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After Peak Finance: Larry Summers’ Bubble « The Baseline Scenario
There are three kinds of “bubbles” - a term often used loosely when asset prices rise a great deal and then fall sharply, without an obvious corresponding shift in “fundamentals“.
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- A short-run bubble. Think about 17th century Dutch Tulip Mania: spectacular, probably disruptive, but not a major reason for the decline of the Netherlands as a global power.
- A distorting bubble. In this case, the increase in asset prices contributes to a reallocation of resources across sectors. Think of the Dot-com Bubble: fortunes were made and lost, the collapse was scary to many, and – at the end of the day – you’ve built the Internet and some good companies.
- A political bubble. Here rising asset prices generate resources that can be fed into the political process, through bribes, building politicians’ careers, and lobbying of all kinds. Bubbles in Emerging Markets often generate resources that impact the political process, sometimes in good ways – but most often in bad ways, which eventually contribute to a collapse.
CARLOTA PEREZ.ORG - Carlota Perez Official Website
author of Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages.
Open Left:: Narcissism, The Bubble Economy and American Exceptionalism--Part 1
..shows is how the entire business culture--and, indeed the broader culture as a whole--comes to be dominated by a narcissistic fantasy of its own exceptionalism, its specialness, even uniqueness. This is where one gets books such as Dow 36,000, and The Bush Boom (which I diaried about here). But it's also the very essence of Reaganomics, an escapism from a harsh reality into a fantasy of painless renewal.
CEPR - Economics Seminar Series
Ten lectures on economic growth, labor markets, the housing bubble, intellectual property and more — by economists Dean Baker, Heather Boushey, John Schmitt and Mark Weisbrot.
Down the O-Hole: why the present administration's plans lead to catastrophe (and there isn't anything you can do about it.) | The Agonist
But each bubble relies upon the anti-bubble. The anti-bubble is the process of selling pain to the ordinary public, and shearing them of present real wages, while propping up present real consumption. The key then is to increase the public's marginal propensity to consume, while decreasing their income. The way this has been done is to make promises about future returns which were impossible, and to create the incentive to rely on impossible returns: the "Social Security Surplus," 401k plans, pensions, and housing values. In each case, as the cliche goes, Lucy pulls the football away.
Paul Wilmott's Blog: Magicians And Mathematicians
This is really a question about whether modern risk managers are capable of thinking beyond maths and formulas. Do they appreciate the human side of finance, the herding behaviour of people, the unintended consequences, what I think of as all the fun stuff. And this is a nice question because it very quickly sorts out different types of thinkers.
There is no correct answer to our magician problem. The exercise is to think of as many possibilities as you can. For example when I first heard this question an obvious answer to me was zero.
The Way We Live Now - The Remedist - NYTimes.com
The basic question Keynes asked was: How do rational people behave under conditions of uncertainty? The answer he gave was profound and extends far beyond economics. People fall back on “conventions,” which give them the assurance that they are doing the right thing.
The Atlantic Online | December 2008 | Pop Psychology | Virginia Postrel
These lab results should give pause not only to people who believe in efficient markets, but also to those who think we can banish bubbles simply by curbing corruption and imposing more regulation. Asset markets, it seems, suffer from irrepressible effervescence. Bubbles happen, even in the most controlled conditions.
Recession-Plagued Nation Demands New Bubble To Invest In | The Onion - America's Finest News Source
According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent.
"Perhaps the new bubble could have something to do with watching movies on cell phones," said investment banker Greg Carlisle of the New York firm Carlisle, Shaloe & Graves. "Or, say, medicine, or shipping. Or clouds. The manner of bubble isn't important—just as long as it creates a hugely overvalued market based on nothing more than whimsical fantasy and saddled with the potential for a long-term accrual of debts that will never be paid back, thereby unleashing a ripple effect that will take nearly a decade to correct."
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