Ceelo, Dornbush, Washington discussed on Here & Now

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To raise the stock price the reason they buy back the stock is they increase the demand for the stock the company increases the demand for its own stock at the same time it's going it's reducing the supply and you know simple economics would tell you that raises the price the sec has used to prevent that they used to say look at stock manipulation we're not going to allow you to do it and this is now decades ago they said okay it's okay that's one way the other way is that i don't know in the article there's a reference to things called ceelo's this is collateralized debt obligation and banks are making those original loans before they package them and sell them and slice them and dice them and sell them off to to investors the same way they did in the in the last boom with mortgage backed securities all of this is very familiar all you have to do is take mortgage out and put corporate in and you're basically seeing the same thing that we saw back in the two thousand six two thousand seven era so keeping in mind that the old saying is that economists have predicted nine out of the last five or sessions what do you think would set this one off the answer is when one doesn't know all one knows in the bubble is first of all they always last longer than you think they can and number two they always unwind faster than you think they will this is known as dornbush is law named after mit economist dornbush but these these things we know that when they get this big when they get to be record levels and when the growth is as strong as every year after year as it is now that's how you sort of recognize a bubble that's deep pearlstine business and economics columnist at the washington post thank you so much for joining us my pleasure.

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