Wednesday, December 17, 2008
the subprime solution - robert shiller
treaty of Versailles which imposed to Germany unpaible debth, was the source of the WWII
Now there is similar time, with people unable to pay their credit
homeownership increased in US from 65.7% (1997) - 68.9% (2005). Result of an add campaign for home ownership. Building industry got 6.3% of GDP ( 2005) highest from 1950 ( prekoreean war )
1925-1933 house prices fell 30%, unemplyment 25%
important measures: - bankruptcy law
- create institution to sponsor prolongation of credit from 5 years to 15 years
Florida bubble 1925 peaked 19% starting 1921 -> became accesible by car
California bubble 1880 -> newspapers had a major role
causes for 2007 house bubble:
- no historical index data older 30 years
- on a graphic from old adds -> from 2000 - exponential growth on house price, while population slope 15''
building costs decreasing since 1980
- FED, Bush denied any problem with the house bubble
- social contagion, with lack of financial education - it is like an epidemia: the median expected price increase in San Franciso for the next 10 years was 14% per year among home buyers. 30% expected 50% per year
in a bubble people learn from about the information that others have by observing their behavior
- Fed rate cut to 1% in 2003 and hold it while the price was increasing ( the Fed was fighting with recession and deflation )
- aggresive lending
- The price of land during normal times was 15% of the value of the house. in 2007 - 50%
Real estate myth:
3% increase of GDP -> gets into houses. It gets more in the quantity and quality of houses. 1973 avg house: 1525 square feet, 2006 2248sqF. For this period the increase is 1% per year
goods and services dependent on technology decrease in time. Human involved services increase. Housing depends on technology -> price should decrease.
urban US area: 2.6%
urban patriotism: people tend to overvalue their own city
construction costs: all needed materials are easy to find anywhere
house price should decrease
Crise solutions:
-bailout: short term solution. If people have a hope, they can cooperate better. After 33' compare US with Europe, Marshall plan
- a new loan corporation which helps people to pay their credit
- IT: - to make available for anyone financial knowledge ( promoting financial advice )
- database with financial information about anyone to predict any bubble ( consumer watchdog)
- database with information about houses and % increase on an integrated market for risk management contracts
- new system of economic measures -> makes easier to understand inflation
- futures for real estate -> to be able to sell contracts on house
- home equity insurance
Now there is similar time, with people unable to pay their credit
homeownership increased in US from 65.7% (1997) - 68.9% (2005). Result of an add campaign for home ownership. Building industry got 6.3% of GDP ( 2005) highest from 1950 ( prekoreean war )
1925-1933 house prices fell 30%, unemplyment 25%
important measures: - bankruptcy law
- create institution to sponsor prolongation of credit from 5 years to 15 years
Florida bubble 1925 peaked 19% starting 1921 -> became accesible by car
California bubble 1880 -> newspapers had a major role
causes for 2007 house bubble:
- no historical index data older 30 years
- on a graphic from old adds -> from 2000 - exponential growth on house price, while population slope 15''
building costs decreasing since 1980
- FED, Bush denied any problem with the house bubble
- social contagion, with lack of financial education - it is like an epidemia: the median expected price increase in San Franciso for the next 10 years was 14% per year among home buyers. 30% expected 50% per year
in a bubble people learn from about the information that others have by observing their behavior
- Fed rate cut to 1% in 2003 and hold it while the price was increasing ( the Fed was fighting with recession and deflation )
- aggresive lending
- The price of land during normal times was 15% of the value of the house. in 2007 - 50%
Real estate myth:
3% increase of GDP -> gets into houses. It gets more in the quantity and quality of houses. 1973 avg house: 1525 square feet, 2006 2248sqF. For this period the increase is 1% per year
goods and services dependent on technology decrease in time. Human involved services increase. Housing depends on technology -> price should decrease.
urban US area: 2.6%
urban patriotism: people tend to overvalue their own city
construction costs: all needed materials are easy to find anywhere
house price should decrease
Crise solutions:
-bailout: short term solution. If people have a hope, they can cooperate better. After 33' compare US with Europe, Marshall plan
- a new loan corporation which helps people to pay their credit
- IT: - to make available for anyone financial knowledge ( promoting financial advice )
- database with financial information about anyone to predict any bubble ( consumer watchdog)
- database with information about houses and % increase on an integrated market for risk management contracts
- new system of economic measures -> makes easier to understand inflation
- futures for real estate -> to be able to sell contracts on house
- home equity insurance
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