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Why Don't Economists Yet Understand the Housing Bubble/Bust?
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Economist Robert J. Shiller writes in the NYT:

How Tales of ‘Flippers’ Led to a Housing Bubble
Economic View
By ROBERT J. SHILLER MAY 18, 2017

There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and financial crisis of 2007 to 2009. We need to understand it all if we are going to be able to avoid ordeals like that in the future.

But the explanations for what happened in housing are not, I think, to be found in the conventional data favored by economists but rather in sociologically important narratives — like tales of getting rich through “flipping” houses and shares of initial public offerings — that constitute the shifting mentality of the era.

I don’t doubt that shows on TV about flipping houses played a role. But isn’t it striking that after almost a decade: “There is still no consensus on why the last housing boom and bust happened”? It was the biggest news story since 9/11, and yet Dr. Shiller himself, perhaps the leading housing economist, is still pretty hazy on how it happened.

I would suggest that one reason economists are still so baffled by what happened is because one obvious partial contributor to the fiasco — immigration / diversity — is a Sacred Cow. So without grappling with things like the Bush Administration’s Ownership Society and anti-downpayment, anti-documentation Increasing Minority Homeownership initiatives, you can’t get close to the full story.

But it’s safer, careerwise, to remain puzzled, so they do.

 
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  1. I think the experts and media were unable to be objective because their own dear houses and investments were under water.

    • Replies: @Barnard
    Shouldn't that have made them more objective? If you are personally at risk of having to sell at a loss someday, wouldn't you want an accurate consensus reached quickly?
  2. And lest we forget: G W Bush’s infamous speech where he declared no need for home ownership down payments!

    • Agree: Old fogey, Travis
    • Replies: @Alec Leamas
    I think this is an issue of one minor contributing factor to the crisis that alone and reasonably administered would not have been the cause of a catastrophe. A substantial down payment is a traditional show of good faith and "skin in the game" that simultaneously secures the lender against a possible deficiency if there are dips in housing prices. But ZIRP and the speculatory nature of the housing market drove prices so high as to be beyond the ability of lots of normal people to save the traditional 20% downpayment and closing costs while simultaneously renting (and probably paying student loans). So in order to keep the market red hot (and avoid a collapse) zero down payment Mortgages were necessary, otherwise the market of new homeowners would dry up.

    Zero down Mortgages wouldn't even have been that much of a problem when wages in real dollars were increasing - if made to specific borrowers whose careers were on an upward trajectory. But if you couple zero down with no documentation loans/loans which count food stamps as family income you're creating the conditions for an implosion.

  3. But isn’t it striking that after almost a decade: “There is still no consensus on why the last housing boom and bust happened”? It was the biggest news story since 9/11

    After more than 15 years we still don’t understand why 9/11 happened. And our inability to understand is due to much the same pressures Steve cites with respect to the housing bubble–it’s safer, career-wise, to remain puzzled about the motivations of the Arab resistance fighters, or to ascribe their actions to “Islamic radicalism.”

    • Replies: @Towel Ban
    Too true

    17 years later, I wonder how many people are aware that the vast majority of 9/11 hijackers came from the same country Trump is currently swinging swords in.
    , @biz
    9/11 happened because of the Islamic religious beliefs of the terrorist perpetrators, most importantly the belief that actions like theirs would result in an eternity in paradise,
    , @Clyde
    I will mark you down as a pro-Islamic sad sack. Like Angela Merkel and the new big fromage in France.

    Parisian Women Face Constant Harassment By Migrants
    http://tinyurl.com/m3cgem6 from Breitbart May 22 2017
    Women in the east Paris district of Chapelle-Pajol are claiming that they cannot leave their homes without being subjected to verbal abuse from migrants in the area.

    Over the past year or so the district has become a no-go area for women as migrants and drug dealers have flooded the area. Dozens of these groups of young men crowd the streets, harassing women who walk by wearing what they consider to be immodest clothing Le Parisien reports.

    The situation for women has gotten so bad in the area that many women are effectively banned from cafes and bars. 50-year-old Natalie, who has been a resident of the area for 30 years said, “these are insults, incessant reflections. The atmosphere is agonising, to the point of having to modify our itinerary, our clothes. Some even gave up going out.”

    , @Nico

    After more than 15 years we still don’t understand why 9/11 happened.
     
    Anyone whose opinion counts for more than a writeback on a web form and who does not understand why 9/11 happened does not want to. Broadly speaking, 9/11 happened because the perpetual imposition of the liberal international order from 1946 onward met its match in the form of Islam. If you don't understand why Islam is a particular thorn in the door of the modern world it's because you don't want to believe it.

    the motivations of the Arab resistance fighters
     
    QED.
    , @jackmcg
    Its also good to completely ignore the Israeli "movers" dancing and high-fiving atop Doric Towers celebrating and videotaping when the *first* plane hit. And all the Israeli art students living next door to the hijackers. Because Mossad not only having foreknowledge but a possible planning and custodial role in the attacks is a bridge too far, even for people who dare call out the Saudis directly.
  4. The last housing boom and bust came about because it was made too easy to get mortgage money by offering low teaser entry rates of interest, so that buying became much cheaper than renting in many part of the country.

    The easy money tempted home builders to vastly increase profit margins so that new homes were being sold for prices that bore no relation to the cost of construction plus land, plus a reasonable profit, and no sensible relation to average earnings.

    Eventally when the teaser rates expired, people stopped paying, or were no longer able to pay, and there were larger numbers of defaults than expected leading to larger numbers of poorly-built homes on the market and a shortage of buyers. People who could no longer pay the mortgages were then unable to sell the homes either.

    Even the wise virgins who had plenty of equity in their homes were suckered into taking out “home equity loans” (actually second mortgages) on their homes to spend money on luxuries, or home improvements, but when home prices crashed the equity disappeared and the home improvements turned out to have added nothing to the value of the homes.

    At least that is how it was in Florida.

    • Replies: @ben tillman

    The last housing boom and bust came about because it was made too easy to get mortgage money by offering low teaser entry rates of interest, so that buying became much cheaper than renting in many part of the country.
     
    And lenders were offering cash-out refis at LTVs that were way too high. The LTV is capped at 80% in Texas, which is one reason there was no bubble in Texas.
    , @Mike Zwick
    During the run up to the bubble, I knew somebody who was an Assistant Manager at a McDonalds who got a loan for a $200000 house. He was only making like $10 an hour.
  5. Even the Daily Show in 2007 did not point any fingers at immigrants:
    http://www.cc.com/video-clips/8bxfod/the-daily-show-with-jon-stewart-subprime-loans—larry-wilmore

    Funny clip.

    • Replies: @Jefferson
    "Even the Daily Show in 2007 did not point any fingers at immigrants"

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.
    , @Mr. Anon

    Even the Daily Show in 2007 did not point any fingers at immigrants:
     
    Even? Would you expect them too? Ever?
  6. The real question is whether or not they remain confused when their money is on the line?

    • Agree: ben tillman
  7. The bulk of the negative equity was to be found on the books of prime borrowers. Plying people with sketchy credit histories and / or insufficient income streams was a part of the story, but most of the force of the problem was derived from the condition of other sectors of the population.

    Various subfractions of the economics profession have their hobbyhorses. Their contentions are not necessarily well-established in the body of theoretical and empirical research. So you get fringe Austrians contending that it was all the Federal Reserve’s doing with their inflation-targeting fandango and we need to replace central banking with a currency board (diagnosis odd – the run up in housing prices dates from 1997 while the Fed Funds rate was abnormally low only from the fall of 2002 to the fall of 2004; prescription frankly crackers, as can be seen with our own experience of the gold standard and foreign country’s experience with unyielding currency pegs). Or you have a policy entrepreneur like Scott Sumner contending that it was all the Federal Reserve’s doing with their paying interest on reserves and ‘there’s no such thing as bubbles’ (about the bubbles, who do you believe, Sumner or your lying price indices? About the Fed’s responsibility, wasn’t it amazing that Dr. Bernanke and the Fed Governors managed to generate a severe economic crisis in Britain (using sterling), continental Europe (using the Euro), and Japan (using the Yen) all by paying 0.25% on reserves?). Then we’ve got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating).

    Here’s a suggestion: you were looking at a perfect storm of several problems: undigested financial innovation (credit default swaps – emerging in 1995), institutional stupidity (Joseph Cassano’s Financial Products Unit at AIG), the promotion of poor underwriting (Freddie Mac slashed underwriting standards in 2003), and manias which require the tools of social psychology to explore (manias on the part of borrowers to be sure, but also financiers in many cases – about 46% of the value of Countrywide’s loan portfolio went sour). You also had panic inasmuch as problems came to a head at a mess of large institutions all at the same time (Fannie Mae, Freddie Mac, Lehman, WaMu, Wachovia, Fortis, the Royal Bank of Scotland, Merrill Lynch, Citigroup, and especially, AIG) . Some unexpected phenomena also blindsided the financial press (the implosion of some money market funds and the revelation that Bernard L. Madoff was running a Ponzi scheme – something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math).

    • Agree: Daniel Chieh
    • Replies: @Another Canadian
    Don't forget the credit rating agencies. They put the AAA seal of approval on securities backed by junk mortgages, giving financial institutions the green light to gorge themselves on this crap. It's OK to make junk loans as long as the securities supported by junk are rated appropriately. You can't polish a turd.
    , @Ivy
    Here is some more granular info to supplement other observations.

    Some lenders underwrote ARM home loans on the teaser rate (lower interest rate at start of loan, such as 3-6 months). That policy alone was a disaster waiting to happen, as borrowers would be stressed upon the first payment reset higher to the fully-indexed rate. Rah rah commissioned loan officers pushed applicants into larger loans and with a higher percentage of their income devoted to debt service. That is all before looking into problems like (over-)stated income on the borrower side and inadequate loss reserves on the lender side. Greenspan's Put encouraged moral hazard on an institutional scale, so lenders and Wall Street were happy to oblige.

    Once upon a time, prudent borrowers devoted up to 25% of income to housing. Then that went up to 33%, and then higher. Those effects combined to encourage more homeowners to chase equity and to flip their houses by moving up all while trying to keep heads above water. Shiller and other academics with more stable incomes, and possibly subsidized housing, do not understand the world of average citizen borrowers. They don't model what they don't understand.

    , @Beckow
    There was another macro contributing factor - mankind has moved from food scarcity to housing (usable living space) scarcity. What is scarce will experience bubbles and shortages, often in parallel, there is always speculation and manias. Scarcity is also not manageable.

    We used to have famines and the main political factor was the price of bread. That seems to be gone for now. Today most of the advanced world is dealing with housing as the core unresolved (and maybe unresolvable) issue. It has become the main cost (up to 50% for younger people), main asset, main investment. Housing drives migration since owners want more renters/buyers, it determines who is comfortable and who is poor. It is an obsession as it has never been before. Watch what is happening in the most 'advanced' parts of the world, from London and Silicon Valley, to Tokyo, Moscow and China, housing and asset prices are the core issue for most people. One's access to housing determines almost everything - it is more important than skills, education, status, jobs, etc...

    2007-8 was a harbinger of things to come. This is not about to get better. So find a comfortable spot on the bubble and take a ride. Scarcity cannot be managed.
    , @MarkinLA
    Wall Street was the primary reason that credit standards all across the board were slashed. Prior to Wall Street buying anything that moved in the residential mortgage market, you had conforming and non-conforming loans. The agencies like Freddie and Fanny could only buy conforming loans. These were relatively low amount loans where it was well underwritten that the borrower could afford the loans. Other loans could generally not be sold unless to some private entity and usually were held by the bank to maturity. Into the market steps Wall Street and their belief that by using some math, they could turn any income stream into a bond with whatever rating they wanted by prioritizing the payouts.

    This is the big blind spot that the "free market" types don't understand. A free market in financial services usually results in lower standards as more people vie for whatever service fee pie is out there and the best way to generate fees is to take on the marginal clients that would never have been serviced before. We saw this in the junk bond boom. As long as Michael Milken was the only game in town, the bonds generally were not trash like they were when every Wall Street firm got into the action.

    Getting back to Wall Street, if you have a pile of trash and you promise to pay somebody as though he didn't have trash then you must have some of the pile left over to sell that is actually worth less than trash. People started buying credit default swaps against this trash of trash. Not only that but Wall Street started selling synthetic products based on the people betting against
    the trash and doubling their potential liability when they couldn't sell off this junk to their clients.

    What quickly happened as standards collapsed was that the real money was not in selling home loans and collecting the interest but in cycling the money as fast as you can. You make a bundle of loans to anybody with a pulse, you sell it off to Wall Street, and you make more loans - each time generating fees much higher than the interest rate. This cycle keeps itself going by bringing in new marginal people and the extra home buyers cause the prices to rise fast enough that even existing marginal buyers can refinance just before they start getting their default notices.

    People want to blame sub-prime loans but this makes no sense if the loans are well underwritten. Handling mortgages is relatively simple. You make people put down enough of their own money so that the bank doesn't lose much in a default. You do a good estimate of the default risk of the borrower. You do a good estimate of the potential lose for a default. You plug those numbers into a formula to determine an interest rate that will pay you more than you can get lending to prime borrowers and low enough that you can still attack clients. Once you make the loan you have to monitor it more closely.

    The main culprit in all of this is Wall Street and the free market. If Wall Street never enters the game then standards aren't pulled down and very few sub-prime mortgages are made. If Wall Street doesn't enter the game then the flood of marginal buyers don't push up the prices and let the marginal borrowers stay in the game for the many years that it lasted - the earliest sub-prime borrowers would have had much higher default rates than predicted by the underwriting models and the mortgage brokers specializing in sub-prime mortgages would have had to cut their lending way back or go bankrupt years sooner than they did.
    , @Bill

    the revelation that Bernard L. Madoff was running a Ponzi scheme – something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math
     
    This is a solved problem, though. In their anti-trust enforcement functions, both FTC and DOJ have fleets of economists to help the lawyers understand the math. If the SEC wanted to be able to understand the math, it would understand the math.
    , @Forbes
    Complexity defies simplistic (and consensus) explanations. The answer to the multiple choice question is: E--all of the above.
  8. The other sacred cow is neoliberalism and the idea that the middle class being force dinto debt to buy a home is “good economic sense”.

    Forcing people into debt used to be seen as a bad idea, but somehow over the years endlessly skyrocketing land prices have become the “new norm” that we’re all supposed to accept and even encourage.

    • Replies: @Anonymous
    The other sacred cow is neoliberalism and the idea that the middle class being force dinto debt to buy a home is “good economic sense”.

    Forcing people into debt used to be seen as a bad idea, but somehow over the years endlessly skyrocketing land prices have become the “new norm” that we’re all supposed to accept and even encourage.

    Would you mind briefly explaining why anyone would think that forcing people into debt is a good thing? I've heard other people mention such an idea, but I really don't understand it at all. Thanks.

    , @Judah Benjamin Hur
    Aside from the wealthy (and the young), you can divide Americans into two large economic groups. Those that have a 6 figure + net worth (they're the people that own homes) and people with zilch. Realistically, people who rent will not be saving the difference (if it exists!). Advising people not to buy a home will likely harm them even if it theoretically makes economic sense.
    , @The True and Original David
    Upton Sinclair wrote, "It is difficult to get a man to understand something when his salary depends on his not understanding it."

    For years, the entire US business culture, including economists, was promoting easy credit for increased homeownership. All voices blew the housing bubble as hard as they could blow, 24/7. I was there.

    Only when it was almost too late did some economists begin to mumble qualified warnings, and for their trouble they were considered contrarians, even cranks. Then as always, prudence was a minority opinion.

    Now, of course, every one of the slavering boosters claims that he saw the housing bust coming from Day One, and that it's mostly Jimmy Carter's fault. They have the charts'n'graphs to prove that...just as they had charts'n'graphs proving the existence of a "New Economy" where home equity and many investments could only increase in value.

    They claim that it was only a few cranks who were the mindless boosters, like the "DOW 50,000" guy. Utterly shameless rewrite of history.

    So now this bunch "can't come to a consensus as to the cause" of the housing bubble? That's like the Mafia's being unable to agree on who is at fault for the existence of a prostitution ring which got busted.

    The Dons will of course claim, "It's the girls' fault" or "it's the customers' fault" or "it's the law's fault." But we are ruled by gangsters and have been so for a long time.

    (I came out great because I was able to sell out in time, thank God.)

  9. @Opinionator
    But isn’t it striking that after almost a decade: “There is still no consensus on why the last housing boom and bust happened”? It was the biggest news story since 9/11

    After more than 15 years we still don't understand why 9/11 happened. And our inability to understand is due to much the same pressures Steve cites with respect to the housing bubble--it's safer, career-wise, to remain puzzled about the motivations of the Arab resistance fighters, or to ascribe their actions to "Islamic radicalism."

    Too true

    17 years later, I wonder how many people are aware that the vast majority of 9/11 hijackers came from the same country Trump is currently swinging swords in.

    • Replies: @Pat Boyle
    Every person whose opinion counts knows that most of the 9/11 hijackers were Saudis. There are of course a lot of registered voters who are ignorant of almost every fact relevant to the daily news. This is the basis for the whole career of Jesse Watters.
  10. Yup. Bush-era No Homeowner Left Behind.
    At least Section 8 education (vouchers) was dodged.

  11. Lot says:

    People forget where the actual money that fed the housing bubble came from: NE Asia and Germany. These areas had high incomes, high savings rates, and very low birth rates.

    Traditionally money is lent from people over 50 to those under 35. But in NE Asia and Germany, low birth rates created a much larger saver demographic compared to borrower demographic. On top of this, the younger demographic itself had unusually low demand for savings due to pessimism about the future, delayed marriage and childbirth, and the fact that there was more room to stay with their parents since the kids stayed single to 30 and beyond and lacked siblings.

    With domestic savings so much higher than domestic demand for loans, local interest rates fell below inflation and the money went abroad. It was not just the Sunbelt housing bubble, but also a housing bubble in Spain (especially vacation homes and retirement condos), government and consumer debt in Greece, and high-yield savings accounts in reckless banks located in island countries with weak bank regulation (Iceland, Cypress, Ireland, and Britain).

    Lending standards gradually disappeared because default rates on subprime loans fell down to near zero, as borrowers could easily refinance or sell due to higher prices.

    Germany and NE Asia still have extreme excess savings. But they are now scared to lend to America and Southern Europe, so they buy government bonds with negative interest rates. As in, if you want a Swiss bond that pays $1 a year for five years, then pays its $100 principal back, for a total payment stream of $105, you will have to pay $115 for it today and will be guaranteed to lose money. You’d do much better just putting a stack of cash in a safe deposit box, which many people do, but the Swiss can’t keep up with demand for high denomination bills and investors with hundreds of millions do not find piles of cash practical.

    • Replies: @Busby
    My own hobby horse is cheap credit. Excess capital = low interest rates = loose lending standards = speculative bubble.

    But your explanation is much more detailed and therefore sounds better.

    Immigrants, legal or otherwise were a small, almost insignificant part. My radio in north Texas was blaring 24/7 about no down no doc loans. In fact over the past 30 years I've more often than not been able to forecast economic trends simply by listening to the radio. Not discreetly enough to be an investment thesis, but I know the time not yo buy gold is when every other commercial is for gold, or today's commodity, silver.
    , @Romanian
    Very good insights!
  12. Ed says:

    One of my business school professors blamed black people. He showed some clip of a British comedian interviewing a black guy that bought a home to only lose it a few years later. This was in ’08.

    So I think many academics know the cause but blaming it on minorities or recklessness on the borrowers part can’t be done. At the same time blaming it solely on bankers is a bridge too far to the few remaining academics that value intellectual integrity.

    • Replies: @Pat Boyle
    One obvious reason that academic economists so seldom have had insights into housing issues is because the discipline of economics traditionally doesn't include many of the relevant factors that effect housing.

    For example most people have heard the story that the Swiss will be out on the side walk in front of their home cleaning the curb stones with a tooth brush. This story and others like it are true. When I was in Switzerland on my way down to Italy I stayed in a small hotel where the proprietors had polished off the chrome plating on the bathroom faucets. The Swiss were compulsively clean and orderly.

