# Which economists saw the crash coming? **URL:** \ **Category:** Factual Questions\ **Created:** [September 23, 2008, 12:14pm UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819 "2008-09-23T12:14:19Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![RyJae](https://avatars.discourse-cdn.com/v4/letter/r/9d8465/32.png) [@RyJae](https://boards.straightdope.com/u/RyJae)\ **Post date:** [September 23, 2008, 12:14pm UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/1 "2008-09-23T12:14:19Z")
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. ---
**Author:** ![control-z](https://avatars.discourse-cdn.com/v4/letter/c/eada6e/32.png) [@control-z](https://boards.straightdope.com/u/control-z)\ **Post date:** [September 23, 2008, 7:34pm UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/2 "2008-09-23T19:34:33Z")
Well no responses yet, even though you specify 2004 there was the Jim Cramer meltdown last year: [Generations – Daily Pundit](http://www.dailypundit.com/?p=27133) ---
**Author:** ![RyJae](https://avatars.discourse-cdn.com/v4/letter/r/9d8465/32.png) [@RyJae](https://boards.straightdope.com/u/RyJae)\ **Post date:** [September 23, 2008, 8:32pm UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/3 "2008-09-23T20:32:56Z")
> [@control-z](#): > > Well no responses yet, even though you specify 2004 there was the Jim Cramer meltdown last year: [http://www.dailypundit.com/?p=27133](http://www.dailypundit.com/?p=27133) Wow, just wow. ---
**Author:** ![Schnitte](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/schnitte/32/9033_2.png) [@Schnitte](https://boards.straightdope.com/u/Schnitte)\ **Post date:** [September 23, 2008, 8:44pm UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/4 "2008-09-23T20:44:19Z")
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. ---
**Author:** ![Spavined\_Gelding](https://avatars.discourse-cdn.com/v4/letter/s/958977/32.png) [@Spavined\_Gelding](https://boards.straightdope.com/u/Spavined_Gelding)\ **Post date:** [September 23, 2008, 8:56pm UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/5 "2008-09-23T20:56:48Z")
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. ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [September 23, 2008, 9:38pm UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/6 "2008-09-23T21:38:13Z")
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. ---
**Author:** ![Mongo\_Ponton](https://avatars.discourse-cdn.com/v4/letter/m/eb9ed0/32.png) [@Mongo\_Ponton](https://boards.straightdope.com/u/Mongo_Ponton)\ **Post date:** [September 24, 2008, 1:36am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/7 "2008-09-24T01:36:25Z")
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. [http://www.rgemonitor.com/blog/roubini/](http://www.rgemonitor.com/blog/roubini/) ---
**Author:** ![Tixenfleaz](https://avatars.discourse-cdn.com/v4/letter/t/e9a140/32.png) [@Tixenfleaz](https://boards.straightdope.com/u/Tixenfleaz)\ **Post date:** [September 24, 2008, 2:29am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/8 "2008-09-24T02:29:52Z")
> [@RickJay](#): > > 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. 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. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 24, 2008, 3:01am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/9 "2008-09-24T03:01:01Z")
[穀物不使用のドッグフードとは](http://www.newsdissector.org/blog/) These guys were calling it for a long time. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [September 24, 2008, 3:38am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/10 "2008-09-24T03:38:28Z")
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](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.” > **[Opinion | A Catastrophe Foretold (Published 2007)](https://www.nytimes.com/2007/10/26/opinion/26krugman.html)** > > Maybe the subprime disaster will be enough to remind us why financial regulation was introduced in the first place. 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.” ---
**Author:** ![Saint\_Cad](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/saint_cad/32/18907_2.png) [@Saint\_Cad](https://boards.straightdope.com/u/Saint_Cad)\ **Post date:** [September 24, 2008, 5:50am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/11 "2008-09-24T05:50:50Z")
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. ---
**Author:** ![FriarTed](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/friarted/32/1052_2.png) [@FriarTed](https://boards.straightdope.com/u/FriarTed)\ **Post date:** [September 24, 2008, 7:03am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/12 "2008-09-24T07:03:42Z")
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. > **[Gary North -- Specific Answers](https://www.garynorth.com/)** > > Gary North on current economic affairs and investment markets > **[Gary North, Author at LewRockwell](https://www.lewrockwell.com/author/gary-north/)** ---
**Author:** ![Cyberhwk](https://avatars.discourse-cdn.com/v4/letter/c/7993a0/32.png) [@Cyberhwk](https://boards.straightdope.com/u/Cyberhwk)\ **Post date:** [September 24, 2008, 7:57am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/13 "2008-09-24T07:57:48Z")
> [@Tixenfleaz](#): > > Yeah. When 1/2 duplexes in my sketchy-ass neighborhood started topping $220,000 I knew it would end badly. 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). > [@Saint\_Cad](#): > > 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. Well they must have had some help then, given the [~23 member Republican Majority](http://en.wikipedia.org/wiki/108th_United_States_Congress) in the House in 2003. ---
**Author:** ![RyJae](https://avatars.discourse-cdn.com/v4/letter/r/9d8465/32.png) [@RyJae](https://boards.straightdope.com/u/RyJae)\ **Post date:** [September 24, 2008, 2:11pm UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/14 "2008-09-24T14:11:56Z")
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. ---
**Author:** ![First\_Amongst\_Daves](https://avatars.discourse-cdn.com/v4/letter/f/4491bb/32.png) [@First\_Amongst\_Daves](https://boards.straightdope.com/u/First_Amongst_Daves)\ **Post date:** [September 24, 2008, 2:16pm UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/15 "2008-09-24T14:16:51Z")
> [@RyJae](#): > > I know Warren Buffet warned in 2003 but anyone else? Buffet has also been predicting a nuclear attack on the US. Brr. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [September 25, 2008, 2:02am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/16 "2008-09-25T02:02:45Z")
