I understand what your point was... and there were some instances of easy credit, but it wasn't pervasive. I don't see a clear connection. I am not making an absolute statement, just that there isn't a 1 to 1 correlation across the board. Sure, in some areas it is evident, but not in general.
I purchased my first house RIGHT AFTER the real estate bubble in the northeast burst. So, if anything, easy credit was not available. In fact, I fought hard to find the right loan. When I got it, they wanted to push money on me like mad.
As for your definition...well, your definition needs definition. What are ridiculous valuations? Define that. I would agree that a PE of 2000 on YHOO was ridiculous, but this defies definition except from a "common sense" standpoint. Hence, the problem. A ridiculous valuation to you didn't seem so ridiculous to many other people who jumped in. You call them bagholders, but at the time, this was not evident. It is an ex-post-facto definition. Had YHOO continued to climb (of course, against all better judgement), they would look like smart investors....which is what so many people looked like during the runup.
Bubbles can only be "defined" after the fact. How would you, technically, define a bubble? Is it a bubble when PE ratios (or some other measure) exceeds 20% of the historical average? 30%? 100%? We don't have these figures...do we? We have to make some value judgements in order to create that definition. Irrational exuberance in 1997 looked like Chicken Little in 1999. Now it looks incredibly prescient.
That, in a nutshell, is the problem with the definition....was it a bubble in 1997? Who knows? After the fact, we know it was in 1999....some people guessed it beforehand, but many others didn't. |
