Searching for Cassandra
On the Cassandra-hunt issue my sense is that a large number of economists and macroeconomic observers were well aware of the probability that serious problems related to the collapse of a housing bubble might arise. But that most of them assumed that other key actors were also aware of the situation and therefore nothing extraordinarily bad would happen. People would see the value of their assets decline and there would perhaps be a recession but nothing earth-shattering
By contrast, some people who had something more like a ground-level view of the actual practices of financial service understood what was going on and weren’t shy about saying so. It was all on Calculated Risk. And of course others who had a ground-level view knew what was going on and weren’t interested in telling anyone about it.
28 Responses to “Searching for Cassandra”
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November 29th, 2008 at 6:00 pm
By contrast, some people who had something more like a ground-level view of the actual practices of financial service understood what was going on and weren’t shy about saying so.
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom
can’t recommend it enough…
November 29th, 2008 at 6:33 pm
Nobody’s Cassandra hunt will wind up at the Fed:
“The housing downturn looks to be a very orderly and moderate kind of cooling.” — Fed Chairman Ben Bernanke, May 18, 2006
November 29th, 2008 at 6:36 pm
We’ve finally reached the part that I Cassandra’d about earlier in the decade … a deep and extended recession in the US following the collapse of the housing bubble.
A parallel collapse of a stock bubble … I expect that. The melt-down that has occured, and the financial contagion across the globe … that’s where I should have been reading Calculated Risk more.
November 29th, 2008 at 6:37 pm
Yeah, I don’t think a lot of people who noticed the zombie nature of right wing anti-regulatory ideology, particularly in the throes of a bubble housing boom, and the Republican government which let bodies rot in the flooded streets of New Orleans, were under the impression that the looming cataclysm so many of us felt was coming was somehow going to be magically solved by unknown good government Bushites springing into action.
November 29th, 2008 at 6:51 pm
This all reminds me of the feigned shock and surprise about the S&L crisis. Of course if you lived in Houston in the mid ’80s there was no surprise at all.
November 29th, 2008 at 7:12 pm
“Koolaide.”
November 29th, 2008 at 7:30 pm
It was all on Calculated Risk
What exactly was on CR and when?
November 29th, 2008 at 7:36 pm
It is impossible to claim that those in the industry didn’t know what was going on. The rules for lending kept going down and the types of loans kept getting stranger and stranger.
I am no industry insider, but I have at least been alive and somewhat aware of my surroundings for almost five decades.
What I noticed was the terms some of my relatives got on mortgages plus the existence of television shows like “Flip This House” aimed at non-experts/non-remodelers, and everyone using their home equity to consolidate consumer debt, buy cars, pay for college, etc.
If I just focus on home equity to make my point. Most people seem incapable of understanding that a home equity loan sells the part of your house that you actually own to somebody else. Instead they think that they still own just as much of their home as they did before the loan. The best case use of a home equity loan is to improve the quality of your home so that the loss in equity is recovered in an increased value of your home if you should need to sell it.
Anyway, in order to sell home equity loans lenders had to lower their standards. It is impossible that they did not realize that they lowered their own standards for lending or that they didn’t do this in order to sell home equity loans.
But overall, this was a game of hot-potato. It reminds me of the failure of reinsurance after hurricane Andrew. I think Lloyds of London ran into some problem there. Reinsurance, hedge funds, these are all gambling mechanisms that have nothing to do with commerce. The main effect is to redirect capital to the least regulated/understood areas of business.
November 29th, 2008 at 7:56 pm
Chief Obama economic advisor Austan Goolsbee:
Thanks, Mr. Nader!
November 29th, 2008 at 9:33 pm
Regarding that Goolsbee quote above, if ever there were a more clear example of dismissing the forest while trumpeting the trees…
November 29th, 2008 at 9:36 pm
There’s only two kinds of republican post these days: either finding some way to blame nonwhites for something, or wondering why the republican party has such a problem with minority voters.
November 29th, 2008 at 10:00 pm
There’s plenty to criticize Goolsbee for in that article, but he’s not blaming the subprime debacle on dark-skinned people. He’s saying that subprime is not a debacle, and one of its benefits is that dark-skinned people are getting a fair shot at mortgages. One bad. But only one.
November 29th, 2008 at 11:33 pm
Failure to see trouble ahead is one thing if there’s no prior experience to serve as a warning. That’s clearly not the case, however, as there was a severe albeit somewhat regional real estate bubble that wrought a fair amount of havoc at the beginning of the 1990’s. That’s not so long ago that it reasonably could have been forgotten.
November 30th, 2008 at 9:11 am
That there’s a difference between making it the law to let dark-skinned people have a mortgage despite their being dark-skinned and to not let anyone too poor to repay the mortgage have a mortgage seems to have eluded our Republican friends.
Of course, our current economic woes are related to dark-skinned people defaulting on their mortgages the way an elderly person dying in a nursing home of bed sores is related a teenager with a zit. But our Republican friends seem to not understand that either.
This kind of cognitive deficiency may explain their recent electoral problems.
November 30th, 2008 at 11:23 am
Actually I was hunting a cassandra based in Europe. Are you aware of any? I would like to know more on how and why we, europeans, got involved in this crisis…
Any cassandra in Europe?
December 1st, 2008 at 2:00 am
It was all on Calculated Risk.
And now Tanta of CR has left us…
http://calculatedrisk.blogspot.com/2008/11/sad-news-tanta-passes-away.html
December 6th, 2008 at 2:37 am
A father has demanded an apology from police after he was arrested and locked in a cell overnight for smacking his son’s leg. Mark Frearson said he told off his son Harry because the seven-year-old walked off alone after dark
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