Sunday, July 03, 2011

The Great Gov't.-Induced Homeownership Bubble

In his latest column, George Will reviews the scalding new book “Reckless Endangerment" by New York Times columnist Gretchen Morgenson and housing finance expert Joshua Rosner.  Here's an excerpt from George Will:

"The book is another cautionary tale about government’s terrifying self-confidence. It is, the authors say, “a story of what happens when Washington decides, in its infinite wisdom, that every living, breathing citizen should own a home.”

The 1977 Community Reinvestment Act pressured banks to relax lending standards to dispense mortgages more broadly across communities. In 1992, the Federal Reserve Bank of Boston purported to identify racial discrimination in the application of traditional lending standards to those, Morgenson and Rosner write, “whose incomes, assets, or abilities to pay fell far below the traditional homeowner spectrum.”

In 1994, Bill Clinton proposed increasing homeownership through a “partnership” between government and the private sector, principally orchestrated by Fannie Mae, a “government-sponsored enterprise” (GSE). It became a perfect specimen of what such “partnerships” (e.g., General Motors) usually involve: Profits are private, losses are socialized.

There was a torrent of compassion-speak: “Special care should be taken to ensure that standards are appropriate to the economic culture of urban, lower-income, and nontraditional consumers.” “Lack of credit history should not be seen as a negative factor.” Government having decided to dictate behavior that markets discouraged, the traditional relationship between borrowers and lenders was revised. Lenders promoted reckless borrowing, knowing they could off­load risk to purchasers of bundled loans, and especially to Fannie Mae. In 1994, subprime lending was $40 billion. In 1995, almost one in five mortgages was subprime. Four years later such lending totaled $160 billion.

By 2003, the government was involved in financing almost half — $3.4 trillion — of the home-loan market. Not coincidentally, by the summer of 2005, almost 40 percent of new subprime loans were for amounts larger than the value of the properties."

MP:  The chart above helps tell the story, by showing graphically the unprecedented, government-induced rise in homeownership, from less than 64% in 1994 to more than 69% in 2004, a 5.4 percentage point increase in only one decade.  In many ways, what has been called the "housing bubble" was at the same time an unsustainable "homeownership bubble" (fueled by the political obsession with homeownership) and the bursting of the home price bubble was at the same time a bursting of the "homeownership bubble" as the graph clearly demonstrates.   


87 Comments:

At 7/03/2011 11:19 AM, Blogger arbitrage789 said...

Far too many financial resources going into the housing sector. Fannie/Freddie should be shut down completely, the mortgage interest deduction eliminated (though marginal tax rates simultaneously reduced), and the same rules for taxation of capital gains on financial assets be applied to houses. (None of this would preclude financial assistance at the state level, however).

 
At 7/03/2011 11:29 AM, Blogger arbitrage789 said...

There is a contrary view regarding the involvement of Fannie/Freddie during the housing boom. The graph shown here http://bit.ly/gJnsl4 (Ritholtz’s website) purports to show that Fannie/Freddie’s market share (of the mortgage market) declined from 70% to 40% during the period 2003-2006.

 
At 7/03/2011 11:37 AM, Blogger PeakTrader said...

The housing bubble minimized the 2001 recession and raised actual output towards potential output in the 2000s. The market was cleared of "excess" capital.

However, the government didn't follow through by providing substantial tax cuts for the correction to take place slowly rather than suddenly.

A "soft-landing" or mild recession rather than the severe recession, and weak recovery, would've stabilized the housing market, e.g. through a much smaller pullback in housing prices, more homebuilding, higher employment, and consumption of related goods.

 
At 7/03/2011 12:17 PM, Blogger NormanB said...

Ironic is too tame a word to describe the lead economic reporter of the New York Times, Gretchen Morgenson, writing a book damning government interventions when her employer is its most ardent proponent. Sweet!

 
At 7/03/2011 12:31 PM, Blogger arbitrage789 said...

Gretchen Morgenson on BookTV, discussing the book:

http://cs.pn/mvz1fT

 
At 7/03/2011 12:46 PM, Blogger PeakTrader said...

The U.S. had restrictive monetary policy in 2007 (after the tightening cycle was completed in 2006) and contractionary fiscal policy (the budget deficit shrunk to $162 billion in 2007).

In early 2008, the Bush tax cut gave the Fed time to catch-up easing the money supply. However, the tax cut wasn't big enough and the Fed was still behind the curve.

Foreign countries, e.g. China, sold their goods too cheaply and lent their dollars too cheaply, which generated a virtuous U.S. cycle of consumption-investment.

The U.S. had a liquidity crisis, in part, because dollars flowed out of the private sector (buying foreign goods) and then flowed into the public sector (foreigners buying U.S. Treasury bonds).

Those dollars weren't "refunded" to the private sector, e.g. in the form of a $5,000 per worker tax cut in 2008 (or $750 billion for the 150 million workers at the time, rather than spending $700 billion for TARP).

With substantial tax cuts, U.S. households would've paid-down or paid-off their highest interest rate debt, to increase their monthly incomes, strengthened their balance sheets, and strengthened the banking sector.

 
At 7/03/2011 12:56 PM, Blogger Rufus II said...

Horsehockey. It was, quite simply, a Fraud of Biblical Proportions. The Tulip Bulb Scheme, of All Tulip bulb Schemes. Backed by Taxpayer Money.

Loaning Vast Amounts of Money with NO prospect of it being paid back, and fraudulently packaging the Debts as AAA Bonds.

The Federal Prisons should be overflowing with Bankers, Mortgage Brokers, Government bureaucrats, Politicians, Heads of Rating Agencies, and their Accomplices.

 
At 7/03/2011 1:08 PM, Blogger Ron H. said...

Thomas E. Woods, in his book "Meltdown" Does a great job of explaining the housing bubble and other failures that led to our current financial woes.

