What's even more shocking is how most politicians and talking heads seem not even to acknowledge the bubble after the fact, and if they do acknowledge it, they still seem hell-bent on keeping prices propped up at bubble levels.

I was watching Alsi Velshi on the AC360 money special tonight at the gym between glances at the NCAA games, and one of the guests, economist Monique Morrissey, actually argued that housing was still overvalued based on historic trend levels.

Economist Stephen Leeb then "disagreed", stating that "...the housing affordability numbers are really off the chart in terms of how affordable housing is today. ...in California houses... compared to 2006 [are] a lot more affordable." (I dug that up from the transcript here http://transcripts.cnn.com/TRANSCRIPTS/0903/28/acd.01.html.)

So in other words, this guy was apparently disagreeing with a factual assertion and backing his point up by stating that housing affordability is "off the charts" because it is cheaper than at the height of the bubble. And, naturally, Velshi didn't call him on it. The state of economic reporting is an utter disaster.

Ben said "Humans can’t consistently pick the right stocks or call markets" this in defense of Cramer? Cramer pretends he can. Otherwise, why would anyone tune into this loud mouth?

But, let's be clear. It was very easy to see, very easy for those who know arithmetic. Competent analysts saw the housing bubble and warned about it. Ben Stein didn't see it.

Complete the syllogism:
Ben Stein is not a competent analyst.

The same is true of the stock market. Fundamentals started going off the charts in the 90's and never really got back to reasonable levels - the crash of 2000 for the most part deflated only the ridiculous dot-com and tech bubble, which even Alan Greenspan seemed to be aware of. Most other signs of a general speculative mania, such as the re-re-discovery of the wonders of leverage, were also present.

bravo again dean.

Dean, I, for one, will continue to thank you for confirming what to me was obvious. I'll never understand why so many prominent "independent" Economists like PK & SDL were strangely silent on the Glass-Stegall Hearings, the Boskin Hearings & especially the housing fiasco. That's for them to rationalize, I can only hope they feel the need.
My hope now is that our mainstream media has a "eureka" moment & elevates you to the top of their "Economists to call" list.

Stein: “I DON’T blame Mr. Cramer for trying to act as if he knows the future. That’s his gig.”

Yep. And people in the promotion business are just doing their job when they are lying in our face. This is the spirit of decadence that we have descended into.

People have been slowly moving towards ever more self-centered goals, away from serving others. This is completely understandable. When the time horizon is contracting, the social horizon has to contract as well.

A depression fortunately results in widened horizons, because the near term is just so ugly. People have no choice but to take a look further ahead and think about their priorities.

In Finnish society "quarter economy" is a well known concept for describing the ever shorter focus of economic activity.

We had a big credit bubble that caused a banking crisis in Finland in the early 1990s. The crisis came as an after effect of a very sudden deregulation of the financial sector around 1985. We also coined the term "casino economy" to describe the "crazy years" of the 1980s.

We did a very poor job of handling the banking crisis, with open-ended government support and a government-funded "bad bank" that enormously overpaid for bad assets.

It didn't jump-start the economy, which suffered mass unemployment. It cost our taxpayers a huge amount of money and the bad bank still hasn't gotten rid of all its troubled assets.

Because loans are full recourse, many people that were not smart enough to recycle their financing through a limited liability company are still in a debt trap after all these years.

Eventually the economy recovered, and we narrowly escaped the clutches of the IMF, but especially compared to Sweden, our approach to the banking crisis of early 1990's was an utter and complete failure.

Nothing was done to the problem of too-big-to-fail institutions. Quite contrary, there was even further consolidation. Deregulation was taken even further, resulting in financial "supermarkets" acting as combined depository institutions, investment banks and insurance companies.

The Finnish recovery was abetted by the global IT bubble and we have also had quite a brisk growth in household debt, so history might repeat itself sooner than we would like.

Please, do not repeat our failed experiments at financial crisis management in the US.

