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Re: Experts and the Economy

Mark "Rizzn" Hopkins — Wed, 01 Oct 2008 17:25:01 -0000

And also worrying at the same time.

Re: Experts and the Economy

Mark "Rizzn" Hopkins — Wed, 01 Oct 2008 17:24:23 -0000

Regarding your initial statement, you're right on that, but technically we're not trying to distill an aggregate "wise" message from the experts - we're looking to get individual opinions there. The problem of them being insular is separate from the WoC issue, but no less real.

Re: Experts and the Economy

gregorylent — Wed, 01 Oct 2008 11:57:32 -0000

no one knows ... and that is an extremely liberating fact ...

Re: Experts and the Economy

Mark Drapeau — Wed, 01 Oct 2008 11:19:59 -0000

You are absolutely right. That is the problem with half of what Scoble (not to mention others) writes about; he only talks to "tech geek" people who read his blog, etc. yet sometimes tries to tackle "larger issues" like politics or the economy - and the wisdom of crowds becomes the bias of the homogenized. And the comments after an article reflect that.

I love going to events where I am the outsider. I deliberately skip lots of events where I know all the people and am intimately involved in the topic matter. I learn so much more with the former approach than the latter. And I think about how to adopt "their thinking" to "my problem." Relating this to your article, I am effectively sampling the wisdom of the crowds as best I can, supplemented by talking to all sorts of people in person and online.

Re: Experts and the Economy

Peter Skalla — Wed, 01 Oct 2008 10:27:42 -0000

Crowd-think is an important part of the story. "OPM"--other peoples' money--is the other part. Several types converged to cause the situation we are in:

* The Federal Reserve created excess liquidity (money supply) and kept rates too low too long in the post-dot-com bust and psot-9/11 world. This time the extra dollars sloshed into the "safe" investment of real estate, fundamentally setting us up for this bubble. How many people did you know who started investing in houses using bank loans (OPM) over the last five years? That's one indicator of how much speculation was going on.
* Executives leading the big banks got simultaneously greedy and sloppy. With securitization (packaging many mortgages together into a new financial instrument), they made money up front through instruments they really didn't understand and moved them off-balance sheet (what looked like OPM but came back to haunt). And they and non-bank financial institutions did this with massive amounts of leverage (OPM again), as much as 40-to-1. Again, greedy and sloppy.
* Washington (congress and regulators) pushed banks hard to make loans to low income and minority home buyers. A worthy goal, but it directly coincided with making loans to people who couldn't afford them. Once the teaser rates came off, many defaults were inevitable. Time bomb banking at the request of congress.
* Mortgage brokers, the legions of people who originate home mortgages and refinancings, had no stake in the underlying quality of the loan. They made their money when the transaction happened and then it was someone else's problem. Hence, they happily pushed bad loans and in a regular and widespread way even encouraged people to lie on their applications. Bad incentives.

Through it all, crowd wisdom was universal that real estate is a safe investment. Hence the willingness to take on so much leverage and so much risk. Combined with the fact that the principle actors were always using other people's money and had no direct and vested stake in the risks, the results are impressive as they are frightening. For the best overview I've seen on the least understood part of this whole equation, see WSJ Op-Ed, "The Future of Securitization" at http://online.wsj.com/artic... .

Re: Experts and the Economy

Cookiemouse — Wed, 01 Oct 2008 08:32:51 -0000

Good post. The wisdom of crowds never works in a panic. The world's financial markets require liquidity, and depositors need government guarantees to restore confidence. When people know that their money is safe in the banks then they will leave it there. In the long run this crisis will mean the end of the era of unregulated free markets, which pay no heed to the human consequences of the folly of greed.

Re: Experts and the Economy

Paul Houle — Wed, 01 Oct 2008 07:48:14 -0000

Sounds to me like "the experts" are a crowd which is "too homogeneous, too centralized, too divided, too imitative, [and] too emotional."

To take an example, the television networks always trot out the same people to talk every Sunday morning. Even though about 10% of the population was strongly opposed to the Second Iraq War during the buildup, anti-war viewpoints were systematically censored from the mainstream media. The US could be in a stronger strategic position and a few thousands of our soldiers might still be alive if those voices had not been silenced.

For years, economist John Kenneth Galbraith pointed out that economics has a political function: justifying the status quo. I can't say I'm an "expert" on the economy, but here's what I know:

(1) Since 1980 or so, the financial services sector has grown in size explosively compared to the productive economy
(2) Since 1980 or so, corporate influences have dominated the government. People with other backgrounds have been entirely shut out.
(3) Since 1980 or so, Wall Street has always won in Washington over Main Street

Personally, I think the problem isn't a particular financial instrument, it's the fact that the financial system requires a continuous series of bubbles to keep moving. The financial system receives more money to "invest" than there are actual opportunities for productive investment. This forms a vicious circle of asset price inflation.

I think the American people are wising up, and realizing this is more than a short-term crisis, but it's a continuation of the pattern of Wall Street and Washington working over the rest of us. They wrote their Congressmen, and, for the first time in three decades, Congress listened.

Re: Experts and the Economy

Mark "Rizzn" Hopkins — Wed, 01 Oct 2008 06:17:51 -0000

Thanks for the input.

Not to be contrary, because you've got great advice there, but the thing I can't stress enough in my advice to others who want to research this - don't get all your advice from the same source or even the same type of source. If you talk to someone who plays the market, that's great: they're certainly qualified to explain vital parts of this. You've also got to season their perspective with policy wonks and pundits relative to your industry.

This mess is just too big for any one group of people to sort out. It's going to take time, and it's going to take effort.

Re: Experts and the Economy

Luis Galarza — Wed, 01 Oct 2008 05:18:20 -0000

First excellent article... most of the things you point here are very true, in my case I know a few things about economics because was one think I study in college, but I'm not an expert on this field. When I need expert advice in a subject like what's happening with the US economy I call two of my uncles whom are market players for more than 20 years... they really know, what they talking about. I recommend you to ask someone that have a lot of experience and are open minded about the situation.