 
At 7/03/2011 1:08 PM, Blogger PeakTrader said...

Rufus, homeownership typically makes people more responsible and builds wealth.

Of course, if you become unemployed, you can't make the monthly payments.

I give Wall Street a great deal of credit for diversifying the risk worldwide, capturing dollars in the global economy, and "recycling" those dollars in the American economy (when they were needed).

 
At 7/03/2011 1:13 PM, Blogger Rufus II said...

PT, they were loaning vast sums to people That Were Unemployed.

 
At 7/03/2011 1:13 PM, Blogger PeakTrader said...

Also, houses are worth more than tulips, and much, if not most, of the refinancing went into home improvements.

 
At 7/03/2011 1:17 PM, Blogger PeakTrader said...

Rufus, do you know what percentage of the loans, or how much, went to the unemployed?

In 2007, the country was at full employment.

 
At 7/03/2011 1:23 PM, Blogger arbitrage789 said...

Rufus @12:56

Well put.

 
At 7/03/2011 1:30 PM, Blogger arbitrage789 said...

Senator Carl Levin’s only response to this whole mess is that Goldman Sachs executives should be prosecuted for lying about the extent to which they had a short position in collateralized debt obligations.

 
At 7/03/2011 1:38 PM, Blogger PeakTrader said...

I think, some people miss the point of the "housing bubble."

The U.S. captured enormous real wealth in the global economy.

The homebuilding boom, refinancing boom, and home improvement boom represent part of that real wealth (measured by real assets rather than by paper assets).

The severe recession and weak recovery were completely avoidable, to capture even more real wealth in the global economy.

 
At 7/03/2011 1:42 PM, Blogger Rufus II said...

Of course unemployment was low. Enormous amounts of money was being loaned to uncreditworthy individuals with greatly overvalued collateral.

Said individuals were busy delivering Chinese goods to other Ponzi Scheme Participants that were busy importing tortillas for illegal immigrants that were busy building shoddy houses for speculators that were, in turn, selling them to other Ponzi Scheme Participants, financed by Crooks, and Fraudsters, and in the end, Guaranteed by you and me.

All of this, of course, turned out to be Great for the economy of Mexico when large amounts of that fast money was "sent home."

This Debacle has set the United States back Ten, if not Twenty, Years. And, it did it at a time that we really didn't need such a "mash-up."

 
At 7/03/2011 1:47 PM, Blogger Rufus II said...

"Captured Wealth?"

How do you "Capture Wealth" by destroying your currency?

As a result of "capturing" that wealth we have 9.1% Unemployment, a Devalued Dollar, a financial system that is still "frozen" as far as small business is concerned, and a looming "Double-Dip."

I, honestly, don't believe we can stand too much more "capturing."

 
At 7/03/2011 2:00 PM, Blogger Monkeesfan said...

Bottom line - when government decides not to leave something alone, it ruins it.

 
At 7/03/2011 2:05 PM, Blogger Rufus II said...

"Government" can do some good things. This is just a case where Government + Financial Interests "Ran Amok."

Freedom ain't "Free," and Democracee ain't "Easy."

This is one of those deals where Guvmint bolloxed it up.

 
At 7/03/2011 2:35 PM, Blogger Benjamin said...

I applaud the right-wing's concerns about too much of our GDP going into the housing sector.

I just wish the right-wing would--

1) Get rid of the homeowner's mortgage interest tax deduction, the biggest source of funding for housing. I have been all but forced to buy housing, and commercial property, for the tax treatment. Oddly enough, the GOP never mentions the "unintended consequences" of this tax deduction.

2) Show the same concern for the $1 trillion a year wasted on a parasitic, bloated, coprolitic defense-homeland security (TSA)-VA complex.

 
At 7/03/2011 2:41 PM, Blogger Ron H. said...

Peak asks:

"Rufus, do you know what percentage of the loans, or how much, went to the unemployed?"

Dufus responds:

"Of course unemployment was low. Enormous amounts of money was being loaned to uncreditworthy individuals with greatly overvalued collateral."

Translation:

"I don't have any idea; that was just something I thought I'd pull out of my ass.

And furthermore, if you liked that one, see what you think of THIS truly meaningless collection of unconnected words:"

"Said individuals were busy delivering Chinese goods to other Ponzi Scheme Participants that were busy importing tortillas for illegal immigrants that were busy building shoddy houses for speculators that were, in turn, selling them to other Ponzi Scheme Participants, financed by Crooks, and Fraudsters, and in the end, Guaranteed by you and me."

 
At 7/03/2011 2:43 PM, Blogger Ron H. said...

"Also, houses are worth more than tulips, and much, if not most, of the refinancing went into home improvements."

Reference please.

 
At 7/03/2011 2:44 PM, Blogger Ron H. said...

"Rufus, homeownership typically makes people more responsible and builds wealth."

Reference please.

 
At 7/03/2011 2:45 PM, Blogger Rufus II said...

Your reading comprehension isn't improving very rapidly, Ron. Those last two comments weren't mine.

 
At 7/03/2011 2:49 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 7/03/2011 2:52 PM, Blogger Ron H. said...

"Your reading comprehension isn't improving very rapidly, Ron. Those last two comments weren't mine."

And, my responses to them weren't directed at you.

 
At 7/03/2011 2:52 PM, Blogger Rufus II said...

I am, personally, aware of one individual, making minimum wage, that received a $140,000.00 loan on the basis of having won a poker tournament 3 years in the past.

IIRC, that was from Wells Fargo. There was so much fraud going on they'll never sort it all out.

 
At 7/03/2011 2:54 PM, Blogger Rufus II said...

Needless to say, said individual contributed greatly to the "economy," and "employment" before the money ran out.

