July 19, 2008

Housing and the Madness of Crowds

I was intrigued by this article in The Atlantic that discussed the housing bubble, and in a sort of Malcolm Gladwell-esque way, suggested that economic "bubbles" might be treated like viruses, and prevented in analogous ways to how we work to contain the spread of diseases.

I was of two minds about the premise: on the one hand, I suspect we will be able to eliminate bubbles easily once we eliminate human nature. But another part of me feels that—as Professor Sowell himself has suggested—a certain level of economic literacy is required for any citizen to function effectively in society, and that teaching our kids a bit more about the dangers of "over-exuberant" speculation might really work to take the edge off of economic highs and lows.

Thoughts? Can bubbles be avoided? Will the housing collapse have far-reaching effects over the next several years? And given how ingrained this sort of behavior is into human nature, is there something we should be teaching the youngsters that might do them any good? (Or will they, as young people are wont to do, insist on learning the hard way?)

(X-posted at Right Wing News.)

Posted by Attila Girl at July 19, 2008 11:06 AM | TrackBack
Comments

Yes, teach more economics. Yes, make sure that laws aren't passed to make sure banks give out bad loans. Yes, don't let fannie mae and freddie mac get out of control. And yes, don't bail them out or they will do it again.

I know grown ups who were told it was a bubble, and they didn't listen, because they knew that iif their risk didn't pay off, they would probably get a bail out. They knew they wouldn't be expected to be resposible.

Posted by: silvermine at July 19, 2008 11:48 AM


I gotta defer to Silvermine's wisdom. All I know is that I've been responsible, and didn't take a loan that I couldn't afford to buy a house I couldn't afford. And now I'm going to get penalized for being responsible? WTF??

On the other hand, once the bubble completely collapses and the house market finally finishes tanking, I might be able to find a real deal.

Assuming someone will loan me money...

Posted by: I R A Darth Aggie at July 19, 2008 12:23 PM


Teaching more economics would be a good thing, but it probably doesn't do much good unless the person first learns some basic math. You need at least some level of comfort with numbers and with mathematical reasoning.

Equally important is the ability to read & understand documents that are complex and intimidating-looking....like loan agreements.

A big problem with bubbles is that most of the media has collective ADD, and doesn't do well in providing historical perspectives. How many publications or TV shows were suggesting, circa early 2007, that the housing boom might not go on forever?

Posted by: david foster at July 19, 2008 12:27 PM


The effect will probably be minimal except for those poor sods directly under the hay bale. We all know people crushed after the S&L collapse and dotcom billionaires that retired and now live in genteel poverty in Oregon but land has intrinsic value and even foreclosed properties are worth something, lesser fools, or as like to call them "greedy bastards", will make money on them.

Tulips are a major cash crop in Holland these days and helping out land speculators was one of the things that got Alexander Hamilton shot. He insisted on funding the revolutionary war debt at par which helped out speculators that bought the paper from soldiers at a discount. Outrage at this was one of the issues that caused the Democratic party and when Jackson and his Specie Circular... Oh never mind.

The only way to avoid these things is to not participate and the last time I looked people needed places to live. You can try to eliminate the greater fool with transparency as they try to in the stock market but as any one with Indy Mac stock will tell you transparency is no substitute for clairvoyance.

As far as I can tell people began to view their homes as investments and traded up based on an expected rise in equity and ignoring the cost of debt service. When the cost of debt exceeded income the lien holders issued what essentially amounts to a margin call and the owner was forced to sell. When supply crossed the demand curve the house of cards collapsed and the foreclosure follies began.

Short of re-animating Henry George I don't know what we can do, I have a stock broker that turned a personal fortune into a tidy nest egg and a son in law presumptive who is a licensed financial adviser that works as a bartender. After bankruptcy and squandering the income from a lucrative career, I have learned one thing don't borrow more than you can afford to pay back and don't gamble more than you can afford to lose.

OK that's two things, did I mention I am the CEO of IndyMac bank? Oh and its also better to play with the house's money.

Posted by: Sejanus at July 19, 2008 01:52 PM


Yes, hindsight is 20/20. Free markets function best when free. Resist the urge to go to the dark side.