Calculated Risk deserves honorable mention, though they only started blogging in January 2005. Their second post was titled, [Housing Prices: An asset bubble?](http://calculatedrisk.blogspot.com/2005/01/housing-prices-asset-bubble.html) 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/](http://calculatedrisk.blogspot.com/) ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [September 25, 2008, 2:43am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/17 "2008-09-25T02:43:03Z")
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. ---
**Author:** ![WarmNPrickly](https://avatars.discourse-cdn.com/v4/letter/w/d78d45/32.png) [@WarmNPrickly](https://boards.straightdope.com/u/WarmNPrickly)\ **Post date:** [September 25, 2008, 2:45am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/18 "2008-09-25T02:45:46Z")
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”. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [September 25, 2008, 3:55am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/19 "2008-09-25T03:55:49Z")
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](http://www.whitehouse.gov/news/releases/2008/09/20080919-15.html) showing the administration’s effort to get Congress to do something about the problem: > [@](#): > > **2001** > > April: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.” > > **2002** > > May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02) > > **2003** > > January: Freddie Mac announces it has to restate financial results for the previous three years. > > February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that “although investors perceive an implicit Federal guarantee of [GSE] obligations,” “the government has provided no explicit legal backing for them.” As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. (“Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO,” OFHEO Report, 2/4/03) > > September: Fannie Mae discloses SEC investigation and acknowledges OFHEO’s review found earnings manipulations. > > September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact “legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises” and set prudent and appropriate minimum capital adequacy requirements. > > October: Fannie Mae discloses $1.2 billion accounting error. > > November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any “legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk.” To reduce the potential for systemic instability, the regulator would have “broad authority to set both risk-based and minimum capital standards” and “receivership powers necessary to wind down the affairs of a troubled GSE.” (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03) > > **2004** > > February: The President’s FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator.” (2005 Budget Analytic Perspectives, pg. 83) > > February: CEA Chairman Mankiw cautions Congress to “not take [the financial market’s] strength for granted.” Again, the call from the Administration was to reduce this risk by “ensuring that the housing GSEs are overseen by an effective regulator.” (N. Gregory Mankiw, Op-Ed, “Keeping Fannie And Freddie’s House In Order,” Financial Times, 2/24/04) > > June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying “We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System.” (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04) > > **2005** > > April: Treasury Secretary John Snow repeats his call for GSE reform, saying “Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system.” (Secretary John W. Snow, “Testimony Before The U.S. House Financial Services Committee,” 4/13/05) > > **2007** > > July: Two Bear Stearns hedge funds invested in mortgage securities collapse. > > August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying “first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.” (President George W. Bush, Press Conference, The White House, 8/9/07) > > September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before. > > September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before. > > December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying “These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon.” (President George W. Bush, Discusses Housing, The White House, 12/6/07) > > **2008** > > January: Bank of America announces it will buy Countrywide. > > January: Citigroup announces mortgage portfolio lost $18.1 billion in value. > > February: Assistant Secretary David Nason reiterates the urgency of reforms, says “A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully.” (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08) > > March: Bear Stearns announces it will sell itself to JPMorgan Chase. > > March: President Bush calls on Congress to take action and “move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages.” (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08) > > April: President Bush urges Congress to pass the much needed legislation and “modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes.” (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08) > > May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further. > > ``` > * > > "Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans." (President George W. Bush, Radio Address, 5/3/08) > * > > "[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator." (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08) > * > > "Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans." (President George W. Bush, Radio Address, 5/31/08) > > ``` > > June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying “we need to pass legislation to reform Fannie Mae and Freddie Mac.” (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08) > > July: Congress heeds the President’s call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing. 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. ---
**Author:** ![Tapioca\_Dextrin](https://avatars.discourse-cdn.com/v4/letter/t/3d9bf3/32.png) [@Tapioca\_Dextrin](https://boards.straightdope.com/u/Tapioca_Dextrin)\ **Post date:** [September 25, 2008, 5:07am UTC](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819/20 "2008-09-25T05:07:16Z")
> [@Sam\_Stone](#): > > 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. 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? [Next page](https://boards.straightdope.com/t/which-economists-saw-the-crash-coming/464819.md?page=2)