 
At 7/03/2011 3:08 PM, Blogger Ron H. said...

"I am, personally, aware of one individual, making minimum wage, that received a $140,000.00 loan on the basis of having won a poker tournament 3 years in the past."

So, when Peak asked whether you knew what percentage of the loans, or how much, went to the unemployed, your answer would be:

"No, I have no actual knowledge to support my wild claim, but I AM aware of one instance of a loan to someone who probably shouldn't have qualified, in the amount of $140k."

 
At 7/03/2011 3:18 PM, Blogger Rufus II said...

Ron, you can just go bug someone else. I'm not about to go running around googling "how many loans to unemployed." If you really want to know, just google "no-doc loans."

If it's "No-Doc" you can bet there Was No Doc (job.)

 
At 7/03/2011 3:58 PM, Blogger Ron H. said...

"Ron, you can just go bug someone else. I'm not about to go running around googling "how many loans to unemployed." If you really want to know, just google "no-doc loans."

But I don't want to know. What I DO want to know is what basis YOU had for making such a claim, and you have now admitted that you have none.

It is up to you, not others, to support your claims.

When you make strong claims about something, and include descriptors like "vast sums" and emphasize a point like "That Were Unemployed" by bolding it, you should be prepared to support your claim. If you just wish to make emotionally appealing statements like a politician, no one can take you seriously.

If you wish to express an opinion, describe your comments as opinion.

 
At 7/03/2011 4:33 PM, Blogger Rufus II said...

YOU go google "stated income loans." I'm not going to be your errand boy. We all know there were millions of them.

 
At 7/03/2011 4:38 PM, Blogger PeakTrader said...

Ron, most people take better care of a car when they own it rather than rent it (or borrow it). They're more responsible.

Homeownership typically builds wealth, because homes tend to be appreciating assets and debt is paid-down over time. Also, mortgage rates fell in recent decades (and Rufus is wrong - the quality of homebuilding has improved).

Home improvements:

Wells Fargo Goes Beyond Funding With New Home Equity Program
April 23, 2007

According to a recent Harvard Joint Center for Housing Studies report, "Improving America's Housing 2007," the amount consumers spend on home improvement is rapidly approaching $300 billion a year, and home improvement is the primary reason people obtain and use home equity loans and lines of credit.

 
At 7/03/2011 4:56 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 7/03/2011 5:03 PM, Blogger PeakTrader said...

By Bob Petersen
Precision Inspection:

"How many times have you heard ‘they don’t build ‘em like they used to’? Why do people say this? Is it true? Absolutely NOT!

Besides a FEW things that were better with older homes (no ‘finger jointed’ studs or trim, better quality wood, no hollow doors or ‘pressboard’, better doorknobs and no computer controlled appliances), modern homes are much better in many ways. Here’s a partial list:

Roofing/Insulation: Before 1982 lasted maybe 15 years. Now roofs last a minimum of 20 and some are hail resistant. Older homes had little or no insulation; newer homes have lots of it & much better attic ventilation.

Foundations: Pier and beam or early slabs have lots of problems. Modern slabs have NO problems if properly constructed.

Wiring: Before 1961 homes had ungrounded outlets (with cloth insulation before 1950!). Before 1978 there were no GFI outlets or smoke & CO detectors. Older homes had fewer circuits and fewer outlets per room; or even worse, aluminum wiring.

Plumbing: Homes built in the 1950s and earlier had steel waterlines prone to corrosion and internal scaling.(who thought of running water through steel pipes? That was dumb). The tub and sink fixtures had rubber washers which wore out & needed replacing. Newer homes have washerless fixtures. Older homes have cast iron (or felt paper!) sewer lines which crack, scale up, fall apart and corrode. Homes since the 1970s have pvc which is virtually indestructible. Drainlines are larger in diameter too. Water heater relief valves and flues are much better now than in the 1960s, which makes homes a lot safer. Septic systems are cheaper, smaller and better for the land + have no drain field to replace!

HVAC: Few homes even had central A/C till the 1960s. Remember window units and space heaters? They were awful. Newer A/C and Heating is very efficient, quiet and MUCH safer. The freon used now is better for the environment too…

Appliances: Homes before the 1960s rarely had a dishwasher or disposal and certainly no microwave (how did we exist without those?). Cooktops and ovens had pilot lights which stunk up the kitchen with gas fumes when they went out. Modern dishwashers are very quiet compared to older ones. Older homes often had vent-hoods which blew into the attic! (fire hazard anyone?). I do however prefer the old appliances for one reason, they didn’t have computer controls which are very expensive to repair compared to the older electromechanical controls of yesteryear. Countertop technology has progressed light years since the 1980s!

Building Codes: Are constantly changing for the better which make homes safer and more energy efficient. There were NO codes prior to the late 1940s and fire safety concerns didn’t even exist. Energy efficiency concerns didn’t exist prior to the 1980s. HVAC, insulation, attic ventilation, windows and solar screen technology are light years ahead of even 20 years ago not to mention toilets and appliances which use a lot less water. Homes are much better sealed than they used to be.

YOU can have the ‘good ole days’ if you want ‘em, I like 2007!"

 
At 7/03/2011 5:05 PM, Blogger Rufus II said...

I went out and looked at some of the homes that were being built in my area (almost entirely by illegals, I'm pretty sure.)

Some of the "roofing crews didn't know how to roof." There were 1/2 inch cracks in the door jambs. The drywall taping was atrocious. There were big cracks in the brick walls where the foundation was improperly set, and was settling. Tuck-pointing was in prime demand.

I talked to homeowners that were paying twice the electric bills that would be expected for houses of their square footage. Walls, and windows that were way out of square. Electrical that was downright dangerous.

I halfway expect some of those houses to fall down before the bank can get them sold.

And the appraisals? Always came in at exactly what was needed for the loan.

