Inefficient financial markets and an irrational economist: examples.

More reaction to Eugene Fama, the man who doesn’t know what a bubble means and his unscientific meanderings, winning the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel .

Real-World Economics Review Blog

The mortgage market has become the most important financial market. Is it efficient in the Fama sense, i.e. characterized by competing, intelligent, well-educated rational people who know what they are doing, who can change their assets/loans portfolio any time and who know that their house and their mortgage are part of their entire assets/loans portfolio? Maybe not. From this article (in Dutch, my translation, emphasis added):

(A) Between 2000 and 2008 the average loan-to-value ratio of new Dutch mortgages rose from 102 to 114% (P. 8)
(B) Since their introduction in the middle of the nineties the share of ‘interest only’ mortgages rose from 0 to about 45% (new loans, p. 8/9)
(C) “The AFM consumentenmonitor shows that 44% of the people who take a (partly) ‘interest only’ mortgage is not aware of the fact that the debt won’t be paid off in its entirety” (p. 9)

Combine this with…

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