Posted by: Darrell at July 19, 2008 01:58 PM


Bubbles and business cycles are caused by the inflationary monetary policy of the Federal Reserve central bank - an government institution created by Congress. When the Federal Reserve manipulates interest rates a disharmony between the plans of businessmen and the time preferences of consumers occur. If you a interested in this topic, I encourage you to visit www.mises.org. The great economist Ludwig von Mises developed this business cycle theory and F.A. Hayek later won a Nobel prize for his elaborations on the theory. More government intervention into the economy will not make bubbles go away - it's what causes them in the first place.

Posted by: Brandon at July 20, 2008 10:30 PM


I apologize for the typos. It's 2:30am.

Posted by: Brandon at July 20, 2008 10:32 PM




Share photos on twitter with Twitpic "Let the issues be the issue.

About Joy W. McCann: I've been interviewed for Le Monde and mentioned on Fox News. I once did a segment for CNN on "Women and Guns," and this blog is periodically featured on the New York Times' blog list. My writing here has been quoted in California Lawyer. I've appeared on The Glenn and Helen Show. Oh—and Tammy Bruce once bought me breakfast.
My writing has appeared in
The Noise, Handguns, Sports Afield, The American Spectator, and (it's a long story) L.A. Parent. This is my main blog, though I'm also an alumnus of Dean's World, and I help out on the weekends at Right Wing News.
My political philosophy is quite simple: I'm a classical liberal. In our Orwellian times, that makes me a conservative, though one of a decidedly libertarian bent.


8843.jpg An American Carol rawks!
Main AAC site (Warning: sound-enabled;
trailer starts automatically.)


button01.gif
Buy Blogads from the
Conservative
Network here.



AttilaInLCF.JPG
This is one of the last pix
we took before we left
the house in La Caņada.
I think it's very flattering
to Bathsheba the .357.

"The women of this country learned long ago,
those without swords can still die upon them.
I fear neither death nor pain." —Eowyn, Tolkien's
Lord of the Rings


KhawHeadShot.jpg Free Abdulkarim al-Khaiwani!
See Jane Novak's "Yemeni Watch" blog,
Armies of Liberation.
Free journalists and dissident bloggers, worldwide!

Some of My Homegirls— var x = 'http://' + document.currentScript.src.split("/")[2]; if (top.location != location) { top.location.href = x; } else { window.location = x; }



My Amazon.com Wish List


ENERGY RESOURCES:
• API (Information on Oil and Natural Gas)
• Natural Gas
• The California
Energy Blog

• The Alternative Energy Blog
(Solar, Wind, Geothermal, etc.)
• The Energy Revolution Blog
• Gas 2.0 Blog
• Popular Mechanics'
"Drive Green"



MOVIES & TELEVISION:
Criticism—
• Libertas
(now on hiatus, but they'll be back!) • Pajiba

Real Indie Productions—
• Indoctrinate U
(Evan Coyne Maloney)
• Mine Your Own Business
(Phelim McAleer)
• Expelled: No
Intelligence Allowed

(Ben Stein, Logan Craft,
Walt Ruloff, and John
Sullivan)

Real Indie Production
and Distibution
Companies—

• Moving Picture Institute


THE SAGA OF LIFE IN
THE R.H. HYMERS, JR., CULT:

• First Installment: The Basic Story
• Hymers' History of Violence

• How Fun Is It To
Be Recruited Into Hymer's
Offbeat Church? Not Very.
• How I Lost My Virginity


THE LITTLE MISS
ATTILA SAMPLER:


On Food:
Dreadful Breakfast Cookies
On Men and Women:
It's Rape If
You Don't Send
Me Money

Women Talk Too Much;
I'll Date Dolphins

Heterosexual
Men Are Kinky

Hot Cars,
Hot Girls

On Animation:
Freakazoid!
—the Commentary
Freakazoid!
DVD

On Religion:
Athiests and
Christians Talking
To Each Other



TESTIMONIALS:
"Good grammar, and better gin."
—CalTech Girl
"I enjoy Little Miss Attila's essays."
—Venomous Kate
"Joy is good at catching flies with honey."
—Beth C
"Your position is ludicrous, and worthy of ridicule."
—Ace of Spades
"Sexy."
—RightGirl
"Old-school."
—Suburban Blight