But, I'm sure that only applied to Our area. I'm sure the rest of the U.S. was of the very highest, hunky dory quality.

I'm pretty sure I saw Elvis, yesterday, also.

 
At 7/03/2011 5:06 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 7/03/2011 5:26 PM, Blogger Ron H. said...

"I went out and looked at some of the homes that were being built in my area (almost entirely by illegals, I'm pretty sure.)"

"I'm pretty sure." just isn't good enough. Your opinion doesn't matter. Is inexperience and poor workmanship characteristic of illegals? Would an inexperienced, low skilled 'legal' do a better job?

Again, your personal anecdotal experience can't be extrapolated, and used as a basis for a claim.

Cite something relevant.

 
At 7/03/2011 5:48 PM, OpenID Sprewell said...

I'll agree with Peak that there were a lot of real gains this decade, even if you were to throw out the real estate bubble. Where I disagree is his notion that the real estate bubble was largely a good thing, either because it got people investing again after the dot.com bust, even if it was largely in highly overvalued real estate, or because it got them spending more, using their real estate's inflated value as a piggy bank. First, this assumes that we couldn't have found something better to invest in than real estate, which is very speculative. Second, it assumes we wouldn't have been better off with both less investment and consumption, rather than the binge and bust we have seen. While the first assumption is possible, though I think we still shouldn't have dumped that money on real estate anyway, the second I don't think can be supported.

As for the stuff about the quality of housing, that's irrelevant. This wasn't a housing bubble, it was a real estate bubble. The value of the actual house/construction was small compared to the positional value of the land, particularly in the most highly overvalued cities. So what people were really throwing their money at was to live in and be tied down to a certain neighborhood, which is one of the most wasteful things one can throw money at, particularly in our modern, mobile times where people usually have to move a lot more.

 
At 7/03/2011 6:44 PM, Blogger VangelV said...

Rufus, do you know what percentage of the loans, or how much, went to the unemployed?

In 2007, the country was at full employment.


First of all, the country was not at full employment. The long term unemployed were not being counted and neither were the underemployed. Second, the argument that government pushed lending to people with bad credit is sound because that is exactly what the Clinton and Bush administration were doing. Such misguided policies were bound to fail and once the housing market peaked in 2005 the game was over. We are now still living through the aftermath.

 
At 7/03/2011 7:38 PM, Blogger bix1951 said...

10% does not a bubble make
and even a price decline of 50% is not a bubble
just a bear market.
The definition of bubble seems to be in its own bubble lately.
Housing was not a bubble, just a bull that became a bear.

 
At 7/03/2011 10:02 PM, Blogger Ron H. said...

""How many times have you heard ‘they don’t build ‘em like they used to’? Why do people say this? Is it true? Absolutely NOT!"

This is even truer of cars. They are much more crashworthy than they were.

 
At 7/03/2011 10:16 PM, Blogger Ron H. said...

"YOU go google "stated income loans." I'm not going to be your errand boy. We all know there were millions of them."

We don't all know there were millions of them, and if you want to claim that, it's up to you to support it.

If I claimed that the moon was made of green cheese, you wouldn't just take my word for it, you would ask me to provide some evidence. The burden of proof is on the claimant.

Do you understand why you're not taken seriously here?

 
At 7/03/2011 10:35 PM, Blogger PeakTrader said...

Sprewell, ultimately, the goal is higher living standards for the masses. What's better than a house?

 
At 7/03/2011 11:01 PM, Blogger PeakTrader said...

It's interesting. VangelV says the country was underemployed, while Sprewell says we were building too many houses.

 
At 7/03/2011 11:26 PM, Blogger juandos said...

"First of all, the country was not at full employment. The long term unemployed were not being counted and neither were the underemployed"...

Not counted by whom vangIV? The U6 for 2007 (just an example) was there for those that were interested...

"Second, the argument that government pushed lending to people with bad credit is sound because that is exactly what the Clinton and Bush administration were doing"...

Really? What part did the Bush administration have to do with the CRA?

We know that Clinton's attorney general Janet Reno pushed CRA and similer programs strongly...

We know the Bush administration and McCain made efforts to rein in Fannie and Freddie...

So vangIV I'm curious what you're refering to...

 
At 7/03/2011 11:29 PM, Blogger juandos said...

"What's better than a house?"...

Hmmm, now a days it 'seems' that hanging to something like gold is better than a house...

Personally I'd rather have the house...

 
At 7/03/2011 11:58 PM, Blogger Che is dead said...

"Second, the argument that government pushed lending to people with bad credit is sound because that is exactly what the Clinton and Bush administration were doing ..."

The lending targets for these types of loans were set by statute during Clinton's administration and could not be altered by Bush without the approval of Congress.

"Starting in the late 1990s, the government, as a social policy to boost homeownership, required Fannie Mae and Freddie Mac to acquire increasing numbers of "affordable" housing loans. (An "affordable loan" is made to people who normally would not qualify.) By 2007, 55 percent of all loans made by Fannie and Freddie had to be "affordable." By June 2008, there were 27 million subprime housing loans outstanding (19.2 million of them directly owed by government or government-sponsored agencies), with an unpaid principal amount of $4.6 trillion. By the middle of this year, foreclosure starts jumped to a record 5 percent, four times higher than any previous housing bubble."

"Mr. Wallison concludes his argument: "What we know is that almost 50 percent of all mortgages outstanding in the United States in 2008 were subprime or otherwise deficient and high-risk loans. The fact that two-thirds of these mortgages were on the balance sheets of government agencies, or firms required to buy them by government regulations, is irrefutable evidence that the government's housing policies were responsible for most of the weak mortgages that became delinquent and defaulted in unprecedented numbers when the housing bubble collapsed."

