Finance generated profits by pumping undervalued asset classes for twenty-five years

Evidence

Now, take away liquidity support and the hunt for yield and there’s a problem going forward. You can only generate bubbles of this magnitude if there are assets that are either undervalued, or are at least perceived to be undervalued, and that can serve as fuel for the bubble. US equities had been flat for a generation back in the early 1980s. US housing was cheap and patterns of demand were changing. Commodities used to be a niche market. Finance changed all that, pumping and dumping these asset classes and taking profits along the way for twenty-five years. It was a great run while it lasted, but now, after the bust, could it be over? — Mark Blyth, Austerity, 627

Categorization

• QUESTION: The suggestion that postwar flatness in equities and cheap housing fueled the bubbles implies the post-2008 ‘end of banking’ may be permanent — worth chasing how this bears on the austerity argument in later chapters.
• XREF: connects to: Finance’s profits came from three interlinked asset bubbles, not efficient markets — Mark Blyth, Austerity: The History of a Dangerous…, 625; Anomaly-based funds profit by making markets rather than trading as customers — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 443; Finance produced 41 percent of U.S. corporate profits in 2007 — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 748 (+1 more)

Broader Connections

• Anomaly-based funds profit by making markets rather than trading as customers #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 443