Crawl Across the Ocean

Saturday, August 21, 2010


Felix Salmon responds to a paper put out by some of the economists at the Federal Reserve banks in the U.S. that tries to whitewash their failure to see the housing bubble coming and do anything to prevent it from getting so large before it popped:

"Kristopher Gerardi, Christopher Foote, and Paul Willen, of various regional Federal Reserve banks, have a paper which looks at economic research on whether or not there was a housing bubble, and which concludes that “we do not currently have the ability to prevent a bubble from forming or the ability to identify a bubble in real time”. Yes, they admit, some smart and prescient economists did say, with complete accuracy, that there was a bubble. But! Other economists weren’t convinced! So, never mind, there’s nothing we can do."

Felix was one of many commenters that mocked this self-serving paper, but I only highlight his response for a throwaway comment he made at the bottom of his post,
"Housing bubbles are normally pretty obvious at the time: there’s one right now in Vancouver, for instance. You can see them in the rise of dozens of huge new glass-clad condo buildings; you can see them in massive price increases; you can see them when mortgage payments are significantly larger than the amount of money you could get renting out the place; and you can see them whenever people start making more money from selling their homes than they do from actually working. The only people who can’t see them, it seems, are economists, realtors, and bankers on Wall Street."

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