Which economists saw the crash coming?

Pretty simple really, I would be willing to take anyone prior to 2004. I know Warren Buffet warned in 2003 but anyone else? (Even armchair blogging economists)

Google is weak in the middle of it to find anything old anyway. I would take politicians but then it would get GD pretty quick so please stick to non-political people please.

Well no responses yet, even though you specify 2004 there was the Jim Cramer meltdown last year: http://www.dailypundit.com/?p=27133

Wow, just wow.

I know that you’re asking for an answer to a factual question, not an evaluation, but I can’t resist to point out that the fact that an economist “predicted” the crash doesn’t really say that much about his gift of prophecy or his knowledge of the matter. “Economists” are “predicting” crashes to come all the time; it creates some sort of media attention for them, at least much more than saying “keep cool, guys, everything’s going to continue just fine.” From time to time, crashes do occur, but many of the analysts who had predicted it simply got it right by coincidence; if the crash fails to occur, the prophecy, or its author, is largely forgotten. Selective perception at work.

If it is any help we small town general practitioners knew that the whole sub-prime mortgage thing was going to end in tears. We saw too many home loans for over valued houses being made by interstate lenders to people we knew very well could not make the payments if there was the slightest interruption of their income stream and those mortgages peddled on the secondary market. The thing was just not sustainable. The local lenders, fortunately, did not get sucked up in the frenzy and were insisting on fair appraisals, reliable cash flow and financial statements and adherence to the “Three Cs,” cash, collateral and character.

Hell, I knew the real estate bubble would burst before the decade was out 5 years ago when my buddy bought his townhouse in California. He paid $550,000 for a three bedroom townhouse with termites, no storage space and a shitty kitchen.

I said, “Jesus, dude, that’s a lot of money.”

He said, “It’s okay. All the agents say the prices will never go down!”

I thought, hoo boy, here’s a crash waiting to happen.

I wasn’t personally aware of the extent of bullshit mortgages being handed out - they don’t do that in Canada and I just always assumed the rules were more or less the same - but, come on, that one was easy too if you knew it was happening.

Nouriel Roubini seems to be at the top of the heap of economists that saw this coming. He pretty much bet all his credibility on it and while it took longer than he thought all the steps were predicted fairly accurately. Even through today.

He was very highly regarded, if a little pessimistic and alarmist, well before any of this hit the fan.


Yeah. When 1/2 duplexes in my sketchy-ass neighborhood started topping $220,000 I knew it would end badly.

What I know about the economy in general (and real estate in particular) could fit into a bottlecap. But so many people I knew swore the prices would merely stabilize, and never drop.

http://www.newsdissector.org/blog/ These guys were calling it for a long time.

The late Edward Gramlich was concerned and even broached the matter with Greenspan around 2000, who wasn’t interested. http://economistsview.typepad.com/economistsview/2007/06/greenspan_oppos.html

In 2004 he said, “Increased subprime lending has been associated with higher levels of delinquency, foreclosure and, in some cases, abusive lending practices.”

Recall that the worst years of the housing bubble were from 2005-2007.

Later Gramlich asked, “Why are the most risky loan products sold to the least sophisticated borrowers? The question answers itself — the least sophisticated borrowers are probably duped into taking these products. …the predictable result was carnage.”

Apparently G. W. Bush did when in 2003 he asked Congress for more oversight for Freddie and Fannie. He was turned down by Democrats who claimed he wanted to make it harder for regular Americans to buy homes.

Gary North- then again, he’s been predicting disaster in one form or another for the 20 years I’ve been reading him, so he was bound to be right eventually.


This damn duplex development down the street from us has had AT LEAST 4-5 different developers purchase the area. One company buys them, tries to offload them for $250,000, can’t, sells them. Next company buys the, tries to sell them for the SAME DAMN PRICE! They’ve been doing this for about 8 years now. I believe they’ve sold FOUR (units).

Well they must have had some help then, given the ~23 member Republican Majority in the House in 2003.

Thanks for the many informative links! I’m knew some people accurately said this would happen. And not in a worlds gonna end every year sorta thing.

Buffet has also been predicting a nuclear attack on the US.


Calculated Risk deserves honorable mention, though they only started blogging in January 2005. Their second post was titled, Housing Prices: An asset bubble?

They are the go-to site for the housing side of the current financial crisis, and their broader analysis is sound as well. http://calculatedrisk.blogspot.com/

No cite, but I read a news story about a VP from one of Canada’s major banks who had risen up through the ranks of the investment arm. One of the bank’s traders was lauding the benefits of the mortgage-backed securities and the VP asked how exactly they worked. The trader couldn’t answer. When the VP found out that none of his traders could explain how they worked, he ordered them to drop them immediately.

I distinctly remember Stebe Forbes on Fox and Freinds pooh poohing the entire idea of a “Real Estate Crunch” in the fall of 2006. I also distinctly remember thinking “your an idiot Steve”.

The Bush Administration was predicting this, and worked quite hard to get Congress to move on it. Congress didn’t listen.

The White House, respondign to Democrat’s claims that the failures are ‘typical of the Bush Administration’s approach to financial matters’, released this statement showing the administration’s effort to get Congress to do something about the problem:

This problem has been widely known for a long time. The reason Congress did nothing is partly bipartisan, but in the last few years it was the Democrats who were at fault. Fannie Mae and Freddie Mac were essentially in the business of buying up risk, and this allowed high-risk people to get mortgages. Democrats like this, because the highest risk people are in the lower income brackets, and are disproportionally minorities as well. So without these quasi-government agencies underwriting the risk, you’d have a situation where a white, upper middle class engineer could get a mortgage for 6%, and a young black couple with iffy jobs and no credit history might have to pay 10%. This was seen as being unfair.

If Congress screws up with a large Republican majority it’s a bipartisan problem.

If Congress screws up with a small Democrat majority it’s the Democrats fault.

Am I missing something?