Monday, September 12, 2011

Three Years of Denial

Neither the highly credentialed economists, nor the economics and business reporters at top news outlets, could say that the guy they had revered had problems with basic arithmetic. And – let's be really really clear – he had problems with basic arithmetic.

It took nothing more than third-grade arithmetic to recognise a housing bubble that had grown hugely out of line with the fundamentals of the housing market. There was no explanation that passed the laugh test for the fact that house prices had diverged sharply from their long-term trend, and from rents – creating a housing bubble that peaked at more than $8tn. This was recognisable at least as early as 2002.