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Originally Posted by Undertoad
Nobody was smart enough to predict the combination of failures and everybody wanted to protect their phoney-baloney jobs.
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These problems were predicted. For example, The Economist front cover showed a falling brick labeled housing prices. Everyone knew the economy would be hurt by the housing market. Housing prices at 40% too high must eventually fall and typically fall hard - especially when government was trying to protect those high prices rather than address the problem. From the Economist of 16 Jun 2005:
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Perhaps the best evidence that America's house prices have reached dangerous levels is the fact that house-buying mania has been plastered on the front of virtually every American newspaper and magazine over the past month. Such bubble-talk hardly comes as a surprise to our readers. We have been warning for some time that the price of housing was rising at an alarming rate all around the globe, including in America. Now that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.
This boom is unprecedented in terms of both the number of countries involved and the record size of house-price gains. Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history (see article). The bigger the boom, the bigger the eventual bust. …
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Enron made it obvious how corrupt accounting had become. But we did nothing for how long? Few would admit how massive mortgage backed secuirities had so contaminated the financial markets. The few who openly acknowledged it included a Senior VP of Merrill Lynch (who got fired for being honest) and Goldman Sachs (who hedged sufficiently to protect themselves).
Everyone know NINJAs were widespread. Everyone knew these problems would come back with negative consequences (those not blinded by greed). However nobody knew 'when'.
I remember a girl who asked about investing in the market in August 1987. It was obvious that the market would suffer a big downturn. The only problem - as I told her - was that I could not say if it would occur next month or next few years. The downturn was that obvious and inevitable. I recommended waiting to invest after the crash. That became the October 1987 crash. Nobody could predict 'when' the obvious would occur.
These problems were obvious. What people cannot say is when the inevitable will occur.
Bankruptcy is averted by perverting the spread sheets. This only permits a simpler problem to get worse - ie Enron. The sooner a symptom of bad management becomes obvious, then less damage results. Unfortunately, the past decade plus had simply subverted regulations that require honest spread sheets. This became most obvious when Harvey Pitts (SEC Commissioner) refused to accept a doubling of his budget by Congress. The 'powers that be' wanted 'less regulation'. Those same 'powers' literaly has to be embarrassed when Oklahoma filed suite against Enron - forcing the 'powers that be' to concede and prosecute Skilling and Lay.
Deregulation to permit spread sheet games has only made it even harder to predict "when".