Modeling the Meltdown

Andrew Odlyzko on the Financial Meltdown here.

He argues that the main beneficiaries of the real estate bubble were not brokers and financiers, but home sellers who reaped tremendous gains by selling long-owned properties at the peak, and who then banked their profits rather than plowing all the proceeds back into the inflated market.

They did not do anything wrong, all their actions were perfectly legal and moral. But they were the beneficiaries of the real estate bubble, and at least in the short run they are likely to escape unscathed, and without any blame attached. In the long run, of course, they will have to help pay for the cleanup, either through higher taxes, or through inflation.

I would imagine that developers who built and sold new homes also profited mightily from the circumstances. But that conjecture begs questions about differentials in the valuation of land and structures during the bubble.

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(c) TARPDATA 2008