    I was born and grew up in Washington DC. We had a majority black population. They did not behave like the Swiss.

    Economics (I was an econ major as an undergraduate) simply ignores the differences between races and nationalities. Steve is right. You can't expect a discipline that is so purposefully blind to relevant distinctions to be able to make decent predictions.
    , @ANON
    Wow. I'd love to know what business school that was...
  13. @carol
    I think the experts and media were unable to be objective because their own dear houses and investments were under water.

    Shouldn’t that have made them more objective? If you are personally at risk of having to sell at a loss someday, wouldn’t you want an accurate consensus reached quickly?

    • Replies: @Jenner Ickham Errican
    If Carol’s right, sunk cost buyer’s remorse denial (projected onto the whole market) could have been a factor. To paraphrase Keynes:

    The market became rational faster than they could stay profitable.
  14. What???? There was a real estate credit bubble and fraudulent ratings on this highly leveraged securitized debt. There is complete consensus on this (after the fact of course.)

    • Replies: @anon

    What???? There was a real estate credit bubble and fraudulent ratings on this highly leveraged securitized debt. There is complete consensus on this (after the fact of course.)
     
    Great comment. So I quoted it in full.

    There are people who don't want to know (notice) or agree. But otherwise, there is a complete consensus. It's 'what to do next' where people tend to diverge. I know but am not telling anyone.
    , @Anonymous
    What James Richard wrote is correct. Bubbles happen all the time. Easy unchecked credit will make things worse. All parts of society got pretty much got wrapped up in this one. As it involved high finance, the whole world was affected.

    To view this as a diversity and immigrant problem shows a leaning to an interpretation of all things within that paradigm.

    To do this and publish this as a journalist is particularly dangerous.
    , @Bill B.
    I imagine this has already been watched by commentators here but it is still good; and dates from 2008!

    (From 3 mins if you want to go straight to the meat.)


    https://www.youtube.com/watch?v=mzJmTCYmo9g
  15. So much has been ruled off-limits, our public experts are forced to speak in riddles most of the time. Look at the topic of crime. The spike in urban murder rates should be a hot topic of conversation, but everything about the subject is off-limits so no on bothers.

    It really is a weird age. Read a “news stories” and it is devoid of actual news, just clues about the news. You have to look in the comments to get the rest of the story, along with colorful commentary. http://boston.cbslocal.com/2017/05/18/dunkin-donuts-drive-thru-window-shot-over-a-sandwich/

    There’s a late Soviet Empire vibe these days. The ruling class carries on like everything is going great. They insist on the narrative, despite the mountain of contrary evidence. Meanwhile. out in the hinterlands, the cynicism grows. The only people who believe anything in the news are Boomers and even they are starting to wake up.

    • Replies: @Jefferson
    "It really is a weird age. Read a “news stories” and it is devoid of actual news, just clues about the news. You have to look in the comments to get the rest of the story, along with colorful commentary. http://boston.cbslocal.com/2017/05/18/dunkin-donuts-drive-thru-window-shot-over-a-sandwich/"

    It's gotten to the point where Black criminal suspects on the run are only described by the local news as having black hair and brown eyes. Black hair and brown eyes could describe anybody from Bruce Campbell to Bruce Lee. How are we suppose to know it is code word for Sub Saharan African?

    , @Old fogey
    You are spot on! Seems as if we're living in a time warp if you follow the so-called "news" with its made-up headlines about non-stories while the world goes to hell.
    , @Ed
    I saw Trump coming because of the comment section. The papers would write these stories about BLM, crime or schools and take the most favorable views towards blacks. Not holding them responsible for anything.

    In the comment section though the people would let them have it and you can tell it wasn't a put on. People would share pretty detailed personal experiences.
    , @Hunsdon
    I've been calling it the Brezhnev stage for the last ten years.
  16. @Art Deco
    The bulk of the negative equity was to be found on the books of prime borrowers. Plying people with sketchy credit histories and / or insufficient income streams was a part of the story, but most of the force of the problem was derived from the condition of other sectors of the population.

    Various subfractions of the economics profession have their hobbyhorses. Their contentions are not necessarily well-established in the body of theoretical and empirical research. So you get fringe Austrians contending that it was all the Federal Reserve's doing with their inflation-targeting fandango and we need to replace central banking with a currency board (diagnosis odd - the run up in housing prices dates from 1997 while the Fed Funds rate was abnormally low only from the fall of 2002 to the fall of 2004; prescription frankly crackers, as can be seen with our own experience of the gold standard and foreign country's experience with unyielding currency pegs). Or you have a policy entrepreneur like Scott Sumner contending that it was all the Federal Reserve's doing with their paying interest on reserves and 'there's no such thing as bubbles' (about the bubbles, who do you believe, Sumner or your lying price indices? About the Fed's responsibility, wasn't it amazing that Dr. Bernanke and the Fed Governors managed to generate a severe economic crisis in Britain (using sterling), continental Europe (using the Euro), and Japan (using the Yen) all by paying 0.25% on reserves?). Then we've got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating).

    Here's a suggestion: you were looking at a perfect storm of several problems: undigested financial innovation (credit default swaps - emerging in 1995), institutional stupidity (Joseph Cassano's Financial Products Unit at AIG), the promotion of poor underwriting (Freddie Mac slashed underwriting standards in 2003), and manias which require the tools of social psychology to explore (manias on the part of borrowers to be sure, but also financiers in many cases - about 46% of the value of Countrywide's loan portfolio went sour). You also had panic inasmuch as problems came to a head at a mess of large institutions all at the same time (Fannie Mae, Freddie Mac, Lehman, WaMu, Wachovia, Fortis, the Royal Bank of Scotland, Merrill Lynch, Citigroup, and especially, AIG) . Some unexpected phenomena also blindsided the financial press (the implosion of some money market funds and the revelation that Bernard L. Madoff was running a Ponzi scheme - something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math).

    Don’t forget the credit rating agencies. They put the AAA seal of approval on securities backed by junk mortgages, giving financial institutions the green light to gorge themselves on this crap. It’s OK to make junk loans as long as the securities supported by junk are rated appropriately. You can’t polish a turd.

  17. anon • Disclaimer says:

    This really isn’t that hard. Structured finance. Mortgages were repackaged into securities that were given high credit ratings. There was a shortage of junk bonds. If people wonder who insured all those awful credits … i.e. who sold credit default swaps, consider: A credit default swap plus a ‘risk free’ treasury bond is equivalent to a a junk bond. And synthetic bonds were sold that were financially equivalent to the original bond. And early in the crisis when credit default swaps were settled up, the contracts sometimes required that an actual bond be submitted to to the ‘insurer’. There were a couple of cases where there was a shortage of the referenced security and the defaulted bonds regained some of their value to facilitate closing out the position. This was quickly eliminated and the clearing group agreed on a simple net cash settlement process.

    1. People believed credit ratings. In fact, investment grade public companies very rarely default on debt. A lot of investors were required to buy investment grade bonds. Structured finance created them.

    2. Interest rates have been declining since the mid 1980’s, and there were any number of investors that were desperate for yield in the mid 00’s. Think of a hypothetical pension fund that needed a 5% yield to match their liabilities — and a failure would result in the need and eventual demand for additional funding. Or people that just wanted more yield.

    3. This was largely done by people who ‘originated to sell’ the mortgages and never intended to hold them for a second longer than necessary to put together the pool and sell it to the next sucker. But bad loans weren’t made and then simply pawned off on the next middle man — The middle man or financial institution who created the structured mortgage security were demanding riskier and therefore higher yielding mortgages. This was demand driven — by the end purchaser who believed the rating and even more so by the middle man. There is always infinite demand for loans by people who won’t and can’t repay them. The lender is supposed to be the ‘mean person’ who is cold hearted and says no. But things became so deranged that lenders were demanding bad loans.

    ________________

    This is the mechanism behind the final boulder that brought down the housing bubble.

    However, underlying that — a mortgage is the common man’s hedge fund. You put down 5% (and buy mortgage insurance for the rest of the 20%) and get a loan for an amount multiple times your salary. The monthly payment is roughly equivalent to rent you have to pay anyway. And when the ‘value’ of the housing increases 10% in a year, you have just doubled your investment. And can then spend that 10% by taking out a Home Equity Line of Credit or HELOC.

    Plus you get the tax deduction for the mortgage interest. This is a much better bet than the typical hedge fund deal.

    Housing bubbles are also not rare. There are over a dozen in developed banking systems since WW 2.

    Here is the book on it:

    http://www.bis.org/publ/bcbs_wp13.pdf

    You have a

    • Replies: @Romanian
    Fascinating comment. Talk about coitus interruptus. What were you going to say? I await with bated breath.
  18. Recently heard a radio advertisement for a workshop on flipping houses here in Chattanooga.

  19. OT, but just saw a billboard for a local gun shop in Murphy, N.C. that read: “WHITE TRASH WITH GUNS”

    • Replies: @Hanoi Paris Hilton
    Who else would have guns, besides white trash?
  20. @TomSchmidt
    Even the Daily Show in 2007 did not point any fingers at immigrants:
    http://www.cc.com/video-clips/8bxfod/the-daily-show-with-jon-stewart-subprime-loans---larry-wilmore

    Funny clip.

    “Even the Daily Show in 2007 did not point any fingers at immigrants”

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.

    • Replies: @Mr. Anon

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.
     
    They also portrayed Wall Street as being dominated by WASPS, or at least people who present as such. Probably all Harvard Men, who wore raccoon coats and drove Stutz Bearcats, and sported plus-fours while playing golf.
    , @guest
    As I recall, that movie mentioned immigration twice. Once when the mortgage dudes were bragging about selling "NINJA" ("no income, no job") loans and selling to strippers. I think one of the two guys mentioned the other liked selling to immigrants. Which makes it out to have been bottom-feeding sharks exploiting the poor huddled masses.

    The other instance came at the end of the movie, when they were giving their summation and warned us about unscrupulous people blaming immigrants ([cough!] Donald Trump [cough!]). Which confused me in the theater, because I was thinking, "You didn't even mention immigrants," because I had forgotten the brief mention earlier.

    They were sort of in a catch-22, because they wanted to counter immigration-blaming arguments, but they also don't want to associate immigration with the meltdown at all. It's not part of the Narrative. They don't want to bring the issue into the official Narrative, even if it's just to slap it down. But bringing it up out of the blue confuses people, as it did me.

    If I have my timeline right--and I'm just going by off-the-cuff memory--the movie came out months after Trump announced his candidacy. So they must have felt it was too important not to address the issue. Nevertheless, they didn't put it in the storyline, because I guess it wasn't important enough. They just tacked a campaign message onto the end.

    , @Lurker
    This exactly how UK comedians and pundits describe the crisis. All the enriching diversity which is supposed to be 'America' disappears at these times. Apparently the bubble was entirely the fault of stereotypical white/overweight/stupid/gun owning/Republicans/Tea Partiers (and now Trump voters).

    This is how any negative news is spun. Non-whites have no agency at all in these matters.
  21. During the campaign, Trump said “We’re sitting on a big, fat, bubble.”

    He was right. Obama re-inflated the stock market and housing bubbles — and took credit for “saving” the economy. But since the election we’ve heard nothing about this. The bubble seems to be another of Trump’s forgotten campaign themes now that he’s in office.

    If it’s even possible for him to address this issue Trump had better get after it. If the Obama bubble bursts on his watch, the Democrats are going to blame Trump for it the way FDR blamed Hoover for the Depression. And they’ll probably get enormous electoral victories as a result.

    I think this should worry Trump far more than any ginned-up, fake impeachment talk.

    • Replies: @MarcB.
    Trump is also taking credit for the recent bull market run up of the stock market since the election. It will take a lot of blind economic optimism to avert another correction we are past due for.
  22. Ivy says:
    @Art Deco
    The bulk of the negative equity was to be found on the books of prime borrowers. Plying people with sketchy credit histories and / or insufficient income streams was a part of the story, but most of the force of the problem was derived from the condition of other sectors of the population.

    Various subfractions of the economics profession have their hobbyhorses. Their contentions are not necessarily well-established in the body of theoretical and empirical research. So you get fringe Austrians contending that it was all the Federal Reserve's doing with their inflation-targeting fandango and we need to replace central banking with a currency board (diagnosis odd - the run up in housing prices dates from 1997 while the Fed Funds rate was abnormally low only from the fall of 2002 to the fall of 2004; prescription frankly crackers, as can be seen with our own experience of the gold standard and foreign country's experience with unyielding currency pegs). Or you have a policy entrepreneur like Scott Sumner contending that it was all the Federal Reserve's doing with their paying interest on reserves and 'there's no such thing as bubbles' (about the bubbles, who do you believe, Sumner or your lying price indices? About the Fed's responsibility, wasn't it amazing that Dr. Bernanke and the Fed Governors managed to generate a severe economic crisis in Britain (using sterling), continental Europe (using the Euro), and Japan (using the Yen) all by paying 0.25% on reserves?). Then we've got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating).

    Here's a suggestion: you were looking at a perfect storm of several problems: undigested financial innovation (credit default swaps - emerging in 1995), institutional stupidity (Joseph Cassano's Financial Products Unit at AIG), the promotion of poor underwriting (Freddie Mac slashed underwriting standards in 2003), and manias which require the tools of social psychology to explore (manias on the part of borrowers to be sure, but also financiers in many cases - about 46% of the value of Countrywide's loan portfolio went sour). You also had panic inasmuch as problems came to a head at a mess of large institutions all at the same time (Fannie Mae, Freddie Mac, Lehman, WaMu, Wachovia, Fortis, the Royal Bank of Scotland, Merrill Lynch, Citigroup, and especially, AIG) . Some unexpected phenomena also blindsided the financial press (the implosion of some money market funds and the revelation that Bernard L. Madoff was running a Ponzi scheme - something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math).

    Here is some more granular info to supplement other observations.

    Some lenders underwrote ARM home loans on the teaser rate (lower interest rate at start of loan, such as 3-6 months). That policy alone was a disaster waiting to happen, as borrowers would be stressed upon the first payment reset higher to the fully-indexed rate. Rah rah commissioned loan officers pushed applicants into larger loans and with a higher percentage of their income devoted to debt service. That is all before looking into problems like (over-)stated income on the borrower side and inadequate loss reserves on the lender side. Greenspan’s Put encouraged moral hazard on an institutional scale, so lenders and Wall Street were happy to oblige.

    Once upon a time, prudent borrowers devoted up to 25% of income to housing. Then that went up to 33%, and then higher. Those effects combined to encourage more homeowners to chase equity and to flip their houses by moving up all while trying to keep heads above water. Shiller and other academics with more stable incomes, and possibly subsidized housing, do not understand the world of average citizen borrowers. They don’t model what they don’t understand.

  23. @The Z Blog
    So much has been ruled off-limits, our public experts are forced to speak in riddles most of the time. Look at the topic of crime. The spike in urban murder rates should be a hot topic of conversation, but everything about the subject is off-limits so no on bothers.

    It really is a weird age. Read a "news stories" and it is devoid of actual news, just clues about the news. You have to look in the comments to get the rest of the story, along with colorful commentary. http://boston.cbslocal.com/2017/05/18/dunkin-donuts-drive-thru-window-shot-over-a-sandwich/

    There's a late Soviet Empire vibe these days. The ruling class carries on like everything is going great. They insist on the narrative, despite the mountain of contrary evidence. Meanwhile. out in the hinterlands, the cynicism grows. The only people who believe anything in the news are Boomers and even they are starting to wake up.

    “It really is a weird age. Read a “news stories” and it is devoid of actual news, just clues about the news. You have to look in the comments to get the rest of the story, along with colorful commentary. http://boston.cbslocal.com/2017/05/18/dunkin-donuts-drive-thru-window-shot-over-a-sandwich/”

    It’s gotten to the point where Black criminal suspects on the run are only described by the local news as having black hair and brown eyes. Black hair and brown eyes could describe anybody from Bruce Campbell to Bruce Lee. How are we suppose to know it is code word for Sub Saharan African?

    • Replies: @Alden
    There was a guy in Brooklyn NY who stabbed 4 people at 2 different bus stops and then went down in the subway station and stabbed 3 more people. The news papers described him as male, 5 11 medium build, wearing black Nikes with a red swoosh, black pants, White sweatshirt, red padded vest, dark blue baseball hat and a tooth missing on the left side.

    They got the red logo on the shoes and even the tooth missing on the left side. But they couldn't describe his race or color.
    The subway video of course revealed him to be a dark skinned black.
    , @The Craw
    Re: lack of race in criminal descriptions

    News outlets here in metro-Chicago do it all the time. Same leads to nonsensical results wherein television reporters read a sketchy, incomplete, and thus unhelpful, description of the perpetrator and then say that the police are asking for the public's help in catching the perpetrator and encourage those with information to call the police. LOL!
  24. The reason that there is no “consensus” among economists about the cause of the last housing bubble is the same reason that there is no “consensus” among climate “scientists” on global warming.

    Both cadres of pseudo-scientists are paid to provide pseudo-intellectual justification for the Total State doing what it wants to do.

    In the case of the housing bubbles (past and future), the Total State wants to provide zero down mortgage loans to deadbeats (that coincidentally vote to expand the Total State). In the case of global warming, the Total State wants to e.g. impose carbon taxation, etc.

  25. Was diversity really all that important to the housing bubble, given that housing bubbles also happened in many north Atlantic economies in the aughts, such as considerably less diverse Ireland and Spain? (Or, for that matter, Japan and Sweden in the 1980s.)

    • Replies: @Steve Sailer
    Lots of immigration to Spain and Ireland during their Housing Bubbles.

    Anyway, why not look at where the Housing Bubble in U.S. was biggest and burst first/worst: the Sand States.

  26. Immigration / Diversity may be a sacred cow, but so too is the unquestionable rectitude of the Middle Class. Unfortunately, White Americans, particularly of the Boomer generation, also revealed their full propensity for short-sighted, socially destructive behavior during the housing bubble and the preceding tech boom.

    Nobody likes to talk about this, either. But it was all too apparent to me in those days. Watching an entire generation of parvenus gleefully running their shekels through their hands while destroying my future is enough to black-pill anybody. And don’t think this didn’t also feed back into the immigration issue. People in the grip of a rising—nay, ebullient—social mood are not going to spoil the party by taking a hard line against immigrants. “Come on in, the water’s fine!”, is the more likely response. And if this just so happens to coincide with the desire for cheap Mexican labor to build and landscape the new McMansions, who’s going to complain?

    My overriding impression is that in the months immediately preceding the turn of the Millennium (ca. WTO riots?) and in the several years thereafter, something broke down in American culture. The whole zeitgeist took an irretrievable swerve into tackiness and cynicism, and the etiolated outlook of the managerial class, coincident with the explosive growth of the internet and the mainstreaming of corporate-speak, actually became the dominate social milieu. This was the dawn of Globalism in the specifically self-conscious sense in which the term is used today, and what followed was inevitable: the increasing financialization of the economy ultimately culminating in the housing crash.

    With the Western world finally beginning to feel the pinch from the diminishing returns of diversity, it’s important to remember that, once you drill down beneath the level of immediate material causes, the immigration problem is really a White problem. We did this to ourselves. We created the conditions requisite for globalism and financialization and immigrant flows. We brought these people here. We indoctrinated ourselves with diversity gibberish. And while I’m all in favor of “Build the Wall” and “Send them Back,” that alone isn’t going to solve the problem. If, cateris paribus, cheap Mexican labor had not been available, we would have found some substitute for it by creating our own underclass, possibly by abolishing the minimum wage and outlawing organized labor. The real problem is buried deep inside ourselves and our institutions.

    Mulling over all this in those depressing days nearly a decade and a half ago, that is when I eventually arrived at the necessity of building something like a Catholic -Monarchist-Falangist-National-Socialist state, and that is what I believe to this day.

    • Replies: @Cortes
    I agree almost entirely.

