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A more rational approach?

Posted by: katalysis

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Defence Secretary Philip Hammond says banks were not solely at fault for the boom. Homeowners who borrowed too much should also shoulder blame for the subsequent bust. No apparent mention of politicians, regulators nor economists. However, at UCLA professors Compton and Ozler cite easy credit as providing a perceived permission for would be buyers to act herd like. The notion of ever-rising house prices became the established convention resulting in a “euphoric stage of buying, disregarding risk, regressing to pure optimism” as “individuals lost their ability to test reality.” Meanwhile, economists blinded by their belief in rational economic actors, perfect markets, the perceived power of sophisticated mathematical models, the invention and expanding use of exotic financial instruments intended as risk ameliorants and the inherent stability of markets simply ignored the risk of market economics failing.
It seems the blame game needs to play out before we will see a return to a more rational market. One where people focus on the house as a home rather than a speculative investment.         
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