excerpt:
Conclusion: Financial Experts are Dangerous to Your Finances
At the end of the nineties the stock market inflated to levels that could not be reconciled with current profits or plausible projections of future profits. Any knowledgeable analyst should have been able to recognize that price to earning ratios that peaked at more twice their historic level could not be maintained. As a result, a large downturn in the market was inevitable. The only uncertainties were the timing and the size of the downturn.
Unfortunately, very few experts recognized the bubble and the implications of its eventual collapse. As a result, the bubble expanded further than otherwise would have been the case. Many important decisions were made based on the expectation that the bubble valuations would persist and actually grow. This included budget decisions—such as President Bush’s tax cut—which assumed clearly implausible levels of capital gains tax revenue. Many states similarly made unrealistic assumptions about capital gains tax revenue in planning their own budgets.
Corporations and state and local governments planned pension fund contributions based on the assumption that the bubble would continue to expand—a direct implication of the assumption that stock returns would not be affected by the bubble. As a result, many of these companies will experience depressed profits for many years in the future, as they replenish their pension funds. State and local governments may be forced to raise taxes or cut social services to address the shortfalls in their pensions.
Similarly, colleges and universities, and major foundations, experienced large losses in their endowments as a result of the collapse of the stock bubble. Since they were unprepared for these losses, they are now being forced to make large cutbacks in spending. Many colleges and universities are also raising tuition.
Millions of workers lost a large portion of their retirement savings as a result of the market crash...
