The "S&P 500" is not the same as the "investment industry" It's a big part of it, and the rest of the industry was operating in much the same way. Buying an a

The "S&P 500" is not the same as the "investment industry" It's a big part of it, and the rest of the industry was operating in much the same way. Buying an asset with the expectation that it will increase in value... People expected the asset to increase in price. The only way an asset can increase in price is if new buyers are willing to pay more money for it. If this increase in price corresponded to an increase in the underlying cashflow, that would be healthy. But the price of stocks were increasing at a far greater rate than dividends were increasing. Therefore it was not healthy at all. Another way of putting it: if you bought a share a S&P 500 ETF, and knew you could never, ever sell it, what kind of dividend yield would you demand? I would demand at least a 5% dividend, maybe more. By that metric, the S&P in 2007 was overpriced by about 70%. That premium is based on the idea that someone else would be willing to pay that price or more. The S&P is not really a ponzi scheme. When a ponzi scheme is big enough, and it is legal, we have a new name for it: money. S&P stocks were essentially trading as private currencies. See my longer comment on this here: http://www.newmogul.com/item?id=2587 http://www.newmogul.com/item?id=2587 It is important for everyone to understand that Krugman is the worst kind of shill. He is a shill, but it's important to criticize him for the right reasons. The elephant that Krugman misses is that from 1995-2008 the dollar was diluting at ~10% a year. When that happens, holding any asset other than the dollar - stocks, real estate, gold, oil - starts looking like a great idea.