Looking for the Cause of the ‘Panic of 2008′

By on October 12, 2008

The source linked below pins the crisis on the decline in housing prices (this has been widely reported and is the commonly held view). Based on a study by Jeremy Grantham, for 20 years the median house price was steady, at about 2.8 times family income. Between 2000 and 2005 it exploded to 3.9 times, a 40 percent jump. It’s now about 3.2 times, down 18 percent. It may decline another 12 percent tomorrow or stay flat for over three years to regress to the historic norms.

In regard to the ability of our current system to deal with these sorts of crises Robert Shiller is quoted as saying, “We are running a bullet train on ancient railroad tracks.”

According to the article, the stock market is down over 40 percent in the past 12 months. Declines of this magnitude occurred in 1937, 1973-74, and 2000-02. They were followed by strong market gains in the following year.

Source:

http://www.courier-journal.com/apps/pbcs.dll/article?AID=/20081012/OPINION04/810120357

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