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September 28, 2008

Insane From The Beginning

Stutts economist Robert Schiller has been warning about the US housing bubble since 2003. In his recent book The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It, he quotes the first line of a 1932 book with another long title, The Great American Land Bubble: The Amazing Story Of Land-Grabbing, Speculations, and Booms from Colonial Days to the Present Time. It's this:

America, from its inception, was a speculation.

Bizarre speculative bubbles have happened all over the world throughout history, so I don't know whether Americans are actually more vulnerable than other humans to this kind of mass psychosis. But it certainly seems like it.

—Jonathan Schwarz

Posted at September 28, 2008 06:15 PM

This makes me think, contrariwise, that: Japan didn't recover from their asset inflation of the 80s for over a decade; Sweden had, as recently discussed here, their own housing bubble in 1990; the peso crisis in '95, the southeast asia crisis of 97, the ruble in 98, brazil and argentina in 99. For that matter, Australia and the UK have both followed along on our current real estate ride, among others.

But then I think we haven't properly defined the difference between "market correction" and "speculative collapse". By some loose definition of the latter you start discovering froth everywhere.

Also, the more I learn about this particular crisis, the less impressed by it I am. Short of an interbank lending freeze none of the prophets of panic in washington have explained what would be so bad about letting half of the financial industry burn to death in their own flames. The faster they burn up the sooner the survivors know who they can lend to safely, but instead we're going to prop up the burning buildings.

Posted by: buermann at September 28, 2008 10:01 PM

Ironically this problem had very little to with mortgages. It has everything to do with the fantasy mentality on display by top CEO's and a willing to invent financial instruments to justify those delusions.

This mess has been a 7 year+ game of wealthy people lying outright to each other. It very much mirrors what was happening in the White House.

The irony is that they completely failed at what they were actually trying to do, what the lies were originally supposed to cover for.

You'd think they would have learned that taking control of something is not the same thing as having control of something.

Given that this new revised plan is simply window dressing on the Paulson plan, as there are really no guarantess of anything, do we really have a Sane Evil Branch of elites? I'm starting to think that sanity doesn't exist anymore at the top echelons.

The obvious solution is to have the government buy preferred shares in the banks that are in trouble, England is currently doing this.

That we are not indicates we don't have a crisis, or out whole financial/business system is no longer relevant to the rest of the world.

Posted by: patience at September 29, 2008 12:07 AM

What's striking about this entry is that someone had time to write and publish a book about the subprime crisis, but no one had time to do anything about it---not in Wall Street, not at the Fed, not in the administration. Treasury only had time to make up a number ...

Posted by: Baldie McEagle at September 29, 2008 09:48 AM

JS, I should dig out the part of Ben Hecht's classic memoir Child of the Century about his involvement in a Florida "land boom." Same old, same old.

Posted by: Rick Perlstein at September 29, 2008 11:24 PM