Washington Times

Bush tried on several occasions to address this situation but each and every time the Democrats refused, claiming that there was no risk to the financial system.

 
At 7/04/2011 12:42 AM, OpenID Sprewell said...

Peak, did you even read what I wrote about the bubble being in land values, not houses? If anything the cost of construction has been falling for decades and only went up somewhat because the real estate bubble drove prices up a bit. I can think of many things better than a house: that investment should have gone to infotech and biotech. The only reason it didn't is because the VCs and bankers were too dumb to figure out how to invest smartly in those high-risk, high-growth sectors. One doesn't solve the employment issues Vange is talking about by dumping money into a bubble, that just wastes more money and leaves speculators worse off when it bursts, as will happen with the current gold bubble.

 
At 7/04/2011 1:43 AM, Blogger PeakTrader said...

Sprewell, yes, I read your comment, but only replied to part of it.

If infotech and biotech are such great investments, why are there massive idle resources now, "too few" resources after the Nasdaq bubble, and "too many" resources before bubble burst?

When demand for houses increase, land values also increase.

Moreover, when a community is developed (with businesses, schools, malls, etc.), land values also increase.

However, the quality and size of houses also improved substantially.

 
At 7/04/2011 1:47 AM, Blogger PeakTrader said...

Juandos, I'd rather have the house too. At least you can live in a house, unlike gold.

 
At 7/04/2011 3:00 AM, OpenID Sprewell said...

Peak, I don't know that there's anything idle in tech now, there's a mobile boom going on if you didn't notice. RIM, the company that makes Blackberry smartphones, had their revenue more than triple in the last 3 years, yet people are now dumping RIMM stock because Apple is hitting even bigger numbers. Of course, there's also another dot.com bubble inflating, with marginal companies like LinkedIn, Facebook, and Twitter commanding ridiculous multi-billion dollar valuations. The whole notion of "idle resources" or "too many" or "too few" is pretty dumb, casting our predominantly service economy as some big factory, so I won't bother with that.

However, there were investment decisions to be made and we'd have been much better off if the decisions hadn't been made to build a bunch of houses and tie homeowners to overvalued land and mortgages. I think you have it the other way around, it was the demand for land that rose, not the demand for houses, which is why so many of those houses sat empty or were promptly rented out. And it had nothing to do with community development, it was mostly the same old properties rising in value, as dumb bankers dumped in money for the home speculators to use to bid against each other. Yes, there were some ongoing size and quality improvements, but that was a small, extraneous factor that had been going on long before. Ultimately, if people want to dump their money down the drain, that is their choice, but govt involvement certainly made a lot more of us pay the price.

 
At 7/04/2011 3:01 AM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 7/04/2011 3:18 AM, Blogger PeakTrader said...

Good farmland in the Mid-West costs around $3,000 a acre, even with high food prices.

The cost to build and buy housing in San Francisco
August 2009

Because a developer can sell the same housing units for more money in a walkable urban neighborhood of San Francisco and because there are many other valuable uses to which central city land can be put, land owners in those neighborhoods can charge developers extremely high prices when a developer buys a parcel.

Thus, the cost of land is not what pushes housing prices in San Francisco so high. Rather, it’s the high demand for housing.

 
At 7/04/2011 3:21 AM, Blogger PeakTrader said...

Also, as Greenspan stated, you know it's a bubble only after it bursts.

It doesn't have to be a bubble if it stabilizes or has a shallow fall.

More Americans could've owned more than one house.

 
At 7/04/2011 3:30 AM, Blogger PeakTrader said...

Rezoning a piece of land from single-family homes to apartment buildings usually increases the land price because it means that more housing units — and hence more revenue — can be earned from the same piece of land.

 
At 7/04/2011 3:42 AM, Blogger PeakTrader said...

Idle resources (e.g. labor, capital, raw materials, energy, land, etc.) is one factor why our standard of living is lower than it should be.

Another factor is inefficient uses of (limited) resources.

 
At 7/04/2011 4:54 AM, OpenID Sprewell said...

Peak, it's not the "high demand for housing" pushing prices higher in SF. If all they wanted was housing, they could get it much cheaper across the bay in Benicia and commute to work. Rather, it's the positional good of living close to work and the city life that people are bidding for, and all the bankers did is dump more money into that worthless bidding war. As for Greenspan, I don't think he's that dumb: I think he just offers that as an excuse not to act too early, which I actually agree with. There hasn't been a stabilization or "shallow fall" in real estate, we're looking at much bigger 25-35% drops so far.

Really? The bubble could have kept going if people just bought multiple homes?! Wow, that is delusional. Restrictive zoning was actually a big problem in many areas, driving prices up. "Idle resources" are a fact of life, especially during recessions when we're trying to figure out where those resources should be used. Rather than actually trying to figure that out after the dot.com bust a decade ago, dumb bankers got antsy and dumped it into real estate. That was a very inefficient use of resources, which is why we're in the hole we're in today.

 
At 7/04/2011 7:03 AM, Blogger VangelV said...


It's interesting. VangelV says the country was underemployed, while Sprewell says we were building too many houses.


I never said that country was underemployed. I said that the figures reported by the BLS did not count the underemployed and those that had given up looking for work. And you were building too many houses. That is why there is such a huge inventory overhang.

 
At 7/04/2011 7:09 AM, Blogger VangelV said...

Also, as Greenspan stated, you know it's a bubble only after it bursts.

Nonsense. It does not take a genius to figure out that there is a bubble in education or sovereign bonds right now. It did not take a genius to see the internet or housing bubbles either.

 
At 7/04/2011 7:15 AM, Blogger VangelV said...

The lending targets for these types of loans were set by statute during Clinton's administration and could not be altered by Bush without the approval of Congress.

Bush embraced the Clinton goals and used it to further his own popularity. It was not until late in the game that he finally listened to the people who told him that Fannie and Freddie could bring the entire system down.

