Question

How could the Mortgage crisis of the 2000's been avoided if the market was truly efficient?

Answer 1

Mortgage crisis of 2008 had been avoided if market were truly efficient because-

A. Efficient market would have provided with truest of informations and it had led to elimination of the price discrepancy.

B. there would not have been any kind of possibility of making excess rate of return so there would have been a tendency of discounting the complete information into the share price.

C. it would also mean that there would not have been active trading and no derivative trading at also, it would have helped the passive investment and it would not lead to crisis because of passive investors.

D. it will also mean that there would have been proper flow of Information and proper credit rating which has been provided by the credit rating agencies and there had been no credit discrepancy and bad credit issues.

E. It will also mean that regulators would have been actively managing this crisis and they would not have let this to happen as they could have controlled the pricing level at initial stages.

F. there sould not have been excess return which is made and their should have been complete passive investment which will be leading to elimination of risk associated with collapse of mortgage markets