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Good Explaination Of Housing Bubbles

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Just reading a book called Globalization and its discontents by Joseph Stiglitz - Chief economist at the World Bank until January 2000. Before that he was Chairman of President Clintons council of Economics advisors. He is currently Professor of Finance and Economics at Columbia University.

He won the nobel prize for economics in 2001.

From the chapter the East Asian Crises

There was a second, hardly more credible argument that the advocates of capital market liberalization put forward - again without evidence. They contended that, as a result, countries would grow better without these controls. Thailand provides a case in point why this argument was so flawed. Before liberalization, Thailand had severe limitations on the extent to which banks could lend for speculative real estate. It had imposed these limits because it was a poor country that wanted to grow, and it believed that investing the countrys scarce capital in manufacturing would both create jobs and enhance growth. It also knew that throughout the world, speculative real estate lending is a major source of economic instability. This type of lending gives rise to bubbles (the soaring of prices as investors clamor to reap the gain from the seeming boom in the sector); these bubbles always burst; and when they do, the economy crashes. This pattern is familier and was the same in Bangkok as it was in Houston: as real estate prices rise, banks feel they can lend more on the basis of the collateral; as investors see prices going up, they want to get in on the game before its too late - and the bankers give them the money to do it. Real estate developers see quick profits by putting up new buildings, until excess capacity results. The developers cant rent their space, they default on their loans, and the bubble bursts.

Chapter 4, Page 101

Sounds familiar!

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It makes sence, the most relaxed place to borrow is japan, 100 year morgages, with debts that are passed onto your children. Prices have been crashing ever since the boom, even when interest rates were dropped to 0%....

Edited by moosetea

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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