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« Why There is No Bottom: Economic Forecasts | Main | Politics and Markets Update »

March 05, 2009

Comments

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Doctoral Dissertation

Blogs are good in which we get lots of information and convert that information to knowledge.

Kristie Mansfield

Stewart was sticking up for the working class, showing off his still exsistant sense of empathy, which is antithetical to fascism, and multinational capitalists, apparently.

http://newsbusters.org/blogs/noel-sheppard/2009/03/01/playboy-cnbcs-santelli-part-vast-anti-obama-conspiracy

oldprof

Louie -- actually I did not throw in with Stewart. I reached my own conclusion and wrote about it the day before. As a fellow Chicagoan with strong ties to many on the trading floors, I have always enjoyed Rick Santelli's reporting. I am less interested when he offers his political opinions.

By the way -- I think that your position on this subject is incorrect, but I would not conclude that your judgment is bad. It is OK to disagree.

Thanks for taking the time to comment.

Jeff

Louie

Also, don't you realize that throwing in with John Stewart on Santelli just makes you look as though you have a problem with judgement. And if you have a problem in that, then what would deter us from thinking you have a problem thinking about markets too. Do you know what professionalism is? It is not throwing in with John Stewart on Rick Santelli.

Louie

John Stewart is a blowhard. Why does he mix up Santelli with the other fiends on CNBC. Is Santelli in favor of the other bank bailouts? No, he isn't. Stewart is a ratings monger who tries to capitalize on his (liberal) constituency.

oldprof

Point taken! I'll try to sharpen up my use of this term.

Thanks,

Jeff

Still Fixing It Up

I enjoy reading your blog; thanks for doing this.

Don't mean to quibble, but as an engineer I feel compelled to point out that it is a positive feedback loop. Negative feedback serves to reduce the aberrations of a system, whereas positive feedback will exaggerate them (this is just a rough expression of the concept).

The real estate bubble "system" is a classic case of positive feedback. Higher sales prices get translated into higher comps and assessments because recent sales are weighted more heavily. This in turn translates into higher listing prices and induces the lenders to finance the higher "value", and the cycle continues upward. As we saw, the downward shock, after it was initiated, also was amplified by the same system. (Of course this system is nonlinear and has discontinuities in its response as well.)

Some negative feedback that would have helped would have been, for example, a sharply rising mortgage interest rate for rising loan values. Another possibility is to damp the response of the system by requiring integration of the comps/assessments over a longer period, possibly with a lower weight for the recent sales. Neither of these would have been a complete solution, because the participants would find ways to game the system (in other words the system is not constant but evolves); I'm just throwing out some examples.

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