Pass the Rose Colored Glasses Please!

Remember back in the late '90s when all we heard was that there was never a bad time to buy stocks? That you ought to just buy and hold for the long term, that stocks wouldn't go down? That the worst that would happen was that stocks could stay flat for a while, but they wouldn't go down? That it was practically guaranteed you'd make at least 5% a year? Anybody who held cash was laughed at? We're almost starting to hear this again.

Realtors are close cousins of stockbrokers. Not only is there never a bad time to buy a house, but prices never go down. Maybe home prices will stay flat for a while, but they would never never decline, oh no, they'd never do that!?!

Why do people have such short memories and fall for this?

I think [affordability] is going to deteriorate further. I know we're going to get higher rates, and even though we're seeing slower price appreciation, prices aren't going to drop, at least in my view.

- Leslie Appleton-Young, Chief Economist CAR

Realtors only talk out loud about the minimal pain scenario. Do they really think this is going to happen? That everyone in the crowd will remain calm while passing around the stick of dynamite with the lit fuse? That the worst that could happen is that a few little sparks might fly off and you might get a few microscopic burns before you pass the dynamite to the next sucker? That people will calmly sell each other real estate, singing "Give Peace a Chance", serenely taking small losses over the next few years as prices gently decline? Everybody cheerfully but passively sharing the pain, teaching the world to sing? The realtor min pain scenario reminds me of the stockbrokers in 2000 who said that a stock market decline would be OK if it was "orderly".

Just what do these guys (and gals) smoke?!?!?

I don't know about you, oh reader of the Mania Musings, but I don't think people behave that way. I think people are capable of panicking in a big way and there is a well-documented history of bubbles bursting revealing the psychological nature of the crowd.

So when the hucksters admit there could be a problem, their #1 strategy is to tell you that nobody will get hurt.

The #2 strategy is to admit, well yes, there is a problem, and somebody may get hurt, but it won't be you. For example, Abby Joseph Cohen of Goldman-Sachs said in July 2000, that "...credit-risk problems were company-specific...", implying that such problems were not a system-wide problem so the chances of you being negatively affected financially by such a bad company was minimal. Fed Chairman Alan Greenspan resorted to similar verbal deception when he testified before Congress June 9, 2005 and said,

Although a "bubble" in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.

The herd is gullible to this tactic, because each buffalo in the herd has a case of NIMBY - not in my backyard. Congress is a problem, but my Congressman is OK, it's your Congressman who is the problem, voting for all those spending bills. Yeah, housing prices are stupid in Long Island, but they can't possibly be a problem here in Phoenix. You've got the problem, not me. I think there is a close resemblance between this psychological trait in the herd and the psychological traits exhibited by the herd in the classic short story The Lottery, by Shirley Jackson. As long as I am not Mrs. Hutchinson and nobody in my family drew the ticket, who gets stoned is not my problem.

I guess the answer to my earlier question, what do brokers and realtors smoke, is - that they may not necessarily be smoking anything, but they are geniuses at saying what people want to hear.

If you are reading this and have some insight into other verbal tactics used by those who want us to stay dumb, post your comments.