    An unholy combination of commission-driven mortgage retailing and subsequent repackaging and bundling, development corruption, "free money" and "something for nothing" greed mentality amongst flipping "entrepreneurs" (¡!) and maxing out individual householders contributed to the bubbles - the baby bubble of 1987-91 and the Godzilla bubble of 2000-2008.

    Included in what I refer to as development corruption is the over-provision of planning permission for newbuild housing projects by property tax dependent local authorities which, given an aging population with falling birth rates, created a tremendous crisis of under-occupation with the attendant risks of crashing property values and rents and leading to ever-more plangent cries for liberalisation of immigration policies.

    The example of Will Hutton, sometime press grandee and economics guru of "the Left" in the UK, is depressingly hilarious and instructive. I'm sure that there are plenty of similar mountebanks in the USA.

    Finally, the "Clusterfuck" blog of James Howard Kunstler has been 100% spot on regarding the housing market in the US since its first edition.
    , @anonymous
    Analysis is spot-on. Totally agree. Your conclusion, however, sounds like a kind of soft-core fascism which, as a cure, might in the long run be worse than the disease
    , @attilathehen
    "Catholic -Monarchist-..." Do you mean "Catholic" as in the RCC? That is the problem. I am a cradle RCCer but left the RCC because I don't accept black/Asian priests-popes.

    Unless the West reconfigures the RCC as a Caucasian/European only entity, your idea is a non-starter.
  27. @Deso Dogg
    Was diversity really all that important to the housing bubble, given that housing bubbles also happened in many north Atlantic economies in the aughts, such as considerably less diverse Ireland and Spain? (Or, for that matter, Japan and Sweden in the 1980s.)

    Lots of immigration to Spain and Ireland during their Housing Bubbles.

    Anyway, why not look at where the Housing Bubble in U.S. was biggest and burst first/worst: the Sand States.

    • Replies: @Jefferson
    "Anyway, why not look at where the Housing Bubble in U.S. was biggest and burst first/worst: the Sand States."

    Do you include California and Florida in the sand states? Or only Texas, Nevada, Arizona, and New Mexico?
    , @Deso Dogg
    Fair enough, but that seems like it might be reverse (or back-and-forth) causality. I'll readily grant it was a factor, I just think that big picture economic trends that are independent of immigration were probably more important.
    , @bored identity
    The Sand States and their Sand People...arghhh.



    Too Little Bighorn to Fail , or Why Don't Military Industrial Complex Yet Allow the House of Saud Bust? :

    https://youtu.be/Z4_jAO5uT88?t=5m15s
    , @Erik L
    Also plenty of immigration at many points in time and place without housing bubbles. It is quite possible that places experiencing housing bubbles would attract immigrants. There is not likely to be a single root cause but I think immigration was, if anything, a minor contributing factor. I'd wager that the larger effect of immigration was providing cheap construction labor
  28. @Lot
    People forget where the actual money that fed the housing bubble came from: NE Asia and Germany. These areas had high incomes, high savings rates, and very low birth rates.

    Traditionally money is lent from people over 50 to those under 35. But in NE Asia and Germany, low birth rates created a much larger saver demographic compared to borrower demographic. On top of this, the younger demographic itself had unusually low demand for savings due to pessimism about the future, delayed marriage and childbirth, and the fact that there was more room to stay with their parents since the kids stayed single to 30 and beyond and lacked siblings.

    With domestic savings so much higher than domestic demand for loans, local interest rates fell below inflation and the money went abroad. It was not just the Sunbelt housing bubble, but also a housing bubble in Spain (especially vacation homes and retirement condos), government and consumer debt in Greece, and high-yield savings accounts in reckless banks located in island countries with weak bank regulation (Iceland, Cypress, Ireland, and Britain).

    Lending standards gradually disappeared because default rates on subprime loans fell down to near zero, as borrowers could easily refinance or sell due to higher prices.

    Germany and NE Asia still have extreme excess savings. But they are now scared to lend to America and Southern Europe, so they buy government bonds with negative interest rates. As in, if you want a Swiss bond that pays $1 a year for five years, then pays its $100 principal back, for a total payment stream of $105, you will have to pay $115 for it today and will be guaranteed to lose money. You'd do much better just putting a stack of cash in a safe deposit box, which many people do, but the Swiss can't keep up with demand for high denomination bills and investors with hundreds of millions do not find piles of cash practical.

    My own hobby horse is cheap credit. Excess capital = low interest rates = loose lending standards = speculative bubble.

    But your explanation is much more detailed and therefore sounds better.

    Immigrants, legal or otherwise were a small, almost insignificant part. My radio in north Texas was blaring 24/7 about no down no doc loans. In fact over the past 30 years I’ve more often than not been able to forecast economic trends simply by listening to the radio. Not discreetly enough to be an investment thesis, but I know the time not yo buy gold is when every other commercial is for gold, or today’s commodity, silver.

    • Replies: @Lot

    low interest rates = loose lending standard
     
    What is interesting is that these days lending standards are stricter than during the bubble, but if you do qualify for a mortgage, rates are extremely low.

    This leads to more inequality as people with good credit and savings for a down payment can get mortgages with very low rates and thus low payments. Other people are stuck renting even though they'd have much lower monthly payments if they purchased.
    , @27 year old
    >I’ve more often than not been able to forecast economic trends simply by listening to the radio.

    I don't think I can forecast based off of it, but it definitely confirmed without a doubt what the real story is on the economy in my area. Just about every single radio ad is a car dealer offering no money down auto loans , "bad credit no problem" and "if you've had your job for 6 weeks you can drive away in a brand new car" type of stuff.
  29. anon • Disclaimer says:

    I’m not making this stuff up. Regarding settlements of CDS’s: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr372.pdf

    The rapid development of the CDS market has led to a situation where some entities have more CDS protection on them than there are actual bonds. This is because, while the CDS buyer may desire to pay a premium to insure the value of the bond he owns, there is no requirement that he own the bond.3 For example, the Depository Trust and Clearing Corporation (DTCC), which collects data on a large fraction of the CDS market, recently reported that the notional value of CDS contracts on General Motors’ debt summed to $65 billion, which is about $20 billion more than the face value of the debt owed by GM. Many of the CDS contracts were not purchased by debt investors but by other investors, who may have purchased GM’s stock (and hedged the default risk with the CDS) or who hold strong views on GM’s ability to repay its debt. The disconnect between the size of claims owed by the defaulting corporation and the aggregate notional value of CDS contracts covering the firm’s obligations complicates the way in which CDS claims are settled . In the event of default, one way to settle up the CDS contract is for the buyer to hand over the bond and receive the face value of the bond in cash. If this method of settlement were the only way for the CDS buyer to receive his payment in default, there might be a mad scramble among CDS buyers to get their hands on the limited number of bonds. ….

    1 See Gyntelberg and Mallo (2008).
    2 This is because many dealers and hedge funds were holding both long and short CDS positions on Lehman, and so these positions offset one another. The opaqueness of the CDS market created additional problems as market participants did not know the gross notional value of Lehman’s CDS contracts.
    3 Instead, the investor may purchase a CDS contract to place a bet on the credit quality of the bond (i.e., that it will decline) or to hedge his position in the firm’s stock.

    • LOL: Romanian
  30. @Steve Sailer
    Lots of immigration to Spain and Ireland during their Housing Bubbles.

    Anyway, why not look at where the Housing Bubble in U.S. was biggest and burst first/worst: the Sand States.

    “Anyway, why not look at where the Housing Bubble in U.S. was biggest and burst first/worst: the Sand States.”

    Do you include California and Florida in the sand states? Or only Texas, Nevada, Arizona, and New Mexico?

    • Replies: @anon
    Sand States is generally understood to encompass CA, NV, AZ, and FL.
  31. @Steve Sailer
    Lots of immigration to Spain and Ireland during their Housing Bubbles.

    Anyway, why not look at where the Housing Bubble in U.S. was biggest and burst first/worst: the Sand States.

    Fair enough, but that seems like it might be reverse (or back-and-forth) causality. I’ll readily grant it was a factor, I just think that big picture economic trends that are independent of immigration were probably more important.

    • Replies: @Unladen Swallow
    When the bubble burst, those four states accounted for 70 percent of the mortgages underwater, ( more was owed than the value of the home) despite being slightly less than a fifth of the total population. California, for example has had negative native migration since what 1993 or 94? So immigration fueled rather significant growth there.
  32. Anonymous • Disclaimer says:
    @Towel Ban
    The other sacred cow is neoliberalism and the idea that the middle class being force dinto debt to buy a home is "good economic sense".

    Forcing people into debt used to be seen as a bad idea, but somehow over the years endlessly skyrocketing land prices have become the "new norm" that we're all supposed to accept and even encourage.

    The other sacred cow is neoliberalism and the idea that the middle class being force dinto debt to buy a home is “good economic sense”.

    Forcing people into debt used to be seen as a bad idea, but somehow over the years endlessly skyrocketing land prices have become the “new norm” that we’re all supposed to accept and even encourage.

    Would you mind briefly explaining why anyone would think that forcing people into debt is a good thing? I’ve heard other people mention such an idea, but I really don’t understand it at all. Thanks.

    • Replies: @Opinionator

    Would you mind briefly explaining why anyone would think that forcing people into debt is a good thing?
     
    It brings debtors' pecuniary interests into line with inflationary monetary and migratory policies.
    , @Yak-15
    Having more people take on debt increases the amount of money in an economy and is the basis for economic growth. When a loan is taken by a homebuyer, the bank credits his account with newly created money which the homebuyers uses to buy a home. This money accrues at the seller's bank account and can be used to create new loans because a bank creates money as a function of the deposits it keeps on hand. As more deposits come in from people receiving loans and purhashing things, more money can be created with new loans.

    Individuals and business borrowing money is the basis of economic growth because the money created out of nothing funds construction of new houses, purchase of new machinery, creation of new consumer goods etc. By proxy, it also creates new jobs to build/run everything. All of this is based on the initial creation of money.

    The problem occurs and did occur when the individuals were unable to pay back the loans they took out. That money exists only as function of the future claim held by the bank, the loan, being satisfied. If that claim cannot be paid, that money is, in essence, non-existent. For lack of a better term, the money is destroyed. At that point, the money creation dynamic slows or reverses as banks can no longer create new loans.

    , @27 year old
    >why anyone would think that forcing people into debt is a good thing?

    People who lend money think it's a good thing because thats how they make money... Can you think of any groups who have traditionally been in the money lending business that are now highly placed in government, media, academia, etc etc?

    , @Bill
    If you insist on paying for your house cash, you will get 1/5 the house, assuming you would take out a mortgage with a 20% downpayment.

    More generally, contemporary people's consumption needs (mostly housing) are more front-loaded over their lifetimes than are their income streams. Debt is how you align the two.

    You could imagine a US without mortgage debt. But that world would either involve families living in considerably less space than they now do or extended families living in the same (ie grandpa's) house.
  33. @The Z Blog
    So much has been ruled off-limits, our public experts are forced to speak in riddles most of the time. Look at the topic of crime. The spike in urban murder rates should be a hot topic of conversation, but everything about the subject is off-limits so no on bothers.

    It really is a weird age. Read a "news stories" and it is devoid of actual news, just clues about the news. You have to look in the comments to get the rest of the story, along with colorful commentary. http://boston.cbslocal.com/2017/05/18/dunkin-donuts-drive-thru-window-shot-over-a-sandwich/

    There's a late Soviet Empire vibe these days. The ruling class carries on like everything is going great. They insist on the narrative, despite the mountain of contrary evidence. Meanwhile. out in the hinterlands, the cynicism grows. The only people who believe anything in the news are Boomers and even they are starting to wake up.

    You are spot on! Seems as if we’re living in a time warp if you follow the so-called “news” with its made-up headlines about non-stories while the world goes to hell.

  34. @Towel Ban
    The other sacred cow is neoliberalism and the idea that the middle class being force dinto debt to buy a home is "good economic sense".

    Forcing people into debt used to be seen as a bad idea, but somehow over the years endlessly skyrocketing land prices have become the "new norm" that we're all supposed to accept and even encourage.

    Aside from the wealthy (and the young), you can divide Americans into two large economic groups. Those that have a 6 figure + net worth (they’re the people that own homes) and people with zilch. Realistically, people who rent will not be saving the difference (if it exists!). Advising people not to buy a home will likely harm them even if it theoretically makes economic sense.

    • Replies: @EriK
    Buying a home is a lifestyle choice. It's not an investment choice. So please explain, what harm?
    , @Gabriel M
    I save about a quarter of my income every month, whereas most of my university friends went into debt to buy houses (and I mean serious debt, since we are talking UK house prices). I told them they were nuts, but I can't help but notice that their net worth goes up by 5% a year whilst the average cost of housing increases by more than I save each month....
  35. Every town needs a bad guy .

    • Replies: @donut
    Forget the Law and the Prophets , we are and always will be Pagans at heart .
  36. anon • Disclaimer says:
    @James Richard
    What???? There was a real estate credit bubble and fraudulent ratings on this highly leveraged securitized debt. There is complete consensus on this (after the fact of course.)

    What???? There was a real estate credit bubble and fraudulent ratings on this highly leveraged securitized debt. There is complete consensus on this (after the fact of course.)

    Great comment. So I quoted it in full.

    There are people who don’t want to know (notice) or agree. But otherwise, there is a complete consensus. It’s ‘what to do next’ where people tend to diverge. I know but am not telling anyone.

  37. The real estate industry and everyone in real estate is always agitating for more immigration of every kind including illegal aliens and refugees. 70% of refugees we take in are Muslim, it is a back door immigration program. Of course our mighty toilet paper industries and disposable diaper makers are always pushing for more immigration.

    • Replies: @Buck Turgidson
    Give us increased toilet paper sales into perpetuity, or give us death.

    There still are a few things worth fighting for.
  38. Why Don’t Economists Yet Understand the Housing Bubble/Bust?

    Because economics isn’t a real science.

    That, and what Steve said, which is related in the sense that economists are in the habit of constructing theories to fit whatever preconceived universes exist inside their heads. E.g., if the Indian man is starving, it’s not because he won’t eat the sacred cow standing next to him; it’s because the bank won’t lend him money to plant rice.

  39. The house flipping phenomenon is more of an indicator (and a trailing one at that) than a proximate cause. Of course, viewing a house as an investment rather than a place to live was and is a fallacy many people who were actually “homeowners” also chose to believe.

    The cheap credit (commonly known as “easy money”) was a big part, because the indicator I remember even more than the house flipping was all the MSM stories about the new gambling wave, especially Texas Hold ‘Em, that was spreading like wildfire at just before the bursting point of the bubble.

    “Immigrants, legal or otherwise were a small, almost insignificant part.”

    Not true, certainly not in California and especially not Steve Sailer’s SoCal. Or much of the Southwest. Or much of the Southeast for that matter. It had an effect in Northwest too, although the impact was more sporadic.

    “Then we’ve got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating).”

    When a law hits the book matters not. The crux of the matter is when someone chooses to enforce it.

    • Replies: @Steve Sailer
    The feds can't make anybody loan tens of billions to minorities they don't trust. What the feds did was encourage true believers in Hispanics like Angelo Mozilo and Kerry Killinger to go hog wild.
    , @Vinay
    "When a law hits the book matters not. The crux of the matter is when someone chooses to enforce it."

    This is a genuinely insightful comment. However, I'm not sure it applies here, though, 'cause the notion that the *Bush* administration would be the most enthusiastic enforcer of a law, ANY law, seems a little hard to stomach.
    , @slumber_j

    Of course, viewing a house as an investment rather than a place to live was and is a fallacy many people who were actually “homeowners” also chose to believe.
     
    Right.
  40. @Jefferson
    "It really is a weird age. Read a “news stories” and it is devoid of actual news, just clues about the news. You have to look in the comments to get the rest of the story, along with colorful commentary. http://boston.cbslocal.com/2017/05/18/dunkin-donuts-drive-thru-window-shot-over-a-sandwich/"

    It's gotten to the point where Black criminal suspects on the run are only described by the local news as having black hair and brown eyes. Black hair and brown eyes could describe anybody from Bruce Campbell to Bruce Lee. How are we suppose to know it is code word for Sub Saharan African?

    There was a guy in Brooklyn NY who stabbed 4 people at 2 different bus stops and then went down in the subway station and stabbed 3 more people. The news papers described him as male, 5 11 medium build, wearing black Nikes with a red swoosh, black pants, White sweatshirt, red padded vest, dark blue baseball hat and a tooth missing on the left side.

    They got the red logo on the shoes and even the tooth missing on the left side. But they couldn’t describe his race or color.
    The subway video of course revealed him to be a dark skinned black.

    • Replies: @bored identity
    But, but, what if it turns that stabby perp was actually some dolezal- crazy, tanning salon addict?

    Be open minded.
  41. @Steve Sailer
    Lots of immigration to Spain and Ireland during their Housing Bubbles.

    Anyway, why not look at where the Housing Bubble in U.S. was biggest and burst first/worst: the Sand States.

    The Sand States and their Sand People…arghhh.

    Too Little Bighorn to Fail , or Why Don’t Military Industrial Complex Yet Allow the House of Saud Bust? :

    • Replies: @Buck Turgidson
    Ivanka is beginning to look like hillary's huma to our president. Everywhere he goes, there she is.
  42. @Barnard
    Shouldn't that have made them more objective? If you are personally at risk of having to sell at a loss someday, wouldn't you want an accurate consensus reached quickly?

    If Carol’s right, sunk cost buyer’s remorse denial (projected onto the whole market) could have been a factor. To paraphrase Keynes:

    The market became rational faster than they could stay profitable.

  43. anonymous • Disclaimer says:

    Very little mystery about it if you walked into any small Bank of America branch in California during the couple of years preceding. First, you sometimes had to walk a maze of life-sized cardboard cutouts of hispanic field-hand types smiling happily while getting a home loan. Large banners across the inside of the building, in Spanish, about how easy it was to get a home loan. Listening almost painfully to the 30s-aged eager but bewildered couple, with husband by appearances a drywall-type labourer, sitting at the loan-lady’s desk, with the nice white lady banker selling them on how easy it was (hard not to rush over and warn them that those aren’t just meaningless numbers!)

  44. @Oleaginous Outrager
    The house flipping phenomenon is more of an indicator (and a trailing one at that) than a proximate cause. Of course, viewing a house as an investment rather than a place to live was and is a fallacy many people who were actually "homeowners" also chose to believe.

    The cheap credit (commonly known as "easy money") was a big part, because the indicator I remember even more than the house flipping was all the MSM stories about the new gambling wave, especially Texas Hold 'Em, that was spreading like wildfire at just before the bursting point of the bubble.

    "Immigrants, legal or otherwise were a small, almost insignificant part."

    Not true, certainly not in California and especially not Steve Sailer's SoCal. Or much of the Southwest. Or much of the Southeast for that matter. It had an effect in Northwest too, although the impact was more sporadic.

    "Then we’ve got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating)."

    When a law hits the book matters not. The crux of the matter is when someone chooses to enforce it.

    The feds can’t make anybody loan tens of billions to minorities they don’t trust. What the feds did was encourage true believers in Hispanics like Angelo Mozilo and Kerry Killinger to go hog wild.

  45. @Judah Benjamin Hur
    Aside from the wealthy (and the young), you can divide Americans into two large economic groups. Those that have a 6 figure + net worth (they're the people that own homes) and people with zilch. Realistically, people who rent will not be saving the difference (if it exists!). Advising people not to buy a home will likely harm them even if it theoretically makes economic sense.

    Buying a home is a lifestyle choice. It’s not an investment choice. So please explain, what harm?

    • Replies: @Judah Benjamin Hur
    Housing is such a major expense that the economic implications can't be ignored. Of course, everybody is different and has different needs.

    Increasing numbers of academics and others are advising against home ownership. The reality is that home ownership is the surest way for middle-class people to accumulate wealth. In theory, it may often be better to rent and save, but that advice is about as likely to work as "eat less and exercise."

