's add some more to protect the consumer's finances.

Most consumer laws were created in the era of the US as a manufacturing powerhouse. Now we are a debtor and creditor nation, and we need laws to reflect the new age. We need some asset bubble-protection/disclosure laws.

We also need financial education in high school, including a course on economics/finance with a section on manias. The bubble economy has been strong the last few decades.

Submitted by rockclimber on June 28, 2006 - 2:09pm.

Laws are not the answer.

One of the things I like about the National Parks, especially when you get out a ways into the back-country is that there are no handrails on the edge of cliffs. People do die out there, but usually it is due to their own poor choices.

True freedom demands responsibility. Pain is an excellent modifier of behavior. If things work out as many here propose, there will be plenty of pain to go around which will work it's way through our economy like a little yeast works it's way through a batch of dough. Behavior will be modified, and of a much more lasting sort than a law could ever achieve.

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