Economists look for correlations to infer causations for macro-economic events. Unfortunately, most macro economists fail to look at the individual incentives, the micro reasons, some events occur. What’s even more amazing, or amusing, is how much effort and study they put in to trying to understand these correlations without having the foggiest notion what they’re talking about. The biggest misunderstanding in macro economics today centers around the idea of a “wealth effect.” Economists noted that people spend more money when asset values rise and less money when they don’t. Of course, times of rising asset values also correspond to times [Read More...]

The amend-extend-pretend policy of America’s banks is most pronounced in New England, particularly New York where the lenders live. There have been very few foreclosures despite high default rates, partly because the judicial foreclosure process in these states is log-jammed, and partly because lenders don’t want to foreclose and recognize their losses. Of course, this policy has prompted a great deal of strategic default among loan owners who recognize they can live for free, but it has succeeded in making everyone else believe their neighborhoods are somehow immune to the housing bust, at least until the last year when prices [Read More...]