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Warren Buffet Is Wrong

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Thursday, 17 February 2011 06:00

The NYT ran an article discussing disagreements between Republicans and Democrats over the merits of the Financial Crisis Inquiry Commission's report. At one point it quoted Bill Thomas, the Republican vice-chair of the commission, citing Warren Buffet as saying that no one saw the housing bubble.

Mr. Buffet was clearly wrong in this assertion. Some economists very clearly saw the housing bubble. Given the extraordinary departure of house prices from their long-term trend, with no basis in the fundamentals of the market, it is amazing that all economists did not see the bubble. It is even more amazing that no economists seem to have suffered any consequences to their careers from the incredible failure.

The article should have pointed out that Mr. Buffet was wrong and therefore Thomas should not have relied on his statement in making his assessment of the report.

Comments (9)Add Comment
...
written by John Emerson, February 17, 2011 5:25
Listening to expert economists talk about real-world prospects is like listening to devout football fans bragging up their favorite teams before games.
Not a surprise
written by Nassim, February 17, 2011 8:01
The housing bubble in fact was a very well organized and implemented conspired set of "policies" that resulted in tremendous wealth transfer up the economic ladder, not just in the US, but internationally.
So, why are we surprised that the thieves who perpetuated it claim they didn't see it. It somehow absolves them in the eye of the majority of the public. "oh, poor guys!"
...
written by john, February 17, 2011 10:03
Dean,

Buffet is doing a little CYA. He clearly saw the bubble in 2005. I remember he and Munger talked about it in their shareholder meeting then:

http://money.cnn.com/2005/05/01/news/fortune500/buffett_talks/#realestate

He now claims he did not see the bubble because it helps him dodge some of the criticism he is taking in regards to Moodys and its actions during the bubble. It also serves to protect his buddies at Goldman and JP Morgan who are also chanting the same line for the same reason.

These are not stupid people. They are pretending to be stupid and hoping we are stupid enough to believe them.
...
written by Floccina, February 17, 2011 10:09
Given the extraordinary departure of house prices from their long-term trend, with no basis in the fundamentals of the market, it is amazing that all economists did not see the bubble.


My first response to what I quoted above was "how true!" but thinking back many economists acknowledged that home prices were out of line but that they hoped prices would only fall 20% from peak and then level off letting inflation make the median home affordable to the median earner. That was my position, I did not know about no verification mortgages and so did not foresee the big banks failing, had I, would have made a boat lode of money. Even Greenspan acknowledged the bubble in a way, he just though that we could get out of it with too much damage.
Didn't read the report
written by McDruid, February 17, 2011 12:18
The Financial Crisis Inquiry Report itself says that people did see the crisis coming and the bubble.
FCIC
written by Jeff Z, February 17, 2011 12:41
A cheap "mea culpa!"

Did anybody listen? Did anybody who mattered listen, and then act?

NO, thus the FCIC report is cheap self contrition.

Playing dumb
written by Jay, February 17, 2011 10:54
I agree with John. Buffett is playing dumb to avoid accountability and damage to his reputation. Moody's ratings gave confirmation bias to real estate speculators that knew things were too good to be true. And fueling the hype probably helped bring in some handsome profits for his newly acquired Clayton Homes too.

The bubble was obvious when people were snatching up multiple homes like candy without enough money for a down payment. Seriously, things were distorted when every other person was suddenly a real estate broker or home improvement expert. It was like everyone went to one of those hotel money making seminars and the lure was real estate that week.

Unfortunately, the housing bubble hurt innocent people that really thought they would never be able to afford a home and eventually succumbed to the illusion of infinite price increases. Now, you have people underwater and drowning in debt with no confidence in their job security to buy anything requiring a long term commitment.
Not their job
written by djt, February 18, 2011 2:10
It's not the job of economists to opine on the prices of goods. Does an economist talk about how the margins on corn flakes are too great? No, they don't. The price of housing is not an issue for economists to talk about.

Consumer Reports - yes. Consumer Reports reviews goods and evaluates their prices. There are other money oriented publications that advise people on purchases that should have talked about the bubbly pricing. But not economists.

I knew there was a bubble and all I did was note the language of the promoters was the same as the last time there was a bubble in my area.
...
written by Raymond, February 22, 2011 2:03
Even non-economists saw the bubble. Bill Maher showed a clip of him stating a problem with the housing prices and what might happen,and the clip was from 2005. The FCIC report was a joke, they missed the whole point and refused to ascribe blame where it belonged.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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