Paul Krugman says "I'd blame Alan Greenspan and Phil Gramm"

David Gregory hosts a one on one with economist Paul Krugman who talks about the financial bailout proposed by the Bush Administration. Among many thoughts on the matter, Krugman lays this disaster at the feat of Alan Greenspan and McCain advisor Phil Gramm.

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[vTheBlueprinTv]

This is one thing in life I know for sure: If someone is as ignorant as mb1076, just ignore them. There is no hope for them nor is there a cure for their disease.

[scw3967]

So do what Hoover did?

[mb1076]

Lets just let them fail and Deflation ensue. It will all clear up in a year or two.

[63muhammad]

Go and fuck yourself Krugman

[dudeman209]

I actually work for a hedge fund and one of our strategies is to look for unsustainable growth in certain areas and use options to bet against them. Try to find these type of cycles and basically profit from them.

[dudeman209]

I don't know about that specific situation, but I do know that if you have an asset returning say 10%, it makes sense to borrow if the interest rate of borrowing was 5%. That's why a lot of people bought houses, like my parents. Most of the people that took out loans could afford them (like my parents), but when the price of houses collapsed, I knew people that just let their houses get foreclosed because their loans were underwater. They were able to pay, they just didn't want to.

[dudeman209]

It is when the return on that 10 million dollar house is becoming very high. If the return on the house is say 10% and the interest rate on the loan in 5%, then of course it will be. It's simple mathematics.

[dudeman209]

My point was that bubbles start for all kinds of reasons, not just by central banks. They can even be caused by an inflow of capital that central banks have no control over. Then, it begets a feedback loop. Bubbles are basically like ponzi schemes. This is one of the most complicated issues, but to say that there's only one reason that bubbles are caused is stupid. There are a thousand. Also, there were as many bubbles in the 19th century as the 20th, you just haven't heard of them.

[dudeman209]

Not all bubbles are started by central banks, and the recent US housing bubble was partially caused by Alan Greenspan keeping interest rates too low for too long. However, I can come up with many bubbles that weren't started by central banks. Personally, what I think central banks should do is react to a rise in asset prices the same way they react to a rise in CPI. They should send the economy back into recession until prices are back where they should be--William Martin did this in the 50s btw