Bush tried on several occasions to address this situation but each and every time the Democrats refused, claiming that there was no risk to the financial system.

This was partially true. The President had a lot of power and could slow down the madness. The fact that he did not was motivated by political goals. He does not get off without blame on this one. And neither does the Republican Party, which was too cowardly to risk losses in order to confront the voters with the truth.

 
At 7/04/2011 9:39 AM, Blogger PeakTrader said...

The Colorado housing market looked like it was forming a bubble, except it didn't burst. The college tuition bubble keeps going decade after decade without bursting.

If it doesn't burst, it's not a bubble.

If a country is capable of building 2 million houses a year, why has it been producing 300,000 houses a year recently?

Why can't more middle class homeowners own two or three houses instead of one?

It seems to be more of a demand problem than a supply problem, because there are hundreds of thousands of idle workers wanting to build houses.

 
At 7/04/2011 9:57 AM, Blogger VangelV said...

Why can't more middle class homeowners own two or three houses instead of one?

Why? Because houses are not toys. They consume capital each and every year in the form of tax payments, depreciation, maintenance, and operating costs. Having extra homes only makes sense when they can generate an economic return, which means that as a rule of thumb their purchase price should be around 100 times their average monthly rent.

 
At 7/04/2011 10:00 AM, Blogger PeakTrader said...

VangelV, the same can be said about autos (e.g. Toyotas :)). Yet, many Americans own two or three cars.

 
At 7/04/2011 10:17 AM, Blogger PeakTrader said...

Colorado House Price Index

http://research.stlouisfed.org/fred2/series/COSTHPI

 
At 7/04/2011 10:24 AM, Blogger VangelV said...

VangelV, the same can be said about autos (e.g. Toyotas :)). Yet, many Americans own two or three cars.

There are few Americans who own two or three cars that have not been paid for. Most households have more than one vehicle because there is a need for the adults to have access to their own vehicle. And if they decide to idle a vehicle they save on the need to pay for insurance, maintenance, or fuel. You can't do the same with houses because even if you are not using them you still have to cover the cost of taxes and depreciation.

The argument that people should buy multiple houses just because there are idle people who would be willing to build them is very stupid. There are idle people willing to do many things for pay. That does not mean that we should fund all those things.

 
At 7/04/2011 10:31 AM, Blogger PeakTrader said...

VangelV, with that type of attitude, we'd all be sitting around in tiny apartments riding bicycles to shop at second-hand stores.

 
At 7/04/2011 10:35 AM, Blogger PeakTrader said...

Why should Americans live like Europeans?

 
At 7/04/2011 10:47 AM, Blogger Che is dead said...

"Bush embraced the Clinton goals ... It was not until late in the game that he finally listened to the people who told him that Fannie and Freddie could bring the entire system down."

You really do not have a clue, do you? You continually make assertions for which you have absolutely no supporting evidence. Here's a report on the Bush administrations attempts to rein in Fannie and Freddie starting in 2001, months after he was elected and his continuing attempts in the following years:

LINK

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken.

The New York Times, 2003

Yes, Bush believed that home ownership was a net positive for the economy, but he did not support the reckless activities of the GSEs.


"He does not get off without blame on this one. And neither does the Republican Party, which was too cowardly to risk losses in order to confront the voters with the truth."

Again, more bullshit. The vast majority of Republicans fought against the expansion of the CRA during Clinton's administration. When in power, they held hearings on the corruption at the top levels of the GSEs and proposed regulatory regimes to rein in their worst practices. All of these efforts were defeated by the Democrats who were receiving huge campaign contributions from the GSEs.

Why not try researching something before you comment on it?

 
At 7/04/2011 10:54 AM, Blogger VangelV said...

VangelV, with that type of attitude, we'd all be sitting around in tiny apartments riding bicycles to shop at second-hand stores.

Nonsense. Governments don't create wealth. People do. It is up to them to decide what to buy and what to invest in based on their own private calculations, not to be bribed to buy homes that they can't afford with cheap money that get them to acquire debt that they can never repay.

 
At 7/04/2011 11:01 AM, Blogger VangelV said...

You really do not have a clue, do you? You continually make assertions for which you have absolutely no supporting evidence. Here's a report on the Bush administrations attempts to rein in Fannie and Freddie starting in 2001, months after he was elected and his continuing attempts in the following years:

Bush was just as bad as Clinton and in many ways worse. He betrayed the limited government idea that conservatives were pushing and adapted a big government, big spending, agenda that caused the country to suffer a massive setback.

It seems that it is you who is totally clueless because you refuse to accept the fact that Bush was just as evil as Clinton.

Yes, Bush believed that home ownership was a net positive for the economy, but he did not support the reckless activities of the GSEs.

Of course not. The GSEs were run by Democratic Party insiders and funneling money towards the Democrats.

Why not try researching something before you comment on it?

I have. In fact, I have cited the same Youtube clip to defend the attack against Bush from Democrats. But my critique is still valid. Bush had a way to slow down the GSEs and take on the Democrats. He failed. Both sides are to blame.

 
At 7/04/2011 11:14 AM, Blogger PeakTrader said...

VangelV, that's why the country needs to be at full employment, producing more private goods, e.g. houses and autos, with smoother business cycles.

 
At 7/04/2011 12:33 PM, OpenID Sprewell said...

Peak, the Colorado housing market barely appreciated during the real estate bubble in the last decade. Your chart shows prices going up 40% from 2000-2010, which isn't much more than inflation during the same period, 35%. Compare that to California, which went up 150% during the same period, almost tripling, before falling by a third. The college tuition bubble is in for the mother of all busts. :) Just because we could theoretically build 2 million houses a year, doesn't mean it is a good idea to do so. We "could" employ everyone with spoons digging ditches, but that's a dumb idea too.