    All things being equal, it's better not to wake up at 60 and realize you don't have a penny to your name. There are worse fates, of course.
    , @MW
    It's a lifestyle choice with an enormous impact on your personal finances. There are lots of factors, but the main ones in my opinion are:

    1) Far more Americans have had their home prices appreciate significantly, than the unlucky ones who bought into a doomed area or overpaid for a shoddily constructed house. This is a source of wealth available to landlords and owner-occupiers, but not to renters.

    2) Federally subsidized mortgages have generally been a sweet deal for borrowers. If rates go down you can refi, and if rates go up, you are locked in at a low rate which you can pay down slowly. Most Americans are not going to get credit at anywhere near the terms generally available to homeowners. A homeowner with access to home equity can deal with a financial emergency on much better terms than a comparable renter. And the first home makes it much easier to buy an investment property, which opens up new routes for building wealth.

    3) The commitment to a single place, I'm convinced, is a good financial decision for most people. Some people will benefit from the opportunity to move anywhere in the world for an opportunity, but for most, the freedom of renting is enough rope to hang themselves. The ability to make long-term plans, financial or otherwise, around the expectation of being in the same house for a long time, is very valuable.
  46. Anonymous • Disclaimer says:
    @James Richard
    What???? There was a real estate credit bubble and fraudulent ratings on this highly leveraged securitized debt. There is complete consensus on this (after the fact of course.)

    What James Richard wrote is correct. Bubbles happen all the time. Easy unchecked credit will make things worse. All parts of society got pretty much got wrapped up in this one. As it involved high finance, the whole world was affected.

    To view this as a diversity and immigrant problem shows a leaning to an interpretation of all things within that paradigm.

    To do this and publish this as a journalist is particularly dangerous.

    • Replies: @Alfa158
    I don't know what you mean by all parts of society. I lived in the middle of where this bubble was occurring, and don't know a single, solitary, friend, relative, or co-worker who got involved with these unqualified loans and over-leveraged home equity loans. I know this is personal anecdotal data, but do you know anyone who got wrapped up in it? I would love to hear how many commenters knew anyone either.
    You are right about the last sentence though. Speaking the truth is often a particularly dangerous activity, which is why Steve and others like him are kept carefully bottled up in venues like this blog.
  47. Galileo wasn’t the first nor will he be the last who let scientific inquiry risk undermining the sacred cows of the day.

  48. Once again, Steve insists on mistaking those riding a wave as the cause of the wave.

    You’re giving a secular explanation for an unprecedented event. That might have been acceptable if the Great Recession was the *culmination* of a trend of smaller financial disasters. But it wasn’t. If there’s a totally unprecedented 1000-car pileup on a freeway, with no trend, would you accept secular explanations like “people drive too fast” or “too many cars” or “too few cops”?

    • Replies: @Steve Sailer
    It's a little like somebody asks me what caused the U.S. to fight World War II and I say "Pearl Harbor," and you say, "Oh, no, it was much bigger and more complicated than that." Or you ask: What set off the Great Depression and I say "the New York stock market crash of October 1929" and you say "Oh, no, it was much bigger and more complicated than that."

    You know we both can be right.

  49. @Oleaginous Outrager
    The house flipping phenomenon is more of an indicator (and a trailing one at that) than a proximate cause. Of course, viewing a house as an investment rather than a place to live was and is a fallacy many people who were actually "homeowners" also chose to believe.

    The cheap credit (commonly known as "easy money") was a big part, because the indicator I remember even more than the house flipping was all the MSM stories about the new gambling wave, especially Texas Hold 'Em, that was spreading like wildfire at just before the bursting point of the bubble.

    "Immigrants, legal or otherwise were a small, almost insignificant part."

    Not true, certainly not in California and especially not Steve Sailer's SoCal. Or much of the Southwest. Or much of the Southeast for that matter. It had an effect in Northwest too, although the impact was more sporadic.

    "Then we’ve got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating)."

    When a law hits the book matters not. The crux of the matter is when someone chooses to enforce it.

    “When a law hits the book matters not. The crux of the matter is when someone chooses to enforce it.”

    This is a genuinely insightful comment. However, I’m not sure it applies here, though, ’cause the notion that the *Bush* administration would be the most enthusiastic enforcer of a law, ANY law, seems a little hard to stomach.

  50. @Anonymous
    The other sacred cow is neoliberalism and the idea that the middle class being force dinto debt to buy a home is “good economic sense”.

    Forcing people into debt used to be seen as a bad idea, but somehow over the years endlessly skyrocketing land prices have become the “new norm” that we’re all supposed to accept and even encourage.

    Would you mind briefly explaining why anyone would think that forcing people into debt is a good thing? I've heard other people mention such an idea, but I really don't understand it at all. Thanks.

    Would you mind briefly explaining why anyone would think that forcing people into debt is a good thing?

    It brings debtors’ pecuniary interests into line with inflationary monetary and migratory policies.

  51. MI always thought the biggest factor was the adjustable interest rate. Banks willingly lent to people they knew couldn’t afford the loan once the adjustable interest rate shot their monthlies through the roof – so to speak. But banks also knew they could slap on a new coat of paint and sell the shack for 10 to 15% profit because some other bank would make another bad loan to another sucker who couldn’t afford it after the monthlies went into orbit. …A process repeated over and over and over until the thin membrane of bubble went kablooey. Peasants white, black, yellow, and every shade of brown were drained of everything they had in that little scam. Why blame the victim?

  52. @Jefferson
    "Anyway, why not look at where the Housing Bubble in U.S. was biggest and burst first/worst: the Sand States."

    Do you include California and Florida in the sand states? Or only Texas, Nevada, Arizona, and New Mexico?

    Sand States is generally understood to encompass CA, NV, AZ, and FL.

    • Replies: @Jefferson
    "Sand States is generally understood to encompass CA, NV, AZ, and FL"

    There is also plenty of sand in the state that hosts Better Call Saul and Breaking Bad. Those shows look like they could easily have taken place in Arizona judging by the similar geography. Walter White's neighborhood looks like any neighborhood that you would find in Phoenix.
  53. @Vinay
    Once again, Steve insists on mistaking those riding a wave as the cause of the wave.

    You're giving a secular explanation for an unprecedented event. That might have been acceptable if the Great Recession was the *culmination* of a trend of smaller financial disasters. But it wasn't. If there's a totally unprecedented 1000-car pileup on a freeway, with no trend, would you accept secular explanations like "people drive too fast" or "too many cars" or "too few cops"?

    It’s a little like somebody asks me what caused the U.S. to fight World War II and I say “Pearl Harbor,” and you say, “Oh, no, it was much bigger and more complicated than that.” Or you ask: What set off the Great Depression and I say “the New York stock market crash of October 1929” and you say “Oh, no, it was much bigger and more complicated than that.”

    You know we both can be right.

    • Replies: @Vinay
    "What set off the Great Depression and I say “the New York stock market crash of October 1929"

    Fair enough but it matters in terms of remedies, doesn't it? There have been several stock market crashes since then, with the Fed showing relatively little concern. That's because Milton Friedman supposedly proved that monetary policy was the cause of the Great Depression and/or the remedy.

    It's not that I have some strenuous objection to your observation about default rates among minorities. I'm just pointing out that Robert Schiller is likely looking for a Friedman-style explanation for the Great Recession, not necessarily ignoring the more mundane ones.
  54. @Anonymous
    What James Richard wrote is correct. Bubbles happen all the time. Easy unchecked credit will make things worse. All parts of society got pretty much got wrapped up in this one. As it involved high finance, the whole world was affected.

    To view this as a diversity and immigrant problem shows a leaning to an interpretation of all things within that paradigm.

    To do this and publish this as a journalist is particularly dangerous.

    I don’t know what you mean by all parts of society. I lived in the middle of where this bubble was occurring, and don’t know a single, solitary, friend, relative, or co-worker who got involved with these unqualified loans and over-leveraged home equity loans. I know this is personal anecdotal data, but do you know anyone who got wrapped up in it? I would love to hear how many commenters knew anyone either.
    You are right about the last sentence though. Speaking the truth is often a particularly dangerous activity, which is why Steve and others like him are kept carefully bottled up in venues like this blog.

    • Replies: @res
    But do you know anyone who was caught up in the fallout? I don't go around asking friends about the terms of their mortgages, but based on things I heard I think I know at least one person who was considering a fairly toxic loan (possibly reverse amortizing ARM), others who were stretching to buy using ARMs, and at least one couple using home equity as an ATM. Other friends were wise enough to stand aside while the market was going crazy and buy after the bust.

    The people I think who suffered least deservedly were those who did things "right" loan wise (e.g. fixed rate with a decent down payment) but made the poor choice of buying near the peak created by all the ridiculous loans (and other factors noted above). The no down payment people could walk away with a relatively light direct financial hit by declaring bankruptcy (and some even profit by playing games like >100% financing or staying in the house without paying the mortgage), but the others could lose their down payment.

    Looking back now with the benefit of hindsight, I know one couple who walked away from a newly purchased second home, but I think everyone who managed to stick it out (some with difficulty) is now better off than in 2008 (YMMV depending on local market). My understanding is the couple who walked away could have afforded the loan, but were so far underwater it was rational to walk away. I have some trouble with that choice, but 1. The counterparty was a bank, which would have done exactly that if it was in their best financial interest and 2. I'm glad I haven't been faced with making that kind of decision.

    P.S. There is a great deal of talk that assumes the housing crisis is over. IMHO it is not truly over until interest rates have remained at a long term sustainable level for a period long enough for ARMs to reset. To put that into perspective, here are interest rates for 30 year fixed rate mortgages since 1971: http://www.freddiemac.com/pmms/pmms30.html

    Put another way, contrary to US government policy since 2000 I don't think "curing" a bubble by creating more bubbles is the solution.
    , @Formerly CARealist
    My husband does taxes for a living and he had several clients who were acquiring homes with very little down and then renting them out. They all lost out.

    I have a buddy named Brad who had at least 10 homes at one point, flipping, renting, whatever. He lost it all in the crash.
    Another friend was telling me yesterday about buying a home in 2005. when he finally sold it he said "the bank lost about $300,000." He didn't elaborate.

    a former employee also lost her overpriced home in 2009. we told her the loan was too big but she was determined.

    We ourselves bought two investment homes in 2007. It took until 2016 for them to recover their lost value. we've had a much better return with the commercial property we bought near the bottom of the market.

    I know it sounds like I'm making this all up, but really the only people who benefited by all that real estate buying/selling/renting were the sales people.

    the investors were having fun bragging about all the homes they owned. And being a landlord makes you feel like a big shot for a little while. Then it all becomes a royal pain in the neck.
    , @Anonymous

    I don’t know what you mean by all parts of society. I lived in the middle of where this bubble was occurring, and don’t know a single, solitary, friend, relative, or co-worker who got involved with these unqualified loans and over-leveraged home equity loans. I know this is personal anecdotal data, but do you know anyone who got wrapped up in it? I would love to hear how many commenters knew anyone either.
     
    One of my relatives bought 5 different properties in Oregon. Built a home on every one. One right after another. He only made $15 an hour at his job as a ski lift operator. Lied his ass off on every loan but the original. He actually put 20% down on that one. By the time he let on how he was doing it, he was "buying" his fourth property. We told him he was behaving irrationally, and to stop doing it. He ignored us, and proceeded to buy a fifth property, just before all hell broke loose. He was in the middle of construction when the bottom fell out. He tried renting them, but he was a mess at that. Then he just handed them all back to the banks, instead of renting them out and making time, like an idiot. The first property, he still owns, rents it out, and now lives in a mobile home. He's 68 years old. This guy is also a devout, church-attending Christian. He'll bend your ear about Jesus anytime.

    Another relative bought property in the same area to build a home to flip. The bottom fell out before it was ready for sale. Because this relative had deep pockets, he just held onto it, rented it out for a decade, the sold it for an eventual 170K profit on a $160K investment. Didn't go the way he would have liked, but he wasn't sweating it. His outlook on it was that that money would have been sitting in the bank anyway, so it worked out all right.

    The difference is the latter paid for the house in full from the get-go, and had the bank account necessary to strategize a graceful, and profitable exit. The former was a bullshitter, tried to play a big shot, waited too long, and got hosed.

    My guess is that once the banks allow lower than a 20% down payment, the dumbshits crawl out of the woodwork, and wreck the whole show. Kind of like when the airlines got broken up, and ticket prices went down significantly. Before, flying was a very pleasant experience. Now, it's a shitshow. The stupid, and the lowbrow ruin it for everybody.

    Btw, Bank of America is currently lobbying hard to legalize buying a house with only 10% down, again. They said they believe the benefits outweigh the risks. Bank of America is Satan. Always has been, always will be.
  55. Anonymous • Disclaimer says:

    An absolutely terrible indictment of the economics profession.

    The really sad, shocking thing is that government policy/strategy is, ultimately, based upon the findings and recommendations of the economic profession.
    If, as Steve argues, the economics profession is too cowardly, prejudiced or downright incompetent to discern the causes of what was – let’s not mince words here – a catastrophe of the highest order – then we are well and truly screwed.

    The correct analogy is to Galileo and the other scientists of the enlightenment who followed him. Galileo had the guts to argue against the prevailing, political/religious dogma when he knew it was erroneous. He jeopardized his life and freedom for truth, but had the courage not to mislead and deny for the sake of dogma.
    If he concealed and lied, where would we be today?

    • Replies: @Art Deco
    An absolutely terrible indictment of the economics profession.

    Why? Economists are not engaged in the business of finance and only a modest minority of them are specialists in financial economics (and I suspect you'll discover that most such specialists teach at business schools rather than on arts-and-sciences faculties). Nearly all the underwater properties were so due to loans made after 2003 - it all emerged in just a few years. One crucial component of the crisis was the uncertainty over what obligations due per credit default swaps would do to institutions. I talked to a macroeconomist in 2008 who told me that textbooks on financial economics published as late as 2001 had nothing on credit-default-swaps. They were financial sector esoterica.
    , @Forbes
    As the economics profession is criminal--an indictment is in order.

    Economics works much like Yogi Berra described: "In theory there is no difference between theory and practice. In practice there is."

    The problem with most economic theories is that they don't (can't) account for secondary (second order) effects--those inconveniences that show up as unintended consequences.

    The Galileo argument doesn't apply to economics--arguing economics is arguing competing dogmas. Galileo had evidence.
  56. OT—hat tip commenter EriK: Steve running wild on obtuse UMD sociologist Philip Cohen on Twitter. Good stuff.

    • Replies: @dearieme
    Tell Steve it should be 'averse' not "adverse".
  57. @Jefferson
    "Even the Daily Show in 2007 did not point any fingers at immigrants"

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.

    They also portrayed Wall Street as being dominated by WASPS, or at least people who present as such. Probably all Harvard Men, who wore raccoon coats and drove Stutz Bearcats, and sported plus-fours while playing golf.

    • Replies: @Jefferson
    "They also portrayed Wall Street as being dominated by WASPS, or at least people who present as such. Probably all Harvard Men, who wore raccoon coats and drove Stutz Bearcats, and sported plus-fours while playing golf."

    And in Harvard they were probably all frat boy rapists.
    , @biz

    They also portrayed Wall Street as being dominated by WASPS, or at least people who present as such.
     
    That's not true. The lead character played by Steve Carrell was an over-the-top neurotic Jew, even to the point of showing his bar mitzva photo when introducing him. Another one of the main four was a Jersey-shore style Italian.

    That movie had many inaccuracies but portraying Wall Street as WASPy was not one of them.
    , @TomSchmidt
    The character played by Steve Carell was pretty clearly Jewish.
  58. @TomSchmidt
    Even the Daily Show in 2007 did not point any fingers at immigrants:
    http://www.cc.com/video-clips/8bxfod/the-daily-show-with-jon-stewart-subprime-loans---larry-wilmore

    Funny clip.

    Even the Daily Show in 2007 did not point any fingers at immigrants:

    Even? Would you expect them too? Ever?

    • Replies: @TomSchmidt
    The implied message in that clip is that blacks are responsible for subprime. That's not expected.
  59. Anonymous • Disclaimer says:

    It is a plain, stark staring incontrovertible *FACT* that low-skilled, low waged immigrants to advanced economies are an enormous fiscal burden to those advanced economies, both individually and in terms of aggregate.
    So true is this fact that anyone who tries to argue to you otherwise is either a damned ignorant fool or a filthy liar.

    And yet, the mainstream consensus opinion of the economics profession, the ‘liberal’ media and even such ‘heavyweights’ as The Economist magazine is that massive, uncontrolled low skilled immigration ‘benefits’ the receiving advanced economies.

    A similarly, it is simply *analytically impossible* for low productivity immigrants to raise per capita GDP, (the only indicator that matters), of advanced economies.
    Yet The Economist magazine – supposedly the leading light of public policy – argues otherwise.

    • Replies: @Opinionator
    A similarly, it is simply *analytically impossible* for low productivity immigrants to raise per capita GDP, (the only indicator that matters)

    Distribution of GDP among individuals also matters. Where certain basic needs are already met, it may even be more important than per capita GDP, which is just an average.

  60. The only ‘Flipper’ I know of was a Dolphin.

  61. res says:
    @Alfa158
    I don't know what you mean by all parts of society. I lived in the middle of where this bubble was occurring, and don't know a single, solitary, friend, relative, or co-worker who got involved with these unqualified loans and over-leveraged home equity loans. I know this is personal anecdotal data, but do you know anyone who got wrapped up in it? I would love to hear how many commenters knew anyone either.
    You are right about the last sentence though. Speaking the truth is often a particularly dangerous activity, which is why Steve and others like him are kept carefully bottled up in venues like this blog.

    But do you know anyone who was caught up in the fallout? I don’t go around asking friends about the terms of their mortgages, but based on things I heard I think I know at least one person who was considering a fairly toxic loan (possibly reverse amortizing ARM), others who were stretching to buy using ARMs, and at least one couple using home equity as an ATM. Other friends were wise enough to stand aside while the market was going crazy and buy after the bust.

    The people I think who suffered least deservedly were those who did things “right” loan wise (e.g. fixed rate with a decent down payment) but made the poor choice of buying near the peak created by all the ridiculous loans (and other factors noted above). The no down payment people could walk away with a relatively light direct financial hit by declaring bankruptcy (and some even profit by playing games like >100% financing or staying in the house without paying the mortgage), but the others could lose their down payment.

    Looking back now with the benefit of hindsight, I know one couple who walked away from a newly purchased second home, but I think everyone who managed to stick it out (some with difficulty) is now better off than in 2008 (YMMV depending on local market). My understanding is the couple who walked away could have afforded the loan, but were so far underwater it was rational to walk away. I have some trouble with that choice, but 1. The counterparty was a bank, which would have done exactly that if it was in their best financial interest and 2. I’m glad I haven’t been faced with making that kind of decision.

    P.S. There is a great deal of talk that assumes the housing crisis is over. IMHO it is not truly over until interest rates have remained at a long term sustainable level for a period long enough for ARMs to reset. To put that into perspective, here are interest rates for 30 year fixed rate mortgages since 1971: http://www.freddiemac.com/pmms/pmms30.html

    Put another way, contrary to US government policy since 2000 I don’t think “curing” a bubble by creating more bubbles is the solution.

  62. This article is inane. Know why there were “tales” of successful flipping? Because housing prices were going up. Whole that was happening, it was perfectly rational to expect a return on investment.

    I know they want it to have been a Popular Delusions and Madness of Crowds thing, but it’s not as a series of unfounded rumors became self-fulfilling prophecies until the momey ran out. No, instead, people noticed where the money was, and jumped in to make some.

    I don’t think mentality shifted. We didn’t suddenly get greedy, lazy, and careless. Cheap money just makes being careless easier.

  63. I have not seen in SoCal anyone working at a Bank who is not Hispanic or Black or Muslim in decades. Since in fact, the 1990s. That’s just by personal set of data.

    I will also say that immigration helped churn the housing market. Whites have been able to flee first Desegregation and “let em crime-wave” Black crime aimed solidly at Whites in places where Blacks moved to, after housing covenants were ended by the Supreme Court; and later from immigrant waves that either lapped up and displaced Whites from their old neighborhoods or drove Blacks into theirs.

