Beyond the bubble
Financial bubbles cannot necessarily be prevented, but their impact can be limited by giving market participants better information about investment risks, finance experts said Friday during a panel discussion at the 25th-anniversary conference of MIT’s Center for Real Estate.Real estate has been in the middle of the current economic crisis, since the aggregation of home loans into mortgage-backed securities provided the financial instrument through which investment banks and other firms lost hundreds of billions of dollars. The mortgage meltdown forced a costly government bailout and led to passage of the Dodd-Frank financial-reform bill, which became law in July.But several economists took the position that bubbles fueled by borrowing are the price we pay for having active markets, and suggested it was unrealistic to expect regulation to prevent future bubbles.“Leverage propels growth,” said William Wheaton, the director of The Center for Real Estate, while moderating the session on “Financial Re-Engineering.” The...