Frankly, I think this shows that macro economics has a lot of wholes. Micro economics I think is pretty strong - near scientific, IMHO. Macro, on the other hand, needs alot more work and goes down to near “educated opinion”.

It isn’t like this caught us completely by surprise. Even most people that entered the real estate market knew it was a bubble…they just hoped they it could go up long enough that they could make some money off of it. How could the supposedly macro economics models have missed this? All seems so primitive still.

Republican control, Democratic goals (affordable housing). I’m not saying one party is completely at fault - just balancing out the image that the average joe has.

frank,

I’ve never claimed to be an economist. It’s more of a hobby for me. I am an electrical engineer by trade.

Regarding your response - alot of that is true, but even that doesn’t tell the full story, it’s much more complicated than that.

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1. Easy money from the Federal Reserve. On January 3, 2001, the Federal Reserve cut the federal funds rate by 50 basis points, to 6.00%. They continued to do so until the rate hit a bottom of 1.00% on June 25, 2003.

2. Mark-to-market accounting rules. This refers to an accounting practice that forces a balance sheet to value an asset at its current market price (that is, what it could be sold for at the time). Mark-to-market is an arbitrarily-restrictive accounting practice that should be scrapped for assets like securities which generate current income. Doing this alone would solve much of the problem.

3. The rating agencies who assigned AAA ratings to mortgage backed securities and derivatives that had sub-prime exposure; these professionals did a job that was comparable to the intelligence on weapons of mass destruction in Iraq yet we hear virtually nothing about their lack of performance on risk assessment

4. Investment banks engaging in leverage of as much as 30:1 without any regulatory oversight

5. Basell II international banking rules that applied increased capital requirements for conventional mortgages but NOT to mortages held in the form of securities

6. Financial advisers advocating home equity loans/mortgages so that the money could be invested on the stock market

7. Failure of government to regulate emerging hybrid securities in the investment banking industry

Shorter Sowell:

“Even though Republicans have controlled both the Presidency and the Congress for six of the last eight years, Democrats are to blame for everything that is going wrong.”