Dean,

In the Washington area where we are both located, though I too am an economist, believe it or not it was still easy for me to see the looming crisis along with many non-economist colleagues. There were simply so many government employees- - the average family income in Fairfax was than about $80,000 -- with $60,000 -$80,000 salaries buying half million dollar houses an hour from the city that we all knew something had to give. I had the pleasure to know an Indian immigrant cab driver who bought a million dollar home. He was back in the neighborhood six months later. Poor fellow actually believed our hype. Actually though being an economist all this doesn't surprise me. They are, as a rule, quite ignorant. In my field development economics one would like to say that the World Bank variety are without parallel except that they would fit in quite well at AIG or Citi to all appearances.

Keep up the good work. You are onee conomist who actually adds value through his work. I know first hand how much the Washington area needs you.

SS

skeptonomist wrote, Fundamentals started going off the charts in the 90's and never really got back to reasonable levels ...

After the post-9/11 lows, notional P/E for the stock market seemed not terribly outsized. I didn't really get back in because of people questioning the quality of the E, although in a pretty vague way.

Given how much of the E was built upon hot checks written by the financial sector, it turned out I was right, without really knowing why.

SS: it was still easy for me to see the looming crisis along with many non-economist colleagues. There were simply so many government employees- - the average family income in Fairfax was than about $80,000 -- with $60,000 -$80,000 salaries buying half million dollar houses

Same here. I'm not an economist, but I bought a house in 1999. Even then the prices had started to climb, but they weren't completely nuts. I earn a decent middle class living, and bought a house that was well within my means. A few years later my house would have cost 2x as much, and I could not have reasonably afforded it. So if a middle class person can't afford a reasonable middle class home, who's going to buy them?

While I can't claim to have predicted all the ramifications of the accompanying crisis, the housing bubble was obvious to anyone who wasn't willfully blind.

But aren't we missing something here about the nature of speculative asset bubbles (and how inept our current financial architecture is at addressign them), when we dismiss them as something any reasonable person could have seen?

"But aren't we missing something here about the nature of speculative asset bubbles (and how inept our current financial architecture is at addressign them), when we dismiss them as something any reasonable person could have seen?"

Depends on what you mean by "reasonable". ;) Experience seems to help. There was an experiment where the subjects played a market game over the course of one week, where the play assets were easy to value. Bubble and crash. Then they did it for a second week. Bubble and crash. The third time the market behaved reasonably. :)

Ben Stein missed the point of the interview entirely. Stewart didn't vituperate Cramer for not being right all the time; Stewart vituperated Cramer - and CNBC - for trivializing the investment process into a game. Moreover, Stewart further drew attention to Cramer's all too public admissions that he had gamed the system against market participants without his acumen or connections. That Stein could miss that frame the interview on the ability of people to accurately predict the future is a reach at very best.

I knew lots of people who saw the housing bubble for what it was, myself included. Its weird that people think we are going to believe that the housing crash couldn't be anticipated.

Well, I believe that people could come up for plausible explanations for the housing price rise not being a bubble since they were making so much money at it. As Ben Franklin said one of the delights of being a reaonable creature is that one can come up for a reason for anything one wants, even "ponys." ellhte dnaklm, sindsince

I had the same "who the hell didn't see this coming" discussion with a hedge fund manager and former top quant for a very large investment bank over the weekend. He adamantly argued that the housing collapse could have not have been predicted with any accuracy before it happened. Only complete fools and people who were dumb enough to believe their own lies even if they were backed up by a very complex computer model would make a stupid argument like that, but that's what is so scary, these inept economic charlatans are still running hedge funds, mutual funds, banks, the Treasury department etc. What hope do we have with these people still running the show?

A bit of nuance to that argument j denim. You are quite right - it is idiotic to think we couldn't recognize the bubble or predict its demise and the ugly consequences. However, in agreement with you, one nuance to your quant's observation about the inability to predict this. Perhaps he meant: we cannot predict this accurately enough in a career sense. From your quant - friend's standpoint it may have been safer to ride the boom and then fail, relatively safely, with the rest of the crowd then bet against too early and lose the opportunity to make money in the boom. Just a thought.