I can't believe you're still flogging this nonsense about middle-class people buying multiple homes. Yes, there's a demand problem, almost nobody wants to pay for multiple homes. As for cars, like Vange says, they have an actual use. Europeans live more poorly precisely because of people like you, who tell them the govt should subsidize antiquated items like houses or cars so that they can live "better," dumping their money down the drain with the low growth that results. You are merely repeating the "digging ditches with spoons" fallacy but switching it up to "private goods," as though the govt digging "private" ditches with spoons would justify the whole dumb endeavor.

 
At 7/04/2011 1:24 PM, Blogger juandos said...

Now vangIV made an incredibly 'pseudo benny' like statement here: "Bush was just as bad as Clinton and in many ways worse. He betrayed the limited government idea that conservatives were pushing and adapted a big government, big spending, agenda that caused the country to suffer a massive setback"...

Only a a liberal could see Bush as a conservative promising limited government...

Bush betrayed nothing of a sort as his push for more medicare showed...

Bush let it be known that he belived in R.I.N.O.ism when he started slinging that inane phrase, "compassionate conservative"...

"It seems that it is you who is totally clueless because you refuse to accept the fact that Bush was just as evil as Clinton"...

Sorry but again you muffed it...

There was no Chinese money and questionable Loral Corp deals in Bush's presidency...

Bush was a lot of things but a Clinton he wasn't...

 
At 7/04/2011 3:18 PM, Blogger Che is dead said...

"Bush was just as bad as Clinton and in many ways worse. He betrayed the limited government idea that conservatives were pushing and adapted a big government, big spending, agenda that caused the country to suffer a massive setback."

No one was arguing that Bush wasn't a big spender, certainly not me. The question was whether or not he was "just as responsible" for the housing crisis as Clinton. He was not. This is another tactic of yours, get caught talking shit, change the subject.

As for Bush being "just as evil" as Clinton, I don't believe either of them was/is "evil". If anyone is deserving of that distinction, it's you, the man who cannot distinguish between the U.S. and any number of brutal, murderous regimes that the U.S. has had cause to resist and confront in the last half century.

 
At 7/04/2011 4:35 PM, Blogger VangelV said...


VangelV, that's why the country needs to be at full employment, producing more private goods, e.g. houses and autos, with smoother business cycles.


Full employment is easy. Start a war and draft the unemployed men. Round up the unemployed women and have them work in brothels. You get full employment. But clearly the country would be in worse shape.

 
At 7/04/2011 4:42 PM, Blogger VangelV said...

Bush let it be known that he belived in R.I.N.O.ism when he started slinging that inane phrase, "compassionate conservative"...

I will accept the argument. Bush was never a small government conservative. He was a big-government, pro-military, meddler who betrayed the principles of the Old Right. But the same is true of the Republican party, which is my other point. There is no difference between the Democrats and the GOP at this particular point in time. Which is why both need to be rejected by idiot voters if there is to be a real solution.

Sorry but again you muffed it...

There was no Chinese money and questionable Loral Corp deals in Bush's presidency...

Bush was a lot of things but a Clinton he wasn't...


I agree. In many ways he was worse than Clinton. Clinton actually did more to control the growth of government than Bush did. And we expected him to be a pro-government, anti-liberty opportunist. The hopes for Bush were a bit higher but he betrayed anyone who expected him to stand up for the values of the Old Right.

 
At 7/04/2011 6:52 PM, Blogger PeakTrader said...

Sprewell, your chart shows California house prices roughly tripled since 1990, like Colorado, which had a stronger economy in the '90s than California (in part, because many people from California moved to Colorado, particularly in the '90s).

It seems, you believe tens of millions of Americans collecting unemployment and welfare checks is better than putting them to work, including building houses, although many of them, if not most, want to work.

 
At 7/04/2011 7:05 PM, Blogger Paul said...

"There is no difference between the Democrats and the GOP at this particular point in time."

What a bunch of bullshit. Look around the country where GOP governors like Chris Christie, John Kasich, Scott Walker, Mitch Daniels, etc., are trying to roll back government. Now look at Minnesota where Democrat Dayton and the GOP Congress are at a standoff over taxes. At the federal level we have a GOP led House and GOP Senate minority battling Obama over his desire to hike taxes and continue to increase spending.

The GOP may not be pure enough for one as pious as Vangel, but that doesn't mean there isn't a big difference between the 2 parties.

 
At 7/04/2011 7:38 PM, OpenID Sprewell said...

Peak, I don't just cherry pick dates, which is why I chose 2000-2010 to show the real estate bubble and bust. Of course, you would like to extend that to the '90s, when Colorado prices more than doubled while California was flat, but there was no nationwide real estate bubble going during the '90s. I don't know why Colorado real estate was so strong in the '90s, you probably know better than me, but that decade isn't germane to a discussion of the recent bubble. Yes, I believe unemployment checks would have been better than pouring trillions down the rathole of a land bubble, though I would prefer neither. Not only did the land boom sidetrack those people into worthless professions like realty, that they now have to dig their way out of, it wasted far more money than any govt "assistance program" would have.

 
At 7/04/2011 8:17 PM, Blogger VangelV said...

No one was arguing that Bush wasn't a big spender, certainly not me. The question was whether or not he was "just as responsible" for the housing crisis as Clinton. He was not. This is another tactic of yours, get caught talking shit, change the subject.

Clinton started it. Bush was too much of an opportunist and too much of a coward to end it.

As for Bush being "just as evil" as Clinton, I don't believe either of them was/is "evil".

Really? Clinton bombed civilians in Sudan and Serbia to hide his troubles during Monicagate. He carried on an embargo that killed 500K children in Iraq and kept as secretary of state someone who said that the deaths were worth it.

