Life’s little mysteries

Why did dot com venture capitalists invest money in companies that had no clear plans to make a profit? Why did banks and homebuyers assume that real estate prices would continue to increase ad infinitum? Why do people believe that you can lose weight without eating less or exercising? Why do fools rush in where angels fear to tread?

Megan McArdle explains it all..

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About marypmadigan

Writer/photographer (profession), foreign policy wonk (hobby).
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11 Responses to Life’s little mysteries

  1. Once again, people did not want to see what was in front of their faces simply because it was inconvenient and because most people do not understand economics. Plenty of economists and business analysts were raising warning signals years ago.

    In the same way, the vast majority of climate scientists are warning that we’re facing an upcoming climate catastrophe, and people without scientific knowledge are saying that they’re full of crap. They don’t want to believe it because it scares them, or because they don’t like big complicated problems, or because they find it politically uncomfortable, so they pooh-pooh the scientists, point to any contrary opinion thrown together by bloggers that they can, and will go on denying anything is wrong until the dust storms are blowing through their house and ocean water is lapping at their ankles.

    Then they will post an article on their blogs about why no one could see it coming.

  2. mary says:

    Plenty of economists and business analysts were raising warning signals years ago.

    Yes, Republicans were sending out warnings years ago, but no one listened. We also have the relentlessly hysterical financial adviser, Cramer, whose rants have been vindicated.

    You don’t have to be an economist to understand that house prices cannot rise indefinitely. You don’t have to be a nutritionist to know that if you eat less, you’ll lose weight. You don’t have to be a historian to know that Nazis are not friends of the Jews. But there are many pro-Zionists who will argue that anti-Immigrant groups in Europe are friends of Israel (even though Israel does not agree). They’ll say the craziest things to defend alliances with authoritarians, nazis and fascists. People are strange.

    As for global warming, if dire (but Crameresque) predictions about dust storms and disaster will help sell windmills, photovoltaics and electric cars, then they have my blessing. Our economic future is not in New York and Washington anymore. It’s in Silicon Valley and Mojave.

  3. Yes, Republicans were sending out warnings years ago, but no one listened.

    Actually, no, they were not. Economists were, regardless of their political affiliation. You may recall that the Republicans have been in charge for the last eight years when this crisis was developing. if they saw a problem, they were in an excellent position to do something to fix it. It was not fixed.

    And Cramer is not an economist nor an analyst, nor have his rants been vindicated. If anything, he’s generally a good contrarian indicator.

    As for global warming, if dire (but Crameresque) predictions about dust storms and disaster will help sell windmill…

    So we can expect a post from you in a few years asking why no one saw global warming coming, I suppose.

  4. And in reference to warnings, here:

    On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

    I’ve been reading Roubini’s stuff for years. I’ve never actually watched Cramer except on a couple of youtube videos, so I’m not sure why you’re bringing him up.

  5. mary says:

    I’ve been reading Roubini’s stuff for years. I’ve never actually watched Cramer except on a couple of youtube videos, so I’m not sure why you’re bringing him up

    I’m bringing him up because I just saw him on the Colbert Report, and he was quite pleased that his rants were vindicated. He did regret that he couldn’t blame everything on Bush, because the Democrats were also responsible.

    I wasn’t implying that you share Cramer’s views. I was implying that, like the anti-Immigration people, you support alliances with authoritarians and fascists, despite all evidence that this is a bad idea.

    So we can expect a post from you in a few years asking why no one saw global warming coming, I suppose.

    This was a post about why bad ideas persist and thrive, even after they have been proven wrong. Why are we still allied with Saudi Arabia after 9/11, why do many Americans believe that the story of Noah’s Ark is literally true? Megan’s post was a pretty good explanation.

  6. I was implying that, like the anti-Immigration people, you support alliances with authoritarians and fascists, despite all evidence that this is a bad idea.

    I have no idea where this patent nonsense is coming from. Alliances with authoritarians and fascists? What does this have to with the economy, and what the hell are you on?

    Actually, I think I’ve had it with this bullshit. See you around.

  7. mary says:

    Have I written a single post on Saudi Arabia where you have not defended them and our alliance with them?

    ..again, this was a post about the persistence of bad ideas. Obviously, you have no idea how to deal with that problem

  8. Dave J says:

    “This time, it’s different.”

  9. maryatexitzero says:

    LOL – and ‘we don’t need to make a profit, we can just flip it’

    …or my favorite, ‘there are only two choices [horrible choice A] or [horrible choice B]. Even though both are bad, there’s nothing else we can do

  10. Dave J says:

    It’s really quite amazing how the CRA decoupled housing prices from the overall rate of inflation, which had never happened before. For most of human history, people regarded the main way of deriving income from real estate to be rent, not short-term buying and “flipping,” which is should be even more obviously unsustainable with such an illiquid asset than it is with stocks.

  11. maryatexitzero says:

    True. A lot of people in high-priced areas like New York and San Francisco were using half their income to pay for housing. When it gets to that point, prices are going to have to come down.

    I hope that, after this mess, human history will return to normal. This kind of tulipmania wasn’t as destructive when the dot coms went bust, but they weren’t a central part of the economy. Housing is.

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