    The housing boom/bubble in SoCal was partly driven by mass Mexican/Central American immigration driving Blacks out of Compton and South Central where they had displaced Whites years before into places like Long Beach, San Bernadino, and the Antelope Valley.

    At least part of the bubble was the physical limits of commutes of Whites forced by rising prices of Chinese money, immigrants bidding up prices in nice areas, and pressure of non-White particularly Black underclass presence in formerly all White areas. At some point the commute from say, a house out in the Mojave to LA which is where all this logically takes one becomes impossible.

    And of course the habit of the Chinese in particular in salting away money in the US by housing purchases, where the house stands mostly empty or holds some family member often a young kid mostly unsupervised or poorly so “going to school” aka putting family hostages out of the government’s reach does not help things either. It bids up prices and makes whole areas Gwailo no-go zones for native Whites.

    • Replies: @Steve Sailer
    My bank is about half Armenian.
    , @anon
    Where it all comes together is the intersection between immigration and globalization. That is, we don't have literal deflation but we have major deflationary pressures. The causes are technology (which is mostly good deflation) and importing goods with significant labor content (usually ok by me) and importing cheap labor (tragically bad).

    We see deflation wherever prices are subject to competition in general and more in places where competition is intensified by arbitrage between developed country wages and emerging market nations.

    Housing is economically ambiguous - it has commodity like properties, but is mostly valuable because of the desirability of its location. It can be an investment but is also consumption -- or simply paying rent in advance. No one would ever say they are investing in prepaying their utility bill. US single family houses also have an element of extravagance, exemplified by the bubble symbol of granite countertops (which now sounds incredibly dated). A house is just a box of air -- its value is associated with its location. The same conundrum exists with college education, which was always sold as an 'investment' in ones self but now has turned out for many as a four year vacation.

    We are still in this conundrum. Anything subject to competitive pressures is deflating and everything exempt is inflating. Usually by some sort of rent seeking. For housing, zoning and everything else that limits supply can raise prices above replacement cost of the dwelling. Education, health care, etc. There are constraints on supply and rent seeking and all sorts of supply constraints.

    But to tie this together, consider the notion of 'real' interest rates -- the difference between the nominal rate and inflation. If we consider housing independently of everything else -- like its own little closed economy -- then the interest rate is the mortgage rate (simple enough) and inflation is the change in housing prices. If housing is tied to wider inflation rates, it isn't a problem. If housing is rising at exactly the rate of the CPI, then it tends to be a great deal with a tax advantaged loan and a lot of leverage. With higher housing inflation, it is an incredible leveraged investment. However -- in a bubble, the 'real' interest rate on a gimmick bubble product is ridiculously high. It is, for example, 1% minus negative inflation or deflation of 10% or 11%. And this was the economic proposition that faced the subprime who could only afford the effective negative real rates of a boom but signed up for the extremely high rates of a deflating bubble.

    Race + low skilled immigration + foreign investment fed the bubble by reducing supply (destroying the value of neighborhoods), increasing demand (physical immigration), and providing a safe investment for Chinese money (by allowing them to speculate in housing) and finally allowing them to buy US bonds - suppressing interest rates). There are plenty of places in the world where foreigners aren't allowed to buy property or housing. And then, the boom created construction jobs which drove more immigration from Mexico.

    People aren't allowed to use the 'D' word -- deflation. But a 1930's style debt deflation (see Irving Fisher) is quite awful and almost needs to be experienced to appreciate its destructive effects. Although now people seem to be able to throw around the term 'reflation trade' -- that is now the Bloomberg News speak for the reversal of some of the deflation that we experienced.

    Deflation is dumping cheap, subsidized, environmentally destructive manufactured goods on the US. It's also visible with Oil prices, basic commodity prices, and agricultural commodity prices. $35 oil -- now bouncing around $50 and $4 bbl corn prices. Its not just Walmart priced junk and wages for lower skilled jobs.

    The worst part of this is that the immediate impact of low skilled immigration is the obvious suppression of wages -- but also that we are accruing future liabilities for the health and educational costs of these immigrants which must be preformed by economic sectors immune to competitive forces and fully externalized to the current citizens.

  64. @Jefferson
    "Even the Daily Show in 2007 did not point any fingers at immigrants"

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.

    As I recall, that movie mentioned immigration twice. Once when the mortgage dudes were bragging about selling “NINJA” (“no income, no job”) loans and selling to strippers. I think one of the two guys mentioned the other liked selling to immigrants. Which makes it out to have been bottom-feeding sharks exploiting the poor huddled masses.

    The other instance came at the end of the movie, when they were giving their summation and warned us about unscrupulous people blaming immigrants ([cough!] Donald Trump [cough!]). Which confused me in the theater, because I was thinking, “You didn’t even mention immigrants,” because I had forgotten the brief mention earlier.

    They were sort of in a catch-22, because they wanted to counter immigration-blaming arguments, but they also don’t want to associate immigration with the meltdown at all. It’s not part of the Narrative. They don’t want to bring the issue into the official Narrative, even if it’s just to slap it down. But bringing it up out of the blue confuses people, as it did me.

    If I have my timeline right–and I’m just going by off-the-cuff memory–the movie came out months after Trump announced his candidacy. So they must have felt it was too important not to address the issue. Nevertheless, they didn’t put it in the storyline, because I guess it wasn’t important enough. They just tacked a campaign message onto the end.

    • Replies: @TomSchmidt
    A quick search at Amazon in the book for the phrase "immigrant" shows that that group was targeted because they had NO credit history, and so no history of defaults. There is also a disparaging remark on page 145 about someone "hunting" illegal immigrants.

    So Michael Lewis wasn't oblivious to one source of housing bubble purchasing supply.
    , @The Anti-Gnostic
    In Atlanta, there were a lot of big suburban houses built in the 1980's with really awkward designs built that started coming on to the market in the 00's. I remember a realtor joking that he kept them on a separate list to show Chinese families.
  65. I read somewhere the federal Reserve has 8000 “economists” on their payroll, that’s a lot of propaganda. If you objectively look at the sub-prime collapse you quickly realize it didn’t just happen, it was a focused public policy to harness (loot) the state treasury to finance invasion.

    Every single player in the govt guaranteed home loan food chain was funneled to finance criminal invasion and loan fraud through the FNM foundation, US chamber of commerce, NAR, NAB, etc.

    FNM was run bolchevicks that control the fed and USDOJ, they hatched plan to finance invasion through fha loan guarantees and tip the national political makeup “Communist” through mass immigration, (a mathematically predictable model), the FNM collapse was the coup DE grace of USSR cold war strategy, Russia going full retard capitalist wasn’t part of the plan, and now Islam is a retarded commie salvage op.

    At the same time the hyper printing of currency allowed the financial consolidation of nearly every business in America and transfer off shore the assets and more importantly production and intellectual property.

    Our F16s are now made in India.

    Economists understand the bubble perfectly, they were paid to blow it.

    If every economist on the planet were instantly executed nobody would notice.

    • Replies: @Art Deco
    I read somewhere the federal Reserve has 8000 “economists” on their payroll,

    There are 13,000 economists on college faculties and 19,000 and change working for private companies and public agencies. I tend to doubt a quarter of the working economists in the country work for a single agency and it's affiliates. The Board of Governors of the Federal Reserve System has about 340 employees. The Consolidated Statement of Operations for the Federal Reserve Banks reports $2.8 bn in employee compensation. That suggests they have about 22,000 employees in toto if their compensation scale is similar to that of the federal civil service and military. I doubt 35% of their employees are economists.


    that’s a lot of propaganda. If you objectively look at the sub-prime collapse you quickly realize it didn’t just happen, it was a focused public policy to harness (loot) the state treasury to finance invasion.

    Invasion of what? The corporate offices of the American International Group?
  66. @Mr. Anon

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.
     
    They also portrayed Wall Street as being dominated by WASPS, or at least people who present as such. Probably all Harvard Men, who wore raccoon coats and drove Stutz Bearcats, and sported plus-fours while playing golf.

    “They also portrayed Wall Street as being dominated by WASPS, or at least people who present as such. Probably all Harvard Men, who wore raccoon coats and drove Stutz Bearcats, and sported plus-fours while playing golf.”

    And in Harvard they were probably all frat boy rapists.

  67. @Anonymous
    It is a plain, stark staring incontrovertible *FACT* that low-skilled, low waged immigrants to advanced economies are an enormous fiscal burden to those advanced economies, both individually and in terms of aggregate.
    So true is this fact that anyone who tries to argue to you otherwise is either a damned ignorant fool or a filthy liar.

    And yet, the mainstream consensus opinion of the economics profession, the 'liberal' media and even such 'heavyweights' as The Economist magazine is that massive, uncontrolled low skilled immigration 'benefits' the receiving advanced economies.

    A similarly, it is simply *analytically impossible* for low productivity immigrants to raise per capita GDP, (the only indicator that matters), of advanced economies.
    Yet The Economist magazine - supposedly the leading light of public policy - argues otherwise.

    A similarly, it is simply *analytically impossible* for low productivity immigrants to raise per capita GDP, (the only indicator that matters)

    Distribution of GDP among individuals also matters. Where certain basic needs are already met, it may even be more important than per capita GDP, which is just an average.

  68. Where do folks think we are with the housing market nowadays? Bubble? No bubble?

    • Replies: @Intelligent Dasein
    Massive bubble in housing right now due to restricted supply at the lower end. Houses are unaffordable to first-time buyers and rents are exorbitant
  69. @anon
    Sand States is generally understood to encompass CA, NV, AZ, and FL.

    “Sand States is generally understood to encompass CA, NV, AZ, and FL”

    There is also plenty of sand in the state that hosts Better Call Saul and Breaking Bad. Those shows look like they could easily have taken place in Arizona judging by the similar geography. Walter White’s neighborhood looks like any neighborhood that you would find in Phoenix.

    • Replies: @Steve Sailer
    Not that many immigrants in New Mexico. The economy has seldom been good enough to attract many.
  70. @Jefferson
    "Sand States is generally understood to encompass CA, NV, AZ, and FL"

    There is also plenty of sand in the state that hosts Better Call Saul and Breaking Bad. Those shows look like they could easily have taken place in Arizona judging by the similar geography. Walter White's neighborhood looks like any neighborhood that you would find in Phoenix.

    Not that many immigrants in New Mexico. The economy has seldom been good enough to attract many.

    • Replies: @Jefferson
    "Not that many immigrants in New Mexico. The economy has seldom been good enough to attract many."

    New Mexico is a desert state and that makes it a sand state. The terrain in New Mexico is just like that of Arizona and Nevada.
  71. @Art Deco
    The bulk of the negative equity was to be found on the books of prime borrowers. Plying people with sketchy credit histories and / or insufficient income streams was a part of the story, but most of the force of the problem was derived from the condition of other sectors of the population.

    Various subfractions of the economics profession have their hobbyhorses. Their contentions are not necessarily well-established in the body of theoretical and empirical research. So you get fringe Austrians contending that it was all the Federal Reserve's doing with their inflation-targeting fandango and we need to replace central banking with a currency board (diagnosis odd - the run up in housing prices dates from 1997 while the Fed Funds rate was abnormally low only from the fall of 2002 to the fall of 2004; prescription frankly crackers, as can be seen with our own experience of the gold standard and foreign country's experience with unyielding currency pegs). Or you have a policy entrepreneur like Scott Sumner contending that it was all the Federal Reserve's doing with their paying interest on reserves and 'there's no such thing as bubbles' (about the bubbles, who do you believe, Sumner or your lying price indices? About the Fed's responsibility, wasn't it amazing that Dr. Bernanke and the Fed Governors managed to generate a severe economic crisis in Britain (using sterling), continental Europe (using the Euro), and Japan (using the Yen) all by paying 0.25% on reserves?). Then we've got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating).

    Here's a suggestion: you were looking at a perfect storm of several problems: undigested financial innovation (credit default swaps - emerging in 1995), institutional stupidity (Joseph Cassano's Financial Products Unit at AIG), the promotion of poor underwriting (Freddie Mac slashed underwriting standards in 2003), and manias which require the tools of social psychology to explore (manias on the part of borrowers to be sure, but also financiers in many cases - about 46% of the value of Countrywide's loan portfolio went sour). You also had panic inasmuch as problems came to a head at a mess of large institutions all at the same time (Fannie Mae, Freddie Mac, Lehman, WaMu, Wachovia, Fortis, the Royal Bank of Scotland, Merrill Lynch, Citigroup, and especially, AIG) . Some unexpected phenomena also blindsided the financial press (the implosion of some money market funds and the revelation that Bernard L. Madoff was running a Ponzi scheme - something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math).

    There was another macro contributing factor – mankind has moved from food scarcity to housing (usable living space) scarcity. What is scarce will experience bubbles and shortages, often in parallel, there is always speculation and manias. Scarcity is also not manageable.

    We used to have famines and the main political factor was the price of bread. That seems to be gone for now. Today most of the advanced world is dealing with housing as the core unresolved (and maybe unresolvable) issue. It has become the main cost (up to 50% for younger people), main asset, main investment. Housing drives migration since owners want more renters/buyers, it determines who is comfortable and who is poor. It is an obsession as it has never been before. Watch what is happening in the most ‘advanced’ parts of the world, from London and Silicon Valley, to Tokyo, Moscow and China, housing and asset prices are the core issue for most people. One’s access to housing determines almost everything – it is more important than skills, education, status, jobs, etc…

    2007-8 was a harbinger of things to come. This is not about to get better. So find a comfortable spot on the bubble and take a ride. Scarcity cannot be managed.

    • Replies: @Steve Sailer
    Indeed. And yet we have the Information Superhighway that would seemingly, like Eisenhower's Superhighways, allow Americans to move to less expensive land. But it doesn't seem to work that way ...
    , @Anonymous
    Modern - actually it's been around for about a century - methods of building construction using steel or concrete framed multi-story apartment blocks built to standard patterns, (the Chinese are very big on this), have more or less 'solved' any 'housing crisis'.

    The 'scarcity' problem lies somewhere else.
    , @MW
    There are probably many causes to the concentration of industries and "good jobs" in ever fewer cities. I see very little political will to do anything about it. Even the Jane Jacobs disciples who tend to see concentration as a good thing, still complain about high housing prices, but tend to assume we could fix the problem by building 40-storey tenements Hong Kong-style. Few acknowledge the connection with the decline of economic opportunity elsewhere.
    , @Autochthon
    You hypersimplistically presume we all want ro live like the ants in Hong Kong, Shanghai, and New Delhi.

    This attitude (and its falseness; its untruth) accounts for much of the autogenecide of white people.

    We don't live like that. We never much have and we never much will.

    We are of pastoral nomadic stock, not the sedentary agrarianism of collectivist, hyperdense China, India, Mespotamia....

    Do you live in a skyscraper surrounded by concrete and steel as far as your eyes can see? If not, why not? After all, it's the solution to all problems for anyone needing a home....

  72. @Whiskey
    I have not seen in SoCal anyone working at a Bank who is not Hispanic or Black or Muslim in decades. Since in fact, the 1990s. That's just by personal set of data.

    I will also say that immigration helped churn the housing market. Whites have been able to flee first Desegregation and "let em crime-wave" Black crime aimed solidly at Whites in places where Blacks moved to, after housing covenants were ended by the Supreme Court; and later from immigrant waves that either lapped up and displaced Whites from their old neighborhoods or drove Blacks into theirs.

    The housing boom/bubble in SoCal was partly driven by mass Mexican/Central American immigration driving Blacks out of Compton and South Central where they had displaced Whites years before into places like Long Beach, San Bernadino, and the Antelope Valley.

    At least part of the bubble was the physical limits of commutes of Whites forced by rising prices of Chinese money, immigrants bidding up prices in nice areas, and pressure of non-White particularly Black underclass presence in formerly all White areas. At some point the commute from say, a house out in the Mojave to LA which is where all this logically takes one becomes impossible.

    And of course the habit of the Chinese in particular in salting away money in the US by housing purchases, where the house stands mostly empty or holds some family member often a young kid mostly unsupervised or poorly so "going to school" aka putting family hostages out of the government's reach does not help things either. It bids up prices and makes whole areas Gwailo no-go zones for native Whites.

    My bank is about half Armenian.

  73. Hm. I just can’t think of “the housing bubble” without thinking of ARRA, OBAMA, and AA.

    Or, in other words, three things that stifle free discourse.

  74. I’m disappointed by the fact that Steve’s usually supportive readership has decided to turn and rend him over—of all things!—their belief that he criminally mis-ranked the relative factors leading to the 2008 housing bust. “It wasn’t Diversity, it was the regulatory environment what did it! Liar’s loans and dodgy financial instruments brought the housing market down.” As a matter of fact, those of you waxing indignant about this are missing the point. Diversity / Immigration was a huge and underappreciated factor in the housing crash at three different levels of analysis.

    On the primary level, loans were made to people who could not pay them back, many of whom happened to be diverse. This was an immediate cause of the crash.

    On the secondary level, as I described in my comment above, the social mood engendered by the bubble phase of the housing market distortion led to an attitude of tolerance towards immigration and a demand for more of it.

    On the tertiary level, the ever-present god of diversity, the New Colossus, was directly cited by policy makers as the reason why lending standards must be lowered and home ownership encouraged.

    The entirely foreseeable economic results of these actions are something Steve understands quite well. Those are but the mechanical effects that must play out given their antecedent causes and are therefore baked into the cake. The point is that even forearmed with such knowledge, policy makers went ahead with their decision because diversity, and refused to honestly acknowledge what had happened afterward because diversity.

    The dirigistes are correct when they say that economics is no end in itself, that economics is only the handmaid of policy. Economics describes the ‘how’ of the housing crash but not the ‘why.’ Diversity describes the ‘why.’

    • Replies: @James Richard

    On the primary level, loans were made to people who could not pay them back, many of whom happened to be diverse. This was an immediate cause of the crash.
     
    No. The non-performing loans had been accumulating for years. The immediate cause of the crash were the financial institutions hiding their bad debt from one another.

    On the secondary level, as I described in my comment above, the social mood engendered by the bubble phase of the housing market distortion led to an attitude of tolerance towards immigration and a demand for more of it.

     

    You have that exactly backwards. It was a toleration of illegal immigration that helped lead to a demand for more housing. I don't think this was particularly key. The savings and loan disaster in the 1980's was not fueled by immigration and MOST bad loans were not made to immigrants. It was entirely the fault of crooked bankers as was the case in 2008.

    On the tertiary level, the ever-present god of diversity, the New Colossus, was directly cited by policy makers as the reason why lending standards must be lowered and home ownership encouraged.

     

    You are just repeating your first argument here. What you are leaving out are two key factors.

    1) The bundling of loans into bonds, which is not itself necessarily a bad thing, was accompanied by the rating agencies giving these securities triple A ratings even though they contained non performing loans. This was criminal fraud. In Germany the law requires that these sorts of securities immediately sell any underlying mortgages that have even one late payments.

    2) The securities were further tranched by splitting the interest payments from the principal amounts for these mortgage bonds and then issuing separate securities made up of the each part. These securities were then further obfuscated from the underlying real estate by the financial institutions trading these synthetic financial instruments back and forth in highly leveraged credit swaps. The banks had no idea of the real underlying value of these instruments. When real estate prices dropped Bear Stearns needed to sell some of these junk instruments and nobody knew what they were really worth. Panic set in and Freddie and Fannie were told to take on bad mortgages, it smowballed into IndyMac going bankrupt, then Lehman Brothers, and finally foreign insurance company AIG. Congress was instructed to legislatively bail them out to the tune of 700 billion dollars. The Federal Reserve started to print money hand over fist and it is still doing so 10 years on.

    The problem is our corrupt fractional reserve banking system and instruments like credit swaps that leverage garbage paper at 30 to 1. This has not stopped and the government now has taken on providing liquidity for all this nonsense. As much as I deplore the massive invasion of the United States by Mexico it is not your cleaning lady who is responsible for our Potemkin Village economy. It is the crooked bankers and their bought politicians in Washington DC.