Bush lied the country into war and attacked Iraq and Afghanistan. The subsequent occupations added trillions to the debt, caused the death of hundreds of thousands of individuals, and destroyed hundreds of billions in infrastructure and equipment. He approved of torture, imprisoned innocent people, spied on American citizens, and got rid of habeas corpus. You can't get much more evil than that.

If anyone is deserving of that distinction, it's you, the man who cannot distinguish between the U.S. and any number of brutal, murderous regimes that the U.S. has had cause to resist and confront in the last half century.

I simply point out that Bush and Clinton were murderers who have been responsible for the deaths of many innocent people.

I don't know about you but I consider the deaths of those 500K Iraqi children as bad as the actions taken by Gaddafi. And the last time I looked they were protecting and doing business with tyrants like Mubarek, Assad, Ali Abdullah Saleh, King Abdullah, Zine El Abidine Ben Ali, and others.

 
At 7/04/2011 8:54 PM, Blogger VangelV said...

What a bunch of bullshit. Look around the country where GOP governors like Chris Christie, John Kasich, Scott Walker, Mitch Daniels, etc., are trying to roll back government. Now look at Minnesota where Democrat Dayton and the GOP Congress are at a standoff over taxes. At the federal level we have a GOP led House and GOP Senate minority battling Obama over his desire to hike taxes and continue to increase spending.

Nonsense. The GOP is in bed with Obama on Libya and the two wars. They have to problem with the TSA, torture, spying on citizens, or the assassination of American citizens abroad. The Ryan plan had no savings. It would have increased spending but was being sold as a spending cut. The GOP is still more interested in getting reelected than it is in doing what is right. The only people in the party that I have seen stand on principle are Ron and Rand Paul and to some extent Gary Johnson.

 
At 7/04/2011 8:55 PM, Blogger VangelV said...

The GOP may not be pure enough for one as pious as Vangel, but that doesn't mean there isn't a big difference between the 2 parties.

Actually, it seems to be close enough to pure evil. Same as the Democrats.

 
At 7/05/2011 12:30 AM, Blogger Che is dead said...

"Bush lied the country into war and attacked Iraq and Afghanistan. The subsequent occupations added trillions to the debt, caused the death of hundreds of thousands of individuals, and destroyed hundreds of billions in infrastructure and equipment. He approved of torture, imprisoned innocent people, spied on American citizens, and got rid of habeas corpus. You can't get much more evil than that."

Almost every word of this is false.

"... lied the country into war ..."

False

"... subsequent occupations added trillions to the debt ..."

I've debunked this many times in the comments on this blog and you are not worth the effort of chasing down the links. Suffice it to say that once you subtract the costs that would have been incurred by the military even in peace time, reduced the interest payments to a proportional share of the budget and back out the other lefty fantasy items it's - False.

"... caused the death of hundreds of thousands of individuals ..."

False, False, False

And when you factor in the ending of the sanctions and the end of Saddam Hussein's sadistic rule, Bush actually saved hundreds of thousands of Iraqi lives.

"... destroyed hundreds of billions in infrastructure and equipment ..."

Afghanistan never had any real infrastructure to destroy. As for Iraq, the U.S. deliberately spared key infrastructure knowing that it would have to be rebuilt after the war.

"... approved of torture, imprisoned innocent people, spied on American citizens, and got rid of habeas corpus ..."

False, false, following a legal framework approved by Congress and upheld by the Supreme Court, false.

The sanctions which indirectly resulted in the deaths of so many Iraqis were imposed by the U.N. not Bill Clinton. And while it is true that he endorse and supported the U.N. policy, so did your country and many others.

It's time for you to put down the bong, throw away your Chomsky and Zinn and grow up.

 
At 7/05/2011 11:12 AM, Blogger juandos said...

"It's time for you to put down the bong, throw away your Chomsky and Zinn and grow up"...

Oh che! Now that was funny!!

Democrats before Iraq War started....

 
At 7/05/2011 7:47 PM, Blogger VangelV said...

Almost every word of this is false.

"... lied the country into war ..."


Of course they lied. Bush even joked about it. And the media on the left and right played along with the big joke.

"... subsequent occupations added trillions to the debt ..."

I've debunked this many times in the comments on this blog and you are not worth the effort of chasing down the links.


Here are some links that say that you are wrong.

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/03/AR2010090302200.html

http://costofwar.com/en/

http://usliberals.about.com/od/homelandsecurit1/a/IraqNumbers.htm

Of course the same idiots who lied the country into the war have a narrative that makes excuses and hides the costs but who other than morons listen to them after they were so discredited.

 
At 7/05/2011 7:56 PM, Blogger VangelV said...

"... caused the death of hundreds of thousands of individuals ..."

False, False, False


http://www.iraqbodycount.org/

http://en.wikipedia.org/wiki/Casualties_of_the_Iraq_War

http://www.guardian.co.uk/world/2008/mar/19/iraq

http://www.youtube.com/watch?v=RM0uvgHKZe8

It seems to me that the data is against you.

"... destroyed hundreds of billions in infrastructure and equipment ..."

Afghanistan never had any real infrastructure to destroy. As for Iraq, the U.S. deliberately spared key infrastructure knowing that it would have to be rebuilt after the war.


How many billions did you waste in tanks, aircraft, ships, light trucks, etc? Motors don't work very well when they get filled up with sand.

"... approved of torture, imprisoned innocent people, spied on American citizens, and got rid of habeas corpus ..."

False, false, following a legal framework approved by Congress and upheld by the Supreme Court, false.


http://www.forbes.com/feeds/afx/2005/06/24/afx2110388.html

The fact that Congress and the Supreme Court allow torture should worry you, not make you stand up and cheer. No civilized nation can approve of the use of torture.

 

Post a Comment

Links to this post:

Create a Link

<< Home