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Bernanke was delusional, but others saw the bubble for what it was. Four months months earlier, in The Economist: "The worldwide rise in house prices is the big

by nkoren 13y ago

Bernanke was delusional, but others saw the bubble for what it was. Four months months earlier, in The Economist: "The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops. [...] According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history."[1] There's been a narrative developing lately that none of the mainstream economists saw the crash coming. This is not true; plenty of them did. But their message did not appeal to incumbent politicians, and so it was ignored. 1: http://www.economist.com/node/4079027?story_id=4079027 http://www.economist.com/node/4079027?story_id=4079027

mistermann 13y ago
Tons of bloggers were all over it as well, just one example: http://housingpanic.blogspot.com http://housingpanic.blogspot.com
- don_draper 13y ago
  Also, http://thehousingbubbleblog.com http://thehousingbubbleblog.com
liber8 13y ago
It's very easy to say these people were right, in hindsight. There's many from the austrian school who had been calling for the 2008 recession for 10 years. So, they were right, but it's pretty hard to listen to them when things keep chugging along for so many years. Likewise, there were many people who saw the 2008 pop coming and bet on it, but just mistimed it by a few months. The handful of Wall Street guys who timed it just right made their careers and look like geniuses, but there were numerous times that many people who took massive hits because they were just a few months too early. The point is, the doomsday message is never going to appeal to incumbents, because it's pretty hard to know where you are in the bubble. If you're only in the middle and you start jacking interest rates up (prolonging the bubble but not popping it), its very likely that it will look like you made the wrong move (after all, prices kept going up the whole time, regardless of the rate increases, so maybe it wasn't a bubble?) Greenspan was a genius ... until 2.5 years after he stepped down. Now he gets a large part of the blame for causing the bubble. We're in another real estate bubble right now. Guaranteed. My so-cal house is up over 20% just in the last year (after only falling about 20% from its 2008 peak), and things are only accelerating in my area. But real estate is basically the only thing driving the economy, so there's no way they're lowering rates in the next two years, so there's no way prices are falling. Asset prices overall are going to skyrocket over the next few years, and then will crash again, probably close to as hard as in 2008. But whether that crash is 3 years out, 5 years out, or 10 years out, I have no idea. Nobody does. So if you're a politician, the safest bet is to ride the wave and just hope you don't get smashed into the rocks.
marcamillion 13y ago
Wow...how prescient. >Calculations by The Economist show that house prices have hit record levels in relation to rents in America, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. This suggests that homes are even more over-valued than at previous peaks, from which prices typically fell in real terms. House prices are also at record levels in relation to incomes in these nine countries. The only economy that never suffered as badly as everybody else in that list is Australia - and MAYBE New Zealand - largely because of the ridiculous demand of commodities from China, et. al. But these guys were spot on. No wonder I can't stop reading them every week.

by nkoren 13y ago

mistermann 13y ago

Tons of bloggers were all over it as well, just one example: http://housingpanic.blogspot.com http://housingpanic.blogspot.com

don_draper 13y ago
Also, http://thehousingbubbleblog.com http://thehousingbubbleblog.com

liber8 13y ago

It's very easy to say these people were right, in hindsight. There's many from the austrian school who had been calling for the 2008 recession for 10 years. So, they were right, but it's pretty hard to listen to them when things keep chugging along for so many years. Likewise, there were many people who saw the 2008 pop coming and bet on it, but just mistimed it by a few months. The handful of Wall Street guys who timed it just right made their careers and look like geniuses, but there were numerous times that many people who took massive hits because they were just a few months too early. The point is, the doomsday message is never going to appeal to incumbents, because it's pretty hard to know where you are in the bubble. If you're only in the middle and you start jacking interest rates up (prolonging the bubble but not popping it), its very likely that it will look like you made the wrong move (after all, prices kept going up the whole time, regardless of the rate increases, so maybe it wasn't a bubble?) Greenspan was a genius ... until 2.5 years after he stepped down. Now he gets a large part of the blame for causing the bubble. We're in another real estate bubble right now. Guaranteed. My so-cal house is up over 20% just in the last year (after only falling about 20% from its 2008 peak), and things are only accelerating in my area. But real estate is basically the only thing driving the economy, so there's no way they're lowering rates in the next two years, so there's no way prices are falling. Asset prices overall are going to skyrocket over the next few years, and then will crash again, probably close to as hard as in 2008. But whether that crash is 3 years out, 5 years out, or 10 years out, I have no idea. Nobody does. So if you're a politician, the safest bet is to ride the wave and just hope you don't get smashed into the rocks.

marcamillion 13y ago

Wow...how prescient. >Calculations by The Economist show that house prices have hit record levels in relation to rents in America, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. This suggests that homes are even more over-valued than at previous peaks, from which prices typically fell in real terms. House prices are also at record levels in relation to incomes in these nine countries. The only economy that never suffered as badly as everybody else in that list is Australia - and MAYBE New Zealand - largely because of the ridiculous demand of commodities from China, et. al. But these guys were spot on. No wonder I can't stop reading them every week.