by How to get a ‘Nobel Prize’ in economics — talking absolute nonsense! Many people would argue that, in this case, the inefficiency was primarily in the credit markets, not the stock market—that there was a credit bubble that inflated and ultimately burst. Eugene Fama: I don’t even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means. I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning. I guess most people would define a bubble as an extended period during which asset prices depart quite significantly from economic fundamentals. Eugene Fama: That’s what I would think it
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How to get a ‘Nobel Prize’ in economics — talking absolute nonsense!
Many people would argue that, in this case, the inefficiency was primarily in the credit markets, not the stock market—that there was a credit bubble that inflated and ultimately burst.
Eugene Fama: I don’t even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means. I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.
I guess most people would define a bubble as an extended period during which asset prices depart quite significantly from economic fundamentals.
Eugene Fama: That’s what I would think it is, but that means that somebody must have made a lot of money betting on that, if you could identify it. It’s easy to say prices went down, it must have been a bubble, after the fact. I think most bubbles are twenty-twenty hindsight. Now after the fact you always find people who said before the fact that prices are too high. People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.
Are you saying that bubbles can’t exist?
Eugene Fama: They have to be predictable phenomena. I don’t think any of this was particularly predictable.