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Asset bubble theory

Posted By Barry Ritholtz On May 22, 2005 @ 4:07 pm In Markets | Comments Disabled

Interesting discussion of hedge funds and housing by Tom Abate at the San Francisco Chronicle. After what’s come to be the usual discussion of bubble, Abate takes the extra step of delineating asset bubble theory:

– The low worldwide interest rates of the past few years could have encouraged speculation in certain categories of assets similar to the stock market bubble of the late 1990s.

– Such easy money has flowed especially into housing, as buyers took advantage of low rates, and into hedge funds, lightly regulated investment pools for institutions and the rich.

– If housing prices or hedge funds went bust, consumers could retrench and major financial institutions could be endangered, damaging the global economy.

– The possibility of bubblelike conditions means that the Federal Reserve and other central banks can’t raise interest rates too fast as they battle inflation for fear of triggering such a crash.

(Nicely done!)

Housing, hedge funds spur bubble worries [1]
Some experts fear low interest rates may have pumped too much cash into global markets
Tom Abate
San Francisco Chronicle, May 21, 2005 

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[1] Housing, hedge funds spur bubble worries: http://www.ritholtz.com/blog http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2005/05/22/BUG5OCSNES1.DTL

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