    Buy some gold coins and make sure you have plenty of rice and beans stored in you larder. It's only going to get worse.
  75. @Opinionator
    Where do folks think we are with the housing market nowadays? Bubble? No bubble?

    Massive bubble in housing right now due to restricted supply at the lower end. Houses are unaffordable to first-time buyers and rents are exorbitant

    • Replies: @Opinionator
    That doesn't sound like a "bubble" though. Sounds more fundamental.
  76. @Beckow
    There was another macro contributing factor - mankind has moved from food scarcity to housing (usable living space) scarcity. What is scarce will experience bubbles and shortages, often in parallel, there is always speculation and manias. Scarcity is also not manageable.

    We used to have famines and the main political factor was the price of bread. That seems to be gone for now. Today most of the advanced world is dealing with housing as the core unresolved (and maybe unresolvable) issue. It has become the main cost (up to 50% for younger people), main asset, main investment. Housing drives migration since owners want more renters/buyers, it determines who is comfortable and who is poor. It is an obsession as it has never been before. Watch what is happening in the most 'advanced' parts of the world, from London and Silicon Valley, to Tokyo, Moscow and China, housing and asset prices are the core issue for most people. One's access to housing determines almost everything - it is more important than skills, education, status, jobs, etc...

    2007-8 was a harbinger of things to come. This is not about to get better. So find a comfortable spot on the bubble and take a ride. Scarcity cannot be managed.

    Indeed. And yet we have the Information Superhighway that would seemingly, like Eisenhower’s Superhighways, allow Americans to move to less expensive land. But it doesn’t seem to work that way …

    • Replies: @Alfa158
    The information superhighway has done almost nothing to disperse housing because it hasn't superseded human nature. People can't telecommute to jobs at tech companies in Silicon Valley from their homes in Idaho and Arizona, because management wants to see butts in the prairie dog farms at 8AM, and they think rightly or wrongly that face to face interaction is crucial for optimal function. Hence people are paying the price to live clustered near employment.
    The biggest effect of the information superhighway has been to enable wholesale displacement of jobs to brand new employment clusters off shore, but they are still clusters.
    , @Anonymous
    And yet tech companies keep making it more restrictive -

    1) IBM just called back all employees to an office; if you don't move, you're done
    2) AT&T just told their entertainment customers to move to El Segundo from Atlanta
    3) Yahoo made their employeees go to the office as did BoA and Aetna

    Why? I work remotely for a $10B software company and I'm afraid I will be pulled into an offfice.
  77. You’re all wrong. Or rather you are all arguing about surface phenomena.

    If you expand the money supply, there will be a bubble. End of story. When the money supply stops expanding the bubble will burst. End of story. It’s interesting to look at the factors which directed the bubble into housing and not something else, but it’s not important. If those factors weren’t present, the bubble would have gone somewhere else.

    (Arguably, it’s better to have a bubble in housing than anything else because then at least at the end you end up with a lot of houses, and houses are pretty useful. Better than warehouses full of tulips. Spain has hundreds of thousands of beautiful houses that you can buy for silly money.)

    This also explains why economists can’t explain the crash and talk obvious nonsense, because >75% of them get their money directly or indirectly from the Federal Reserve.

    • Agree: inertial
    • Replies: @Lot

    If you expand the money supply, there will be a bubble.
     
    Only if the money is used to buy real estate. Japan has greatly increased its money supply but its real estate prices are still below their 1980's peak. The Japanese just buy government bonds or put the money in 0-interest bank accounts.
  78. The credit crisis was caused by the Community Reinvestment Act

  79. @Judah Benjamin Hur
    Aside from the wealthy (and the young), you can divide Americans into two large economic groups. Those that have a 6 figure + net worth (they're the people that own homes) and people with zilch. Realistically, people who rent will not be saving the difference (if it exists!). Advising people not to buy a home will likely harm them even if it theoretically makes economic sense.

    I save about a quarter of my income every month, whereas most of my university friends went into debt to buy houses (and I mean serious debt, since we are talking UK house prices). I told them they were nuts, but I can’t help but notice that their net worth goes up by 5% a year whilst the average cost of housing increases by more than I save each month….

    • Replies: @The Last Real Calvinist

    . . . most of my university friends went into debt to buy houses (and I mean serious debt, since we are talking UK house prices). I told them they were nuts, but I can’t help but notice that their net worth goes up by 5% a year whilst the average cost of housing increases by more than I save each month….

     

    Yes, but this is where the questions at hand start getting less and less concrete, so to speak.

    Your friends' net worth is getting higher, sure, but that value is tied up very tightly in their houses. Assuming that your typical debt-laden friend is occupying the house he's gone into hock for, he can't leave it without sacrificing the value he bought it for in the first place, i.e. the chance to live in a spacious, pleasant accommodation. He can sell the house, and realize its value, but he can't buy an equally nice or even better one, because they're just as expensive.

    In the meantime, you've got cash on hand, and can enjoy a lot of other goods. You are also much freer in an important way: your friends are tied down to their nests as they incubate their giant property eggs, while you can fly away when your preferences change, or the environmental conditions deteriorate.

    So who is better off? It's not an easy question. Is it better to be able to afford a long trip every year, or to be able to fit two seating islands in your capacious great room?

    Believe me, here in Hong Kong we think about this conundrum all the time. The only way out is to buy a first property, pay it off (or at least reduce the mortgage bigly), then buy an investment property. Then you can actually cash in when property values go up. But when everyone else is thinking the same way, that's when the bubble fun and games can really get started.

    , @Opinionator
    their net worth goes up by 5% a year whilst the average cost of housing increases by more than I save each month….

    Isn't the appreciation of your invested savings a more relevant comparison?
  80. @Luke Lea
    OT, but just saw a billboard for a local gun shop in Murphy, N.C. that read: "WHITE TRASH WITH GUNS"

    Who else would have guns, besides white trash?

  81. @Alden
    There was a guy in Brooklyn NY who stabbed 4 people at 2 different bus stops and then went down in the subway station and stabbed 3 more people. The news papers described him as male, 5 11 medium build, wearing black Nikes with a red swoosh, black pants, White sweatshirt, red padded vest, dark blue baseball hat and a tooth missing on the left side.

    They got the red logo on the shoes and even the tooth missing on the left side. But they couldn't describe his race or color.
    The subway video of course revealed him to be a dark skinned black.

    But, but, what if it turns that stabby perp was actually some dolezal- crazy, tanning salon addict?

    Be open minded.

  82. @Intelligent Dasein
    Immigration / Diversity may be a sacred cow, but so too is the unquestionable rectitude of the Middle Class. Unfortunately, White Americans, particularly of the Boomer generation, also revealed their full propensity for short-sighted, socially destructive behavior during the housing bubble and the preceding tech boom.

    Nobody likes to talk about this, either. But it was all too apparent to me in those days. Watching an entire generation of parvenus gleefully running their shekels through their hands while destroying my future is enough to black-pill anybody. And don't think this didn't also feed back into the immigration issue. People in the grip of a rising---nay, ebullient---social mood are not going to spoil the party by taking a hard line against immigrants. "Come on in, the water's fine!", is the more likely response. And if this just so happens to coincide with the desire for cheap Mexican labor to build and landscape the new McMansions, who's going to complain?

    My overriding impression is that in the months immediately preceding the turn of the Millennium (ca. WTO riots?) and in the several years thereafter, something broke down in American culture. The whole zeitgeist took an irretrievable swerve into tackiness and cynicism, and the etiolated outlook of the managerial class, coincident with the explosive growth of the internet and the mainstreaming of corporate-speak, actually became the dominate social milieu. This was the dawn of Globalism in the specifically self-conscious sense in which the term is used today, and what followed was inevitable: the increasing financialization of the economy ultimately culminating in the housing crash.

    With the Western world finally beginning to feel the pinch from the diminishing returns of diversity, it's important to remember that, once you drill down beneath the level of immediate material causes, the immigration problem is really a White problem. We did this to ourselves. We created the conditions requisite for globalism and financialization and immigrant flows. We brought these people here. We indoctrinated ourselves with diversity gibberish. And while I'm all in favor of "Build the Wall" and "Send them Back," that alone isn't going to solve the problem. If, cateris paribus, cheap Mexican labor had not been available, we would have found some substitute for it by creating our own underclass, possibly by abolishing the minimum wage and outlawing organized labor. The real problem is buried deep inside ourselves and our institutions.

    Mulling over all this in those depressing days nearly a decade and a half ago, that is when I eventually arrived at the necessity of building something like a Catholic -Monarchist-Falangist-National-Socialist state, and that is what I believe to this day.

    I agree almost entirely.

    An unholy combination of commission-driven mortgage retailing and subsequent repackaging and bundling, development corruption, “free money” and “something for nothing” greed mentality amongst flipping “entrepreneurs” (¡!) and maxing out individual householders contributed to the bubbles – the baby bubble of 1987-91 and the Godzilla bubble of 2000-2008.

    Included in what I refer to as development corruption is the over-provision of planning permission for newbuild housing projects by property tax dependent local authorities which, given an aging population with falling birth rates, created a tremendous crisis of under-occupation with the attendant risks of crashing property values and rents and leading to ever-more plangent cries for liberalisation of immigration policies.

    The example of Will Hutton, sometime press grandee and economics guru of “the Left” in the UK, is depressingly hilarious and instructive. I’m sure that there are plenty of similar mountebanks in the USA.

    Finally, the “Clusterfuck” blog of James Howard Kunstler has been 100% spot on regarding the housing market in the US since its first edition.

  83. SHILLER: Best name for a media economist ever.

  84. @Gabriel M
    I save about a quarter of my income every month, whereas most of my university friends went into debt to buy houses (and I mean serious debt, since we are talking UK house prices). I told them they were nuts, but I can't help but notice that their net worth goes up by 5% a year whilst the average cost of housing increases by more than I save each month....

    . . . most of my university friends went into debt to buy houses (and I mean serious debt, since we are talking UK house prices). I told them they were nuts, but I can’t help but notice that their net worth goes up by 5% a year whilst the average cost of housing increases by more than I save each month….

    Yes, but this is where the questions at hand start getting less and less concrete, so to speak.

    Your friends’ net worth is getting higher, sure, but that value is tied up very tightly in their houses. Assuming that your typical debt-laden friend is occupying the house he’s gone into hock for, he can’t leave it without sacrificing the value he bought it for in the first place, i.e. the chance to live in a spacious, pleasant accommodation. He can sell the house, and realize its value, but he can’t buy an equally nice or even better one, because they’re just as expensive.

    In the meantime, you’ve got cash on hand, and can enjoy a lot of other goods. You are also much freer in an important way: your friends are tied down to their nests as they incubate their giant property eggs, while you can fly away when your preferences change, or the environmental conditions deteriorate.

    So who is better off? It’s not an easy question. Is it better to be able to afford a long trip every year, or to be able to fit two seating islands in your capacious great room?

    Believe me, here in Hong Kong we think about this conundrum all the time. The only way out is to buy a first property, pay it off (or at least reduce the mortgage bigly), then buy an investment property. Then you can actually cash in when property values go up. But when everyone else is thinking the same way, that’s when the bubble fun and games can really get started.

    • Agree: Abe
    • Replies: @Lot

    your friends are tied down to their nests
     
    Selling a house with a real estate agent is only marginally more complicated than moving out of a rental.
  85. Flippers gonna flip.

    Don’t be sour grapin’, ya’ll!!

  86. Lot says:
    @Busby
    My own hobby horse is cheap credit. Excess capital = low interest rates = loose lending standards = speculative bubble.

    But your explanation is much more detailed and therefore sounds better.

    Immigrants, legal or otherwise were a small, almost insignificant part. My radio in north Texas was blaring 24/7 about no down no doc loans. In fact over the past 30 years I've more often than not been able to forecast economic trends simply by listening to the radio. Not discreetly enough to be an investment thesis, but I know the time not yo buy gold is when every other commercial is for gold, or today's commodity, silver.

    low interest rates = loose lending standard

    What is interesting is that these days lending standards are stricter than during the bubble, but if you do qualify for a mortgage, rates are extremely low.

    This leads to more inequality as people with good credit and savings for a down payment can get mortgages with very low rates and thus low payments. Other people are stuck renting even though they’d have much lower monthly payments if they purchased.

  87. @The Last Real Calvinist

    . . . most of my university friends went into debt to buy houses (and I mean serious debt, since we are talking UK house prices). I told them they were nuts, but I can’t help but notice that their net worth goes up by 5% a year whilst the average cost of housing increases by more than I save each month….

     

    Yes, but this is where the questions at hand start getting less and less concrete, so to speak.

    Your friends' net worth is getting higher, sure, but that value is tied up very tightly in their houses. Assuming that your typical debt-laden friend is occupying the house he's gone into hock for, he can't leave it without sacrificing the value he bought it for in the first place, i.e. the chance to live in a spacious, pleasant accommodation. He can sell the house, and realize its value, but he can't buy an equally nice or even better one, because they're just as expensive.

    In the meantime, you've got cash on hand, and can enjoy a lot of other goods. You are also much freer in an important way: your friends are tied down to their nests as they incubate their giant property eggs, while you can fly away when your preferences change, or the environmental conditions deteriorate.

    So who is better off? It's not an easy question. Is it better to be able to afford a long trip every year, or to be able to fit two seating islands in your capacious great room?

    Believe me, here in Hong Kong we think about this conundrum all the time. The only way out is to buy a first property, pay it off (or at least reduce the mortgage bigly), then buy an investment property. Then you can actually cash in when property values go up. But when everyone else is thinking the same way, that's when the bubble fun and games can really get started.

    your friends are tied down to their nests

    Selling a house with a real estate agent is only marginally more complicated than moving out of a rental.

    • Replies: @Bill
    That's true in a hot housing market. If you have to move in a cold housing market, not so much.
    , @ANON
    Perhaps. But it's a whole lot more expensive.
  88. Lot says:
    @Gabriel M
    You're all wrong. Or rather you are all arguing about surface phenomena.

    If you expand the money supply, there will be a bubble. End of story. When the money supply stops expanding the bubble will burst. End of story. It's interesting to look at the factors which directed the bubble into housing and not something else, but it's not important. If those factors weren't present, the bubble would have gone somewhere else.

    (Arguably, it's better to have a bubble in housing than anything else because then at least at the end you end up with a lot of houses, and houses are pretty useful. Better than warehouses full of tulips. Spain has hundreds of thousands of beautiful houses that you can buy for silly money.)

    This also explains why economists can't explain the crash and talk obvious nonsense, because >75% of them get their money directly or indirectly from the Federal Reserve.

    If you expand the money supply, there will be a bubble.

    Only if the money is used to buy real estate. Japan has greatly increased its money supply but its real estate prices are still below their 1980’s peak. The Japanese just buy government bonds or put the money in 0-interest bank accounts.

    • Replies: @Gabriel M
    A bubble in government bonds is still a bubble.
  89. @Jenner Ickham Errican
    OT—hat tip commenter EriK: Steve running wild on obtuse UMD sociologist Philip Cohen on Twitter. Good stuff.

    https://twitter.com/Steve_Sailer/status/866395932539146241

    https://twitter.com/Steve_Sailer/status/866409784869879808

    https://twitter.com/Steve_Sailer/status/866509484864278532

    Tell Steve it should be ‘averse’ not “adverse”.

    • Replies: @Jenner Ickham Errican
    I should be antipathetic to do so, me dearie.
  90. @Lot

    If you expand the money supply, there will be a bubble.
     
    Only if the money is used to buy real estate. Japan has greatly increased its money supply but its real estate prices are still below their 1980's peak. The Japanese just buy government bonds or put the money in 0-interest bank accounts.

    A bubble in government bonds is still a bubble.

  91. I posted this before .

    Yeah , yeah , yeah . There is no mystery to salvation only a desire , a yearning for that thing . What would you have Steve ?

  92. “Could Immigration Save Youngstown?”, The Vindicator, May 22, 2017, http://www.vindy.com.

    Today’s headline in my local paper. (I don’t know how to link.)

    Includes mention of housing price increases and other come-ons and sweeteners for individuals and corporations thinking of jumping on the unlimited immigration bandwagon. I only scanned the article quickly, but it looks like it paints a world of all benefits and no consequences—magic dirt.

  93. Ed says:
    @The Z Blog
    So much has been ruled off-limits, our public experts are forced to speak in riddles most of the time. Look at the topic of crime. The spike in urban murder rates should be a hot topic of conversation, but everything about the subject is off-limits so no on bothers.

    It really is a weird age. Read a "news stories" and it is devoid of actual news, just clues about the news. You have to look in the comments to get the rest of the story, along with colorful commentary. http://boston.cbslocal.com/2017/05/18/dunkin-donuts-drive-thru-window-shot-over-a-sandwich/

    There's a late Soviet Empire vibe these days. The ruling class carries on like everything is going great. They insist on the narrative, despite the mountain of contrary evidence. Meanwhile. out in the hinterlands, the cynicism grows. The only people who believe anything in the news are Boomers and even they are starting to wake up.

    I saw Trump coming because of the comment section. The papers would write these stories about BLM, crime or schools and take the most favorable views towards blacks. Not holding them responsible for anything.

    In the comment section though the people would let them have it and you can tell it wasn’t a put on. People would share pretty detailed personal experiences.

    • Replies: @Judah Benjamin Hur
    What sites were you looking at? People I know in Pennsylvania could sense Trump was doing well but it's hard to notice if you live somewhere or read sources that lean mostly one way or another.
  94. @The Z Blog
    So much has been ruled off-limits, our public experts are forced to speak in riddles most of the time. Look at the topic of crime. The spike in urban murder rates should be a hot topic of conversation, but everything about the subject is off-limits so no on bothers.

    It really is a weird age. Read a "news stories" and it is devoid of actual news, just clues about the news. You have to look in the comments to get the rest of the story, along with colorful commentary. http://boston.cbslocal.com/2017/05/18/dunkin-donuts-drive-thru-window-shot-over-a-sandwich/

    There's a late Soviet Empire vibe these days. The ruling class carries on like everything is going great. They insist on the narrative, despite the mountain of contrary evidence. Meanwhile. out in the hinterlands, the cynicism grows. The only people who believe anything in the news are Boomers and even they are starting to wake up.

    I’ve been calling it the Brezhnev stage for the last ten years.

  95. @James Richard
    What???? There was a real estate credit bubble and fraudulent ratings on this highly leveraged securitized debt. There is complete consensus on this (after the fact of course.)

    I imagine this has already been watched by commentators here but it is still good; and dates from 2008!

    (From 3 mins if you want to go straight to the meat.)

  96. Mainstream economists don’t factor credit into their models. One man’s debt is another man’s asset goes the thinking, so the absolute level of debt is ignored.

    Meanwhile, there are currently housing bubbles in Canada, Australia and China, all of which show the same pattern of rising credit growth.

  97. @Dan Hayes
    And lest we forget: G W Bush's infamous speech where he declared no need for home ownership down payments!

    I think this is an issue of one minor contributing factor to the crisis that alone and reasonably administered would not have been the cause of a catastrophe. A substantial down payment is a traditional show of good faith and “skin in the game” that simultaneously secures the lender against a possible deficiency if there are dips in housing prices. But ZIRP and the speculatory nature of the housing market drove prices so high as to be beyond the ability of lots of normal people to save the traditional 20% downpayment and closing costs while simultaneously renting (and probably paying student loans). So in order to keep the market red hot (and avoid a collapse) zero down payment Mortgages were necessary, otherwise the market of new homeowners would dry up.

    Zero down Mortgages wouldn’t even have been that much of a problem when wages in real dollars were increasing – if made to specific borrowers whose careers were on an upward trajectory. But if you couple zero down with no documentation loans/loans which count food stamps as family income you’re creating the conditions for an implosion.

    • Disagree: Dan Hayes
  98. @Anonymous
    The other sacred cow is neoliberalism and the idea that the middle class being force dinto debt to buy a home is “good economic sense”.

