Monday, May 17, 2010

If property prices hadn’t gotten out of hand there would be no financial crisis

Its Not Rocket Science

Financial crisis caused by house and commercial property price spiral from 2000 - 2007 and the unsupported liquidity this released. "To simply chalk it up as a Black Swan event is an intellectual copout that concedes an unacceptable level of helplessness in the face of less than mysterious forces. Labeling the largest financial crisis in history as a Black Swan event also provides a degree of absolution to those responsible, who were either blinded by ideology or straightforward greed"

Posted by bellwether @ 01:58 PM (1166 views)
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7 thoughts on “If property prices hadn’t gotten out of hand there would be no financial crisis

  • mark wadsworth says:

    Yup, it is as simple as that.

    Very few people are experts on spotting bank crises by staring at bank balance sheets – but we know full well that the flipside of a property price bubble is a credit bubble, so if house prices are rising too fast, trouble will follow as sure as night follows day.

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  • krustyatemyhamster says:

    Quite.

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  • Nice to see our name again bellwether

    Yes I posted words to this effect the other day.

    Gordon Brown precided over something that was clearly identified as trouble.

    He did nothing and therefore the current problems we face can IMO be rested firmly on his shoulders.

    The ‘world’ problem is irrelevant, we have our own that didn’t have to be created.

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  • Cheers all. STR good to hear from you.

    Agreed, although the dislocation of property prices is also a global or rather developed world phenomenon (reliance on growth out of credit rather than productivity – of which the property explosion was the last demented throw of the dice), not that this exonerates Gordon from running up deficits in the crazy belief that it could last forever.

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  • The Black Swan is not that the inevitable crash inevitably happened, it was that the combination of circumstances that popped the irrationally exuberant bubble was truly unpredictable. We all know the emperor is wearing no clothes – but what, exactly, causes that “revelation” to be generally and openly admitted as fact? I think instead of talking about “Black Swans” we should instead be asking why and for how long can a market continue in some kind of counter-factual popular denial (or even, the sustained ‘rational’ irrational position of second-guessing other irrational players.) The market cannot be the most efficient allocation mechanism if it is simultaneously a forum for self-reinforcing delusions up until some indeterminate tipping point!

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  • mark wadsworth says:

    @ Guiriduro: “The market cannot be the most efficient allocation mechanism if it is simultaneously a forum for self-reinforcing delusions up until some indeterminate tipping point!”

    A free market is always the most efficient, or at least the least inefficient. The problem is that housing and house prices are just about the least free market in the Western World; supply is tightly controlled by the NIMBYs; prices are driven upwards by bonus hungry bankers; prices are subsidised by light taxation of housing and heavy taxation of everything else; small wonder that we have regularly recurring bubbles.

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  • Mark W,

    That doesn’t explain the dot-com delusion. Everyone knew it was a bubble, yet they kept buying. Also, unlike shares, you can’t destroy land entirely (as long as you aren’t leveraged).

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