Nick Arnett <[EMAIL PROTECTED]>
> How could we have known what we apparently "should" have known about
> valuations?
I looked at price to rental and price to income ratios, as well as the
deteriorating
loan standards (my parents needed to put 20% down, but so many loans in the
past ten years put 5% or 0% down), and concluded that the housing market was
overvalued (at least in the places I was living in). So I've been renting.
> How much research should a non-real estate professional be
> expected to figure out when buying a house? If financial professionals
> can't make sense of the value of sub-prime paper, how could the rest of us
> be expected to?
Some people will make mistakes, others won't. That is part of how a market
sets prices. I agree that many so-called experts were wrong. To me, that argues
that we shouldn't have "experts" setting policy, since that just gives them a
chance to be wrong for a much larger amount of money. You were wrong and
are down $100,000. If an "expert" is wrong, the country could be down $100B
or a trillion.
Actually, it could be even worse than that. The numbers become huge if you
look at the difference between, say, 2.1 and 2.0% growth over a lifetime and
millions of people.
> Until I wrote that, I hadn't really thought about the effect of complexity
> on a market... the idea that complex derivatives, subordination and such can
> create a market in which nobody, least of all ordinary people, can know the
> value of goods.
>
> For those among us who oppose government regulation, does this include
> opposition to regulation whose purpose is to limit complexity? (Which I'm
> thinking would also help avoid chaotic -- in the mathematical sense --
> behavior in the markets.)
I don't follow how you go from nobody understanding to the government somehow
being able to help. If nobody understands, surely that includes politicians?
Maybe you are saying that the government can somehow make things
understandable by reducing chaos? I find that an even bigger leap of faith.
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