    Forcing people into debt used to be seen as a bad idea, but somehow over the years endlessly skyrocketing land prices have become the “new norm” that we’re all supposed to accept and even encourage.

    Would you mind briefly explaining why anyone would think that forcing people into debt is a good thing? I've heard other people mention such an idea, but I really don't understand it at all. Thanks.

    Having more people take on debt increases the amount of money in an economy and is the basis for economic growth. When a loan is taken by a homebuyer, the bank credits his account with newly created money which the homebuyers uses to buy a home. This money accrues at the seller’s bank account and can be used to create new loans because a bank creates money as a function of the deposits it keeps on hand. As more deposits come in from people receiving loans and purhashing things, more money can be created with new loans.

    Individuals and business borrowing money is the basis of economic growth because the money created out of nothing funds construction of new houses, purchase of new machinery, creation of new consumer goods etc. By proxy, it also creates new jobs to build/run everything. All of this is based on the initial creation of money.

    The problem occurs and did occur when the individuals were unable to pay back the loans they took out. That money exists only as function of the future claim held by the bank, the loan, being satisfied. If that claim cannot be paid, that money is, in essence, non-existent. For lack of a better term, the money is destroyed. At that point, the money creation dynamic slows or reverses as banks can no longer create new loans.

    • Replies: @Autochthon
    It'd be cool if someone (Mr. Derbeyshire?) with the time
    and mathematical aptitude wrote a book explaining this stuff for laymen; perhaps it could be entitled Fractional Reserve Banking & Other Lies Your Government Told You.
  99. @Clyde
    The real estate industry and everyone in real estate is always agitating for more immigration of every kind including illegal aliens and refugees. 70% of refugees we take in are Muslim, it is a back door immigration program. Of course our mighty toilet paper industries and disposable diaper makers are always pushing for more immigration.

    Give us increased toilet paper sales into perpetuity, or give us death.

    There still are a few things worth fighting for.

  100. @bored identity
    The Sand States and their Sand People...arghhh.



    Too Little Bighorn to Fail , or Why Don't Military Industrial Complex Yet Allow the House of Saud Bust? :

    https://youtu.be/Z4_jAO5uT88?t=5m15s

    Ivanka is beginning to look like hillary’s huma to our president. Everywhere he goes, there she is.

  101. Sure, there was a housing bubble. But the subprime, “liar’s loan” mortgages were only a small part of the collapse.

    All you need do is compare the S&L crisis of the early 90s to 2008. In the former, a few local banks and savings and loans went under, prices of real estate regained equilibrium.

    After all, if you loan $200,000 on a house that’s really worth $150,000, you can still recover 75% of your loan.

    In the latter, huge investment banks like Bear Stearns, Lehmann Bros went under and others were endangered – world wide. Some banks like Deutche Bank and RBS haven’t recovered.

    The difference was the the way mortgages were securitized, and how those securities were bought with borrowed money and hedged with credit default swaps, which themselves were bought with borrowed money.

    This meant that perhaps $1 million in credit and instruments was resting on that $150,000 house.

  102. @Steve Sailer
    It's a little like somebody asks me what caused the U.S. to fight World War II and I say "Pearl Harbor," and you say, "Oh, no, it was much bigger and more complicated than that." Or you ask: What set off the Great Depression and I say "the New York stock market crash of October 1929" and you say "Oh, no, it was much bigger and more complicated than that."

    You know we both can be right.

    “What set off the Great Depression and I say “the New York stock market crash of October 1929”

    Fair enough but it matters in terms of remedies, doesn’t it? There have been several stock market crashes since then, with the Fed showing relatively little concern. That’s because Milton Friedman supposedly proved that monetary policy was the cause of the Great Depression and/or the remedy.

    It’s not that I have some strenuous objection to your observation about default rates among minorities. I’m just pointing out that Robert Schiller is likely looking for a Friedman-style explanation for the Great Recession, not necessarily ignoring the more mundane ones.

  103. @Deso Dogg
    Fair enough, but that seems like it might be reverse (or back-and-forth) causality. I'll readily grant it was a factor, I just think that big picture economic trends that are independent of immigration were probably more important.

    When the bubble burst, those four states accounted for 70 percent of the mortgages underwater, ( more was owed than the value of the home) despite being slightly less than a fifth of the total population. California, for example has had negative native migration since what 1993 or 94? So immigration fueled rather significant growth there.

  104. @Beckow
    There was another macro contributing factor - mankind has moved from food scarcity to housing (usable living space) scarcity. What is scarce will experience bubbles and shortages, often in parallel, there is always speculation and manias. Scarcity is also not manageable.

    We used to have famines and the main political factor was the price of bread. That seems to be gone for now. Today most of the advanced world is dealing with housing as the core unresolved (and maybe unresolvable) issue. It has become the main cost (up to 50% for younger people), main asset, main investment. Housing drives migration since owners want more renters/buyers, it determines who is comfortable and who is poor. It is an obsession as it has never been before. Watch what is happening in the most 'advanced' parts of the world, from London and Silicon Valley, to Tokyo, Moscow and China, housing and asset prices are the core issue for most people. One's access to housing determines almost everything - it is more important than skills, education, status, jobs, etc...

    2007-8 was a harbinger of things to come. This is not about to get better. So find a comfortable spot on the bubble and take a ride. Scarcity cannot be managed.

    Modern – actually it’s been around for about a century – methods of building construction using steel or concrete framed multi-story apartment blocks built to standard patterns, (the Chinese are very big on this), have more or less ‘solved’ any ‘housing crisis’.

    The ‘scarcity’ problem lies somewhere else.

    • Replies: @Anonymous
    I suspect that the 'scarcity' in this particular instance is represented by the third world origin's population sheer lack of purchasing power to purchase, at American market rates, the fruit of the labour of steel erectors, concrete pourers, crane drivers, machine drivers, tradesmen etc.

    Remember 'Schaeffer's Number', as discussed in iSteve passim.
  105. Economist Robert J. Shiller is a shyster. Shiller is an economist. Shiller is unscrupulous. Shiller is an academic. Shiller pushes globalization and mass immigration. What more do you need to know?

    Shiller and his ilk will defend this rotting globalized economic and political system until they expire and go to hell. My favorite economist croaked while in the middle of a lecture. He dropped dead of a heart attack. True story. Economists are evil beyond redemption.

    • Replies: @Robert Hume
    Shiller used sophisticated data analysis to predict the 2000 stock market collapse and the 2009 housing market collapse. Seems like great achievements to me
  106. @Opinionator
    But isn’t it striking that after almost a decade: “There is still no consensus on why the last housing boom and bust happened”? It was the biggest news story since 9/11

    After more than 15 years we still don't understand why 9/11 happened. And our inability to understand is due to much the same pressures Steve cites with respect to the housing bubble--it's safer, career-wise, to remain puzzled about the motivations of the Arab resistance fighters, or to ascribe their actions to "Islamic radicalism."

    9/11 happened because of the Islamic religious beliefs of the terrorist perpetrators, most importantly the belief that actions like theirs would result in an eternity in paradise,

    • Replies: @Opinionator
    9/11 happened chiefly because their homeland is under Zionist invasion. The Arab resistance were explicit about that and had no reason to lie.

    But people in the United States are not allowed to talk about this in public.

  107. biz says:
    @Mr. Anon

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.
     
    They also portrayed Wall Street as being dominated by WASPS, or at least people who present as such. Probably all Harvard Men, who wore raccoon coats and drove Stutz Bearcats, and sported plus-fours while playing golf.

    They also portrayed Wall Street as being dominated by WASPS, or at least people who present as such.

    That’s not true. The lead character played by Steve Carrell was an over-the-top neurotic Jew, even to the point of showing his bar mitzva photo when introducing him. Another one of the main four was a Jersey-shore style Italian.

    That movie had many inaccuracies but portraying Wall Street as WASPy was not one of them.

  108. The monetary extremism of the globalized central banks caused the real estate bubble. The real estate bubble popped in 2007-2oo9. The monetary extremism of the globalized central banks has re-inflated the real estate bubble. The current real estate bubble is in the process of popping at this very moment.

    Mass immigration and monetary extremism are the two big issues of our time. The battle is being fought under the banners of patriotism vs globalization. Demography and debt just means mass immigration and financialization. Shysters like Robert Shiller are vile slobs who will never admit that their project to globalize the United States has led to unpayable government debt and unpayable private debt and unsustainable levels of multicultural mayhem.

    The upcoming global financial implosion will stop mass immigration cold. The only thing holding the globalized financial system together is monetary extremism. That is why the globalized central banks must continuously inflate asset bubbles. Central banking is the key to understanding globalization, financialization, mass immigration and asset bubbles.

  109. @Mr. Anon

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.
     
    They also portrayed Wall Street as being dominated by WASPS, or at least people who present as such. Probably all Harvard Men, who wore raccoon coats and drove Stutz Bearcats, and sported plus-fours while playing golf.

    The character played by Steve Carell was pretty clearly Jewish.

    • Replies: @Opinionator
    The Carrell character was portrayed sympathetically.
    , @Abe

    The character played by Steve Carell was pretty clearly Jewish.
     
    HBO is right now plugging its new Madoff biopic starring DeNiro. If there were a a consistent policy to "whitewash" the (((ethnicities))) of financial wrong-doers you'd think they'd have let this one die (Madoff who?), as DeNiro looks like Philip Roth's brother crossed with some angry rabbi in the promo pic I saw.
  110. Anonymous • Disclaimer says:
    @Anonymous
    Modern - actually it's been around for about a century - methods of building construction using steel or concrete framed multi-story apartment blocks built to standard patterns, (the Chinese are very big on this), have more or less 'solved' any 'housing crisis'.

    The 'scarcity' problem lies somewhere else.

    I suspect that the ‘scarcity’ in this particular instance is represented by the third world origin’s population sheer lack of purchasing power to purchase, at American market rates, the fruit of the labour of steel erectors, concrete pourers, crane drivers, machine drivers, tradesmen etc.

    Remember ‘Schaeffer’s Number’, as discussed in iSteve passim.

  111. @Busby
    My own hobby horse is cheap credit. Excess capital = low interest rates = loose lending standards = speculative bubble.

    But your explanation is much more detailed and therefore sounds better.

    Immigrants, legal or otherwise were a small, almost insignificant part. My radio in north Texas was blaring 24/7 about no down no doc loans. In fact over the past 30 years I've more often than not been able to forecast economic trends simply by listening to the radio. Not discreetly enough to be an investment thesis, but I know the time not yo buy gold is when every other commercial is for gold, or today's commodity, silver.

    >I’ve more often than not been able to forecast economic trends simply by listening to the radio.

    I don’t think I can forecast based off of it, but it definitely confirmed without a doubt what the real story is on the economy in my area. Just about every single radio ad is a car dealer offering no money down auto loans , “bad credit no problem” and “if you’ve had your job for 6 weeks you can drive away in a brand new car” type of stuff.

  112. @guest
    As I recall, that movie mentioned immigration twice. Once when the mortgage dudes were bragging about selling "NINJA" ("no income, no job") loans and selling to strippers. I think one of the two guys mentioned the other liked selling to immigrants. Which makes it out to have been bottom-feeding sharks exploiting the poor huddled masses.

    The other instance came at the end of the movie, when they were giving their summation and warned us about unscrupulous people blaming immigrants ([cough!] Donald Trump [cough!]). Which confused me in the theater, because I was thinking, "You didn't even mention immigrants," because I had forgotten the brief mention earlier.

    They were sort of in a catch-22, because they wanted to counter immigration-blaming arguments, but they also don't want to associate immigration with the meltdown at all. It's not part of the Narrative. They don't want to bring the issue into the official Narrative, even if it's just to slap it down. But bringing it up out of the blue confuses people, as it did me.

    If I have my timeline right--and I'm just going by off-the-cuff memory--the movie came out months after Trump announced his candidacy. So they must have felt it was too important not to address the issue. Nevertheless, they didn't put it in the storyline, because I guess it wasn't important enough. They just tacked a campaign message onto the end.

    A quick search at Amazon in the book for the phrase “immigrant” shows that that group was targeted because they had NO credit history, and so no history of defaults. There is also a disparaging remark on page 145 about someone “hunting” illegal immigrants.

    So Michael Lewis wasn’t oblivious to one source of housing bubble purchasing supply.

    • Replies: @Opinionator
    Guest is referring to the movie, not the book.
  113. @Mr. Anon

    Even the Daily Show in 2007 did not point any fingers at immigrants:
     
    Even? Would you expect them too? Ever?

    The implied message in that clip is that blacks are responsible for subprime. That’s not expected.

  114. @Anonymous
    The other sacred cow is neoliberalism and the idea that the middle class being force dinto debt to buy a home is “good economic sense”.

    Forcing people into debt used to be seen as a bad idea, but somehow over the years endlessly skyrocketing land prices have become the “new norm” that we’re all supposed to accept and even encourage.

    Would you mind briefly explaining why anyone would think that forcing people into debt is a good thing? I've heard other people mention such an idea, but I really don't understand it at all. Thanks.

    >why anyone would think that forcing people into debt is a good thing?

    People who lend money think it’s a good thing because thats how they make money… Can you think of any groups who have traditionally been in the money lending business that are now highly placed in government, media, academia, etc etc?

    • Replies: @Judah Benjamin Hur
    Bulgarians?

    BTW, I have sound advice for you. Do not borrow money to buy a house.
    , @Charles Pewitt
    DEBT AND DEMOGRAPHY

    PATRIOTISM VS GLOBALIZATION

    FINANCIALIZATION AND MASS IMMIGRATION

    GLOBALIZED CENTRAL BANKS

    MONETARY EXTREMISM

    Don't let the ruling class whores distract you with nonsense. Young people are under no obligation to pay government debt. Globalization was a smash and grab scheme from the get-go. Young people should look into the legal concept of ODIOUS DEBT.

    Debt-based fiat currency systems must have continuously expanding debt or the economy will contract. The global financial system is a fraud run by the globalized central banks.

    Don't swing at 0-2 curveballs in the dirt. The corporate propaganda apparatus is owned by the same people who benefit from the global financial system. The corporate propaganda apparatus wants you to swing at 0-2 curveballs in the dirt. The bankers do not want young people looking too closely into what they are doing.
  115. @EriK
    Buying a home is a lifestyle choice. It's not an investment choice. So please explain, what harm?

    Housing is such a major expense that the economic implications can’t be ignored. Of course, everybody is different and has different needs.

    Increasing numbers of academics and others are advising against home ownership. The reality is that home ownership is the surest way for middle-class people to accumulate wealth. In theory, it may often be better to rent and save, but that advice is about as likely to work as “eat less and exercise.”

    All things being equal, it’s better not to wake up at 60 and realize you don’t have a penny to your name. There are worse fates, of course.

    • Replies: @ANON

    The reality is that home ownership is the surest way for middle-class people to accumulate wealth.
     
    Well, this may have been somewhat true before 2006, and it may work in a few advanced coastal cities, but by and large owning real estate has been a great way to destroy your wealth for over a decade now.

    Separately, I'd add that the infamous rent-vs-buy calculators give short shrift to (or ignore entirely) the colossal, continuous costs of home maintenance and repair. In many cases they account for more than the mortgage.

  116. You forgot the “PC makes you stupid” tag.

    But the explanations for what happened in housing are not, I think, to be found in the conventional data favored by economists but rather in sociologically important narratives

    So without grappling with things like the Bush Administration’s Ownership Society and anti-downpayment, anti-documentation Increasing Minority Homeownership initiatives, you can’t get close to the full story.

    He was sorta in the ballpark. The anti-racist/equalitarian/PC/leftist/racially enstupidated Narrative is a sociologically important one. The way cancer is medically important.

    After more than 15 years we still don’t understand why 9/11 happened. And our inability to understand is due to much the same pressures Steve cites with respect to the housing bubble–it’s safer, career-wise, to remain puzzled about the motivations of the Arab resistance fighters, or to ascribe their actions to “Islamic radicalism.”

    It’s interesting to speculate what the excuses would be, if SW Asia weren’t rich in oil.

    Even the Daily Show in 2007 did not point any fingers at immigrants

    You say that like it’s unexpected.

    You’d do much better just putting a stack of cash in a safe deposit box, which many people do, but the Swiss can’t keep up with demand for high denomination bills and investors with hundreds of millions do not find piles of cash practical.

    No certificates of deposit in Germany or NE Asia? They still pay (very small amounts of) interest, don’t they?

    Immigrants, legal or otherwise were a small, almost insignificant part.

    To view this as a diversity and immigrant problem shows a leaning to an interpretation of all things within that paradigm.

    To do this and publish this as a journalist is particularly dangerous.

    This kind of argument ignores the motives and/or excuses for lowering standards for everybody.

    • Replies: @Opinionator
    It’s interesting to speculate what the excuses would be, if SW Asia weren’t rich in oil.


    Foreign invasion (in the form of Zionism in this circumstance) can hardly count as an "excuse." It has been the chief source of conflict among men for time immemorial.
  117. @27 year old
    >why anyone would think that forcing people into debt is a good thing?

    People who lend money think it's a good thing because thats how they make money... Can you think of any groups who have traditionally been in the money lending business that are now highly placed in government, media, academia, etc etc?

    Bulgarians?

    BTW, I have sound advice for you. Do not borrow money to buy a house.

  118. @Ed
    I saw Trump coming because of the comment section. The papers would write these stories about BLM, crime or schools and take the most favorable views towards blacks. Not holding them responsible for anything.

    In the comment section though the people would let them have it and you can tell it wasn't a put on. People would share pretty detailed personal experiences.

    What sites were you looking at? People I know in Pennsylvania could sense Trump was doing well but it’s hard to notice if you live somewhere or read sources that lean mostly one way or another.

    • Replies: @Ed
    You'd be surprised even the NYT comment section had some pretty harsh comments that ran in opposition to editorials on school segregation, immigration & BLM. In general local news story though are a good barometer I've found.
  119. @Jonathan Mason
    The last housing boom and bust came about because it was made too easy to get mortgage money by offering low teaser entry rates of interest, so that buying became much cheaper than renting in many part of the country.

    The easy money tempted home builders to vastly increase profit margins so that new homes were being sold for prices that bore no relation to the cost of construction plus land, plus a reasonable profit, and no sensible relation to average earnings.

    Eventally when the teaser rates expired, people stopped paying, or were no longer able to pay, and there were larger numbers of defaults than expected leading to larger numbers of poorly-built homes on the market and a shortage of buyers. People who could no longer pay the mortgages were then unable to sell the homes either.

    Even the wise virgins who had plenty of equity in their homes were suckered into taking out "home equity loans" (actually second mortgages) on their homes to spend money on luxuries, or home improvements, but when home prices crashed the equity disappeared and the home improvements turned out to have added nothing to the value of the homes.

    At least that is how it was in Florida.

    The last housing boom and bust came about because it was made too easy to get mortgage money by offering low teaser entry rates of interest, so that buying became much cheaper than renting in many part of the country.

    And lenders were offering cash-out refis at LTVs that were way too high. The LTV is capped at 80% in Texas, which is one reason there was no bubble in Texas.

    • Replies: @Busby
    True, but there is a more significant factor.

    When the Texas real estate boom of the 80s collapsed, we prosecuted crooked real estate appraisers and S&L directors. Some even went to jail.
    , @Ivy
    Texas has another deterrent to house price bubbles. Foreclosures can be done in less than a month in many cases, so borrowers don't have the opportunity to play games to stay in houses for months on end like they do in California, for example. The prospect of you and your worldly possessions being out on the street quickly may dissuade overpaying or fudging the income numbers.
  120. @Lot
    People forget where the actual money that fed the housing bubble came from: NE Asia and Germany. These areas had high incomes, high savings rates, and very low birth rates.

    Traditionally money is lent from people over 50 to those under 35. But in NE Asia and Germany, low birth rates created a much larger saver demographic compared to borrower demographic. On top of this, the younger demographic itself had unusually low demand for savings due to pessimism about the future, delayed marriage and childbirth, and the fact that there was more room to stay with their parents since the kids stayed single to 30 and beyond and lacked siblings.

