Herd About the Housing Bubble?
Yesterday econ/real estate guru Robert Schiller penned an article for the Times examining why Greenspan, market experts and individual investors didn’t see warning signs of the disastrous housing bubble: The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United…
Yesterday econ/real estate guru Robert Schiller penned an article for the Times examining why Greenspan, market experts and individual investors didn’t see warning signs of the disastrous housing bubble:
The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks. Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble.
Schiller concludes that the lack of foresight about the bubble has to do with “herd behavior” and “information cascade,” whereby rational investors’ individual decisions add up based on incomplete info. The phenomenon helps explain why an entire nation would be under the thrall of the notion that housing=a great investment. A cascade is possible when a whole country buys into the same belief despite individual analysis that refutes prevailing wisdom. The result? Rising prices and a big bad bubble. So what’s next? “It is now possible that a downward cascade will develop — in which rational individuals become excessively pessimistic as they see others bidding down home prices to abnormally low levels,” writes Schiller.
How a Bubble Stayed Under the Radar [NY Times]
Collage by Amy Jaz.
The What is still a renter!
Bush was indeed a bad president, but under his leadership I was able to buy 2 brownstone.
I really hope the Dems dont cramp my style.
yup, that’s the one, 5:40.
“The best part is all the idiots who are going to end up paying twice the capital gains tax when President Obama (or Clinton) lets the Bush tax cut (on Cap Gains) expire.”
Oh…you mean the tax cut that overwhelmingly favors the wealthiest 1% of the nation? Most of us won’t miss that much.
5:27 I am not advocating for the tax cuts or not (some I think are good for the economy – cap gains for example and some are ridiculous – like estate tax cut for another)
What I am saying has NOTHING to do with ‘politics’ –
Actually what I think I am admitting is that despite having reservations for our economy regarding a raise in cap gains taxes – I am actually looking forward to people getting burned by their near obsession with trying to avoid ALL taxes (lower rates or not). It frankly used to puzzle me why people were willing to pay any price for the ‘next’ property simply to DEFER their tax. And when I asked I would say “I don’t get, this “next” property makes no sense from a financial perspective” – I’d get the same response – “Yeah but this way I don’t have to pay the tax”
I from the old school – I think investment decisions should be based on sound fundamental principal, research and maybe a bit of luck – I am sick of “luck” (also known as the greater fool theory) being the by far biggest criteria in this market – it will be nice to see some people finally get hurt by their stupidity. (I know that is less than Christ-like, for that I am sorry)
bush is so over.
worst.president.in.history.
5:12 – yeah because Bush and his “tax Cuts” have been such good for our economy.
It is a direct result of his policies that we are on the verge of a meltdown.
Or do you do the typical pass the buck republican line of blame clinton for all republican caused problems?
1031 – and people’s “discovery” of this relatively old RE provision is a major contributor to the Bubble that is popping.
People are so obsessed with avoiding taxes that they were willing to pay virtually anything for the next “in kind” property as long as they could identify it within the 45 day period
The best part is all the idiots who are going to end up paying twice the capital gains tax when President Obama (or Clinton) lets the Bush tax cut (on Cap Gains) expire.
The What is a renter. What she has to say is meaningless.