Tulip bulbs, anyone?
I am at the annual conference of the Society of American Business Editors and Writers in Denver, where a host of really smart people -- economists, regulators, bankers, even journalists -- are all trying to tell us what went wrong in the housing bubble and its attendant Wall Street shenanigans. They're also trying to tell us how to spot the next one.
Dean Baker, co-director of the Center for Economic Policy and Research, said recognizing the housing bubble should have been fairly simple, because 100 years of housing data show that prices NEVER stay high relative to general inflation.
Kevin Blakely, president and chief executive of the Risk Management Association, cited the tulip bubble, colonial investment bubbles, the '80s commercial real estate bubble and others to illustrate that financial memory is short and that people do the same things over and over again because of the incredible lure of easy money. These bubbles are essentially Ponzi schemes, Blakely said, with the early players raking it in and the later ones left holding the bag. I think he's right. And I don't know what you can do about it except stay the heck away.
-- Sharon Bernstein