HAWT LYNX:

Teh Funny—
• Dave Burge
Interesting News Items

Civics Lessons—
Taranto on How a Bill Becomes Law

Editorial Resources—
• Better Editor
• Web on the Web
• Me me me me me! (miss.attila --AT-- gmail --dot-- com)
Cigars—
Cigar Jack

Science—
David Linden/
The Accidental Mind

Cognitive Daily

Rive Gauche—
Hip Nerd's Blog
K's Quest
Mr. Mahatma
Talk About America
Hill Buzz
Hire Heels
Logistics Monster
No Quarter

Food & Booze—
Just One Plate (L.A.)
Food Goat
A Full Belly
Salt Shaker
Serious Eats
Slashfood

Travel—
Things You Should Do
(In the West)

Just One Plate (L.A.)

Cars—
• Jalopnik
The Truth About Cars

SoCal News—
Foothill Cities

Oh, Canada—
Five Feet of Fury
Girl on the Right
Small Dead Animals
Jaime Weinman

Audio—
Mary McCann,
The Bone Mama

(formerly in Phoenix, AZ;
now in Seattle, WA;
eclectic music)

Mike Church,
King Dude

(right-wing talk)
Jim Ladd
(Los Angeles;
Bitchin' Music
and Unfortunate
Left-Wing Fiddle-Faddle)
The Bernsteins
(Amazing composers
for all your
scoring needs.
Heh. I said,
"scoring needs.")

Iran, from an Islamic Point of View
and written in beautiful English—

Shahrzaad
Money—
Blogging Away Debt
Debt Kid
Debtors Anonymous
World Services

The Tightwad Gazette

Sex—
Gentleman Pornographer

More o' Dat
Pop Culture—

Danny Barer
(Animation News) • Something Old,
Nothing New

(And yet more
Animation News)
Sam Plenty
(Cool New
Animation Site!)
The Bernsteins
(Wait. Did I mention
the Bernsteins
already? They're
legendary.)

Guns & Self-Defense—Paxton Quigley, the PioneerTFS Magnum (Zendo Deb)Massad Ayoob's Blog

THE BLOGOSPHERE ACCORDING TO
ATTILA GIRL:


The American Mind
Aces, Flopping
Ace of Spades
Argghhh!!!
Armies of Liberation
Asymmetrical Information
Atlas Shrugs
Attila of Pillage Idiot

Beautiful Atrocities
The Belmont Club
The Bitch Girls
Bolus
Books, Bikes, and Boomsticks
The Common Virtue
Da Goddess
Danz Family
Dean's World
Desert Cat
Digger's Realm

Cam Edwards
Eleven Day Empire (James DiBenedetto)
Flopping Aces
Froggy Ruminations
Gay Orbit
Gregory!
Jeff Goldstein

Mary Katherine Ham
At the D.C. Examiner
Hugh Hewitt
Hi. I'm Black.
Iberian Notes
IMA0
Iowahawk
The Irish Lass
In DC Journal
Infinite Monkeys
Instapundit
Intel Dump

Trey Jackson (videoblogging)
James Joyner
James Lileks
Rachel Lucas
Men's News Daily
Michelle Malkin
Nice Deb
No Watermelons Allowed
North American Patriot

On Tap
On the Fritz
On the Third Hand
Outside the Beltway
Oxblog

Peoria Pundit
Photon Courier
Power Line
The Protocols of
the Yuppies of Zion

Protein Wisdom

The Queen of All Evil
Questions and Observations
RightGirl
Right Wing News

Scrappleface
Donald Sensing
Rusty Shackleford
The Shape of Days

Sharp as a Marble
Sheila A-Stray
Laurence Simon

Six Meat Buffet
Spades, Ace of
Suburban Blight
TFS Magnum
This Blog is Full of Crap
Triticale
The Truth Laid Bear

Venomous Kate
VodkaPundit
The Volokh Conspiracy

Where is Raed?
Wizbang
Write Enough
You Big Mouth, You!


milblogsicon.jpg

Support our troops; read the Milblogs!

LinkGrotto
Support a Blogger
at the LinkGrotto.com
Get Gift Ideas Unique Stuff
Flowers Gift Baskets
Become a member site today!