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Old 04-06-2009, 10:30 AM
ledocs ledocs is offline
Join Date: Sep 2007
Location: France, Earth
Posts: 1,165
Default Re: Financial Pneumonia

This does look interesting. I don't have time to pay as much attention to it as it requires right now, so I'll try to weigh in in about a week. They sure weren't talking down to us laypeople.

I'll just say one thing that I noticed about the U. Oregon guy's intro. He went through a litany of real estate professionals who had no incentive to put the breaks on the bubble. And there he is absolutely right, of course. But what he may not realize is that there is no *theoretical* mechanism for appraisers to put the breaks on a bubble. The whole idea of appraisal is just to report what the market is doing. Making the call on whether appreciation is reaching bubble proportions is "above the pay grade" of appraisers. I was a professional appraiser of commercial real estate. The whole profession is a theoretical joke, as far as I am concerned, and this fact played a minor role in my early retirement. But anyway, there need to be people with political power, guts, and both theoretical and practical acumen to put the breaks on a bubble, because investors won't do it, since the greater fool theory seems to work until the music stops, and appraisers won't do it, *because they can't,* they have no power, they are compromised by their sources of revenues, and, most importantly, they can't do it because appraisal "theory" does not allow it. My guess is that this fellow does not realize this, but it's a very important point that contributed heavily to the market failure, because people have the crazy idea that appraisers are in a position to halt a bubble. They are not. What could work is to have people with power look at price appreciation with a critical eye and then have mechanisms in place to do something about it, when it is getting out of hand, things like requiring higher equity ratios for purchases in a market that has appreciated by more than, say, six percent, for some number of consecutive years. This would stop a bubble in its tracks. It would be just like raising margin requirements, which is what many think Greenspan should have done to slow down the stock market bubble.
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