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Jeremy Siegel on why so many experts missed the crash

By Motley Fool Staff - Wednesday, January 11th, 2012

The GFC crash was so obvious — in hindsight.

In the U.S., big banks such as Citigroup and Bank of America were lending enormous sums of money to borrowers who stood no chance of paying it back. Housing prices were so clearly overvalued. Consumers were keeping spending up only by borrowing unsustainable amounts.

Here in Australia we were blindly following along. Although, to date anyway, we seem to have dodged collapsing home prices, we paid the price in different ways.

Over-leveraged companies like ABC Learning, Allco Finance and Babcock & Brown went bust.

Other blue chips like Westfield Group (ASX: WDC), QBE Insurance Group (ASX: QBE), AMP Limited (ASX: AMP) and Suncorp Group Limited (ASX: SUN) are still 60 per cent down from October 2007.

And then there are the real basket-cases, Macquarie Group Limited (ASX: MQG), Goodman Group (ASX: GMG), Asciano Limited (ASX: AIO), Qantas Airways Limited (ASX: QAN) and OZ Minerals Limited (ASX: OZL) — all down more than 70 per cent since October 2007.

How could we have missed it?

Yet so many of us — even (or especially) the experts — did.

Earlier in December, Morgan Housel sat down for a wide-ranging interview with famed Wharton finance professor Jeremy Siegel. Here’s what he had to say when Morgan asked him why so many experts missed the crash.

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This article originally published on Fool.com. It has been updated. Authorised by Bruce Jackson.

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