    With domestic savings so much higher than domestic demand for loans, local interest rates fell below inflation and the money went abroad. It was not just the Sunbelt housing bubble, but also a housing bubble in Spain (especially vacation homes and retirement condos), government and consumer debt in Greece, and high-yield savings accounts in reckless banks located in island countries with weak bank regulation (Iceland, Cypress, Ireland, and Britain).

    Lending standards gradually disappeared because default rates on subprime loans fell down to near zero, as borrowers could easily refinance or sell due to higher prices.

    Germany and NE Asia still have extreme excess savings. But they are now scared to lend to America and Southern Europe, so they buy government bonds with negative interest rates. As in, if you want a Swiss bond that pays $1 a year for five years, then pays its $100 principal back, for a total payment stream of $105, you will have to pay $115 for it today and will be guaranteed to lose money. You'd do much better just putting a stack of cash in a safe deposit box, which many people do, but the Swiss can't keep up with demand for high denomination bills and investors with hundreds of millions do not find piles of cash practical.

    Very good insights!

  121. eric says:

    Academics and the Fed have officially rejected the theory that explicit targeting of low income borrowers caused the recession. They point to data where explicitly-targeted borrowers were relatively few and did not experience much higher default rates. What this ignores is that to get these borrowers in, they brought down the standards for everyone.

    Fannie Mae’s MyCommunity MortgageTM was at the forefront of the credit crisis, and had many sub-programs, all targeted at low-income communities and borrowers. MyCommunity Mortgage got bundled into Fannie’s ubiquitous DeskTop Underwriter, a mortgage origination program that made these abominations standard. Once they set this up (around 2000, with new twists every year), one can see how these bad ideas spread all over the industry. The method to process the innovative loans needed no extra work, and as to the ‘risk’, the regulators could not simultaneously view these loans as risky while another government branch created them, in the same way they can’t push affirmative action and sue firms for having de facto quotas.

    One interesting aspect of this program is how disingenuous it is. They are 4 exceptions to having sufficient ‘traditional credit history’, with several pages of nuance often referring to another document entirely. They don’t say NINJA loans, but that’s what they mean. Such criteria are not meant to be read and understood, they just mean, if you wave this in front of someone (eg, regulator) no one will question you because you are probably correct (and we all know what the program wants–more poor people with houses).

    So, technically, they can say all those other loans were the real cause, but the lowering of underwriting standards was clearly driven by the Community Reinvestment Act (CRA) and related initiatives.

    • Replies: @Art Deco
    Academics and the Fed have officially rejected the theory that explicit targeting of low income borrowers caused the recession. T

    Again, roughly 3/4 of the value of underwater mortgages were held by prime borrowers.

    The uncertainty created by credit default swaps owes nothing to what was going on at the low end of the housing market.
    , @MarkinLA
    So, technically, they can say all those other loans were the real cause, but the lowering of underwriting standards was clearly driven by the Community Reinvestment Act (CRA) and related initiatives.

    What came first the chicken or the egg? Wall Street was buying mortgages that Freddie and Fanny could not and that was what was fueling all those unregulated mortgage companies. That the standards were lowered later by Freddie and Fannie was a reaction to the market and not something they caused.
  122. @27 year old
    >why anyone would think that forcing people into debt is a good thing?

    People who lend money think it's a good thing because thats how they make money... Can you think of any groups who have traditionally been in the money lending business that are now highly placed in government, media, academia, etc etc?

    DEBT AND DEMOGRAPHY

    PATRIOTISM VS GLOBALIZATION

    FINANCIALIZATION AND MASS IMMIGRATION

    GLOBALIZED CENTRAL BANKS

    MONETARY EXTREMISM

    Don’t let the ruling class whores distract you with nonsense. Young people are under no obligation to pay government debt. Globalization was a smash and grab scheme from the get-go. Young people should look into the legal concept of ODIOUS DEBT.

    Debt-based fiat currency systems must have continuously expanding debt or the economy will contract. The global financial system is a fraud run by the globalized central banks.

    Don’t swing at 0-2 curveballs in the dirt. The corporate propaganda apparatus is owned by the same people who benefit from the global financial system. The corporate propaganda apparatus wants you to swing at 0-2 curveballs in the dirt. The bankers do not want young people looking too closely into what they are doing.

  123. @Anonymous
    An absolutely terrible indictment of the economics profession.

    The really sad, shocking thing is that government policy/strategy is, ultimately, based upon the findings and recommendations of the economic profession.
    If, as Steve argues, the economics profession is too cowardly, prejudiced or downright incompetent to discern the causes of what was - let's not mince words here - a catastrophe of the highest order - then we are well and truly screwed.

    The correct analogy is to Galileo and the other scientists of the enlightenment who followed him. Galileo had the guts to argue against the prevailing, political/religious dogma when he knew it was erroneous. He jeopardized his life and freedom for truth, but had the courage not to mislead and deny for the sake of dogma.
    If he concealed and lied, where would we be today?

    An absolutely terrible indictment of the economics profession.

    Why? Economists are not engaged in the business of finance and only a modest minority of them are specialists in financial economics (and I suspect you’ll discover that most such specialists teach at business schools rather than on arts-and-sciences faculties). Nearly all the underwater properties were so due to loans made after 2003 – it all emerged in just a few years. One crucial component of the crisis was the uncertainty over what obligations due per credit default swaps would do to institutions. I talked to a macroeconomist in 2008 who told me that textbooks on financial economics published as late as 2001 had nothing on credit-default-swaps. They were financial sector esoterica.

    • Replies: @MarkinLA
    Nearly all the underwater properties were so due to loans made after 2003 – it all emerged in just a few years.

    Well technically true but you are forgetting a lot of those mortgages made after 2003 were refinances of loans made earlier that would have gone into default if not for the continuing bubble.
    I buy a house I really can't afford in 1999. Right before my mortgage reset in 2004 I refinance and continue for another few years. Wasn't the real problem that I was given the loan in 1999?
    , @MarkinLA
    Economics is a worthless pseudo-science that usually does nothing more than provide assurances that whatever is happening now is normal and should not be tampered with. Remember all those morons coming out during the dot com bubble telling us that this was the "new paradigm". Remember Jeffrey Sachs and crew screwing things up in Eastern Europe with their big bang nonsense. Remember Greenspan telling us that we can't determine what a bubble is?
  124. @eric
    Academics and the Fed have officially rejected the theory that explicit targeting of low income borrowers caused the recession. They point to data where explicitly-targeted borrowers were relatively few and did not experience much higher default rates. What this ignores is that to get these borrowers in, they brought down the standards for everyone.

    Fannie Mae's MyCommunity MortgageTM was at the forefront of the credit crisis, and had many sub-programs, all targeted at low-income communities and borrowers. MyCommunity Mortgage got bundled into Fannie's ubiquitous DeskTop Underwriter, a mortgage origination program that made these abominations standard. Once they set this up (around 2000, with new twists every year), one can see how these bad ideas spread all over the industry. The method to process the innovative loans needed no extra work, and as to the 'risk', the regulators could not simultaneously view these loans as risky while another government branch created them, in the same way they can't push affirmative action and sue firms for having de facto quotas.

    One interesting aspect of this program is how disingenuous it is. They are 4 exceptions to having sufficient 'traditional credit history', with several pages of nuance often referring to another document entirely. They don't say NINJA loans, but that's what they mean. Such criteria are not meant to be read and understood, they just mean, if you wave this in front of someone (eg, regulator) no one will question you because you are probably correct (and we all know what the program wants--more poor people with houses).

    So, technically, they can say all those other loans were the real cause, but the lowering of underwriting standards was clearly driven by the Community Reinvestment Act (CRA) and related initiatives.

    Academics and the Fed have officially rejected the theory that explicit targeting of low income borrowers caused the recession. T

    Again, roughly 3/4 of the value of underwater mortgages were held by prime borrowers.

    The uncertainty created by credit default swaps owes nothing to what was going on at the low end of the housing market.

    • Replies: @eric
    Lowering standards shifted the demand curve and created the bubble, which when reversed affected all borrowers. Once many were underwater on their homes, many not just defaulted, but lived in their home for 2 years not paying anything, because evil Wall Street was truly at fault. The net result was to make everything worse, because recovery rates on defaulted homes went from 90% to 20%, which is now baked into the costs of borrowing. The lower standards were the key to the story.

    Default swaps are a red herring, little different than in the 'bad old days' when people just sold the mortgages via securitizations. Alas, corporate default swaps used to be a big market, but the Fed discourages these so that dried up, and it's a shame because these helped diversify risk; it's like blaming the stock market for business cycles, common, but incorrect.

    The idea that if these were done on exchanges, and regulated, the crisis would have been much less severe is misguided because the problem was the underwriting of the loans that served as collateral, and no one was concerned about Ninja loans pre-2007, in fact, they were encouraged precisely because they helped CRA objectives. Regulators would have just added some other forms to CDS, not changed their nature.
  125. @anon
    This really isn't that hard. Structured finance. Mortgages were repackaged into securities that were given high credit ratings. There was a shortage of junk bonds. If people wonder who insured all those awful credits ... i.e. who sold credit default swaps, consider: A credit default swap plus a 'risk free' treasury bond is equivalent to a a junk bond. And synthetic bonds were sold that were financially equivalent to the original bond. And early in the crisis when credit default swaps were settled up, the contracts sometimes required that an actual bond be submitted to to the 'insurer'. There were a couple of cases where there was a shortage of the referenced security and the defaulted bonds regained some of their value to facilitate closing out the position. This was quickly eliminated and the clearing group agreed on a simple net cash settlement process.

    1. People believed credit ratings. In fact, investment grade public companies very rarely default on debt. A lot of investors were required to buy investment grade bonds. Structured finance created them.

    2. Interest rates have been declining since the mid 1980's, and there were any number of investors that were desperate for yield in the mid 00's. Think of a hypothetical pension fund that needed a 5% yield to match their liabilities -- and a failure would result in the need and eventual demand for additional funding. Or people that just wanted more yield.

    3. This was largely done by people who 'originated to sell' the mortgages and never intended to hold them for a second longer than necessary to put together the pool and sell it to the next sucker. But bad loans weren't made and then simply pawned off on the next middle man -- The middle man or financial institution who created the structured mortgage security were demanding riskier and therefore higher yielding mortgages. This was demand driven -- by the end purchaser who believed the rating and even more so by the middle man. There is always infinite demand for loans by people who won't and can't repay them. The lender is supposed to be the 'mean person' who is cold hearted and says no. But things became so deranged that lenders were demanding bad loans.

    ________________

    This is the mechanism behind the final boulder that brought down the housing bubble.

    However, underlying that -- a mortgage is the common man's hedge fund. You put down 5% (and buy mortgage insurance for the rest of the 20%) and get a loan for an amount multiple times your salary. The monthly payment is roughly equivalent to rent you have to pay anyway. And when the 'value' of the housing increases 10% in a year, you have just doubled your investment. And can then spend that 10% by taking out a Home Equity Line of Credit or HELOC.

    Plus you get the tax deduction for the mortgage interest. This is a much better bet than the typical hedge fund deal.

    Housing bubbles are also not rare. There are over a dozen in developed banking systems since WW 2.

    Here is the book on it:

    http://www.bis.org/publ/bcbs_wp13.pdf

    You have a

    Fascinating comment. Talk about coitus interruptus. What were you going to say? I await with bated breath.

  126. @Steve Sailer
    Indeed. And yet we have the Information Superhighway that would seemingly, like Eisenhower's Superhighways, allow Americans to move to less expensive land. But it doesn't seem to work that way ...

    The information superhighway has done almost nothing to disperse housing because it hasn’t superseded human nature. People can’t telecommute to jobs at tech companies in Silicon Valley from their homes in Idaho and Arizona, because management wants to see butts in the prairie dog farms at 8AM, and they think rightly or wrongly that face to face interaction is crucial for optimal function. Hence people are paying the price to live clustered near employment.
    The biggest effect of the information superhighway has been to enable wholesale displacement of jobs to brand new employment clusters off shore, but they are still clusters.

    • Agree: Autochthon
  127. https://www.city-journal.org/html/unsayable-truths-about-failing-high-school-15197.html

    Way the hell off topic: BUT this story has schools, Blacks, Reggie Jackson, the Netanyahu boys, brawling female Blacks, knocked out White lady teachers, racial behaviour gaps, Philadelphia going Detroit, written by a baby boomer lady Jew who could be called an “honest Jew” and more!

  128. eric says:
    @Art Deco
    Academics and the Fed have officially rejected the theory that explicit targeting of low income borrowers caused the recession. T

    Again, roughly 3/4 of the value of underwater mortgages were held by prime borrowers.

    The uncertainty created by credit default swaps owes nothing to what was going on at the low end of the housing market.

    Lowering standards shifted the demand curve and created the bubble, which when reversed affected all borrowers. Once many were underwater on their homes, many not just defaulted, but lived in their home for 2 years not paying anything, because evil Wall Street was truly at fault. The net result was to make everything worse, because recovery rates on defaulted homes went from 90% to 20%, which is now baked into the costs of borrowing. The lower standards were the key to the story.

    Default swaps are a red herring, little different than in the ‘bad old days’ when people just sold the mortgages via securitizations. Alas, corporate default swaps used to be a big market, but the Fed discourages these so that dried up, and it’s a shame because these helped diversify risk; it’s like blaming the stock market for business cycles, common, but incorrect.

    The idea that if these were done on exchanges, and regulated, the crisis would have been much less severe is misguided because the problem was the underwriting of the loans that served as collateral, and no one was concerned about Ninja loans pre-2007, in fact, they were encouraged precisely because they helped CRA objectives. Regulators would have just added some other forms to CDS, not changed their nature.

    • Replies: @Art Deco
    Lowering standards shifted the demand curve and created the bubble,

    That is not a necessary condition to create an asset bubble and you had bubbles in Britain and in Spain without any Community Re-investment Act' and without our government-sponsored conduits and their incestuous association with the Democratic Party. That aside, the share of the population living in owner-occupied housing increased from about 65% to about 68%. Is it really all that plausible that that's going to generate a nine-year long inflation in real-estate prices which leaves prices 40% above long-term trends, an inflation manifest in the market for commercial and residential real-estate alike?

    , @Art Deco
    Default swaps are a red herring, l

    No it's not. An important component of the crisis was the distress of AIG, which derived from their sales of credit default swaps.
  129. gman says:

    One of the more interesting takes is Bill Davidow’s (of silicon valley)

    He blames the internet for increasing feedback loops.

    He sees the internet as an “information railroad” leading to the rise of the RMBS/CDO market in the way the actual railroad brought the rise of the futures markets in Chicago

  130. Anonymous • Disclaimer says:
    @Steve Sailer
    Indeed. And yet we have the Information Superhighway that would seemingly, like Eisenhower's Superhighways, allow Americans to move to less expensive land. But it doesn't seem to work that way ...

    And yet tech companies keep making it more restrictive –

    1) IBM just called back all employees to an office; if you don’t move, you’re done
    2) AT&T just told their entertainment customers to move to El Segundo from Atlanta
    3) Yahoo made their employeees go to the office as did BoA and Aetna

    Why? I work remotely for a $10B software company and I’m afraid I will be pulled into an offfice.

  131. There is still no consensus on why the last housing boom and bust happened.

    “No consensus” doesn’t mean “don’t know”, it just means they’re still talking about it.

    Economists are still debating the causes of the Great Depression of the 1930s.

  132. @Jefferson
    "It really is a weird age. Read a “news stories” and it is devoid of actual news, just clues about the news. You have to look in the comments to get the rest of the story, along with colorful commentary. http://boston.cbslocal.com/2017/05/18/dunkin-donuts-drive-thru-window-shot-over-a-sandwich/"

    It's gotten to the point where Black criminal suspects on the run are only described by the local news as having black hair and brown eyes. Black hair and brown eyes could describe anybody from Bruce Campbell to Bruce Lee. How are we suppose to know it is code word for Sub Saharan African?

    Re: lack of race in criminal descriptions

    News outlets here in metro-Chicago do it all the time. Same leads to nonsensical results wherein television reporters read a sketchy, incomplete, and thus unhelpful, description of the perpetrator and then say that the police are asking for the public’s help in catching the perpetrator and encourage those with information to call the police. LOL!

  133. @Intelligent Dasein
    Immigration / Diversity may be a sacred cow, but so too is the unquestionable rectitude of the Middle Class. Unfortunately, White Americans, particularly of the Boomer generation, also revealed their full propensity for short-sighted, socially destructive behavior during the housing bubble and the preceding tech boom.

    Nobody likes to talk about this, either. But it was all too apparent to me in those days. Watching an entire generation of parvenus gleefully running their shekels through their hands while destroying my future is enough to black-pill anybody. And don't think this didn't also feed back into the immigration issue. People in the grip of a rising---nay, ebullient---social mood are not going to spoil the party by taking a hard line against immigrants. "Come on in, the water's fine!", is the more likely response. And if this just so happens to coincide with the desire for cheap Mexican labor to build and landscape the new McMansions, who's going to complain?

    My overriding impression is that in the months immediately preceding the turn of the Millennium (ca. WTO riots?) and in the several years thereafter, something broke down in American culture. The whole zeitgeist took an irretrievable swerve into tackiness and cynicism, and the etiolated outlook of the managerial class, coincident with the explosive growth of the internet and the mainstreaming of corporate-speak, actually became the dominate social milieu. This was the dawn of Globalism in the specifically self-conscious sense in which the term is used today, and what followed was inevitable: the increasing financialization of the economy ultimately culminating in the housing crash.

    With the Western world finally beginning to feel the pinch from the diminishing returns of diversity, it's important to remember that, once you drill down beneath the level of immediate material causes, the immigration problem is really a White problem. We did this to ourselves. We created the conditions requisite for globalism and financialization and immigrant flows. We brought these people here. We indoctrinated ourselves with diversity gibberish. And while I'm all in favor of "Build the Wall" and "Send them Back," that alone isn't going to solve the problem. If, cateris paribus, cheap Mexican labor had not been available, we would have found some substitute for it by creating our own underclass, possibly by abolishing the minimum wage and outlawing organized labor. The real problem is buried deep inside ourselves and our institutions.

    Mulling over all this in those depressing days nearly a decade and a half ago, that is when I eventually arrived at the necessity of building something like a Catholic -Monarchist-Falangist-National-Socialist state, and that is what I believe to this day.

    Analysis is spot-on. Totally agree. Your conclusion, however, sounds like a kind of soft-core fascism which, as a cure, might in the long run be worse than the disease

    • Replies: @Old Palo Altan
    Agreed.
    What we need is hard-core fascism.
  134. @Towel Ban
    Too true

    17 years later, I wonder how many people are aware that the vast majority of 9/11 hijackers came from the same country Trump is currently swinging swords in.

    Every person whose opinion counts knows that most of the 9/11 hijackers were Saudis. There are of course a lot of registered voters who are ignorant of almost every fact relevant to the daily news. This is the basis for the whole career of Jesse Watters.

  135. @guest
    As I recall, that movie mentioned immigration twice. Once when the mortgage dudes were bragging about selling "NINJA" ("no income, no job") loans and selling to strippers. I think one of the two guys mentioned the other liked selling to immigrants. Which makes it out to have been bottom-feeding sharks exploiting the poor huddled masses.

    The other instance came at the end of the movie, when they were giving their summation and warned us about unscrupulous people blaming immigrants ([cough!] Donald Trump [cough!]). Which confused me in the theater, because I was thinking, "You didn't even mention immigrants," because I had forgotten the brief mention earlier.

    They were sort of in a catch-22, because they wanted to counter immigration-blaming arguments, but they also don't want to associate immigration with the meltdown at all. It's not part of the Narrative. They don't want to bring the issue into the official Narrative, even if it's just to slap it down. But bringing it up out of the blue confuses people, as it did me.

    If I have my timeline right--and I'm just going by off-the-cuff memory--the movie came out months after Trump announced his candidacy. So they must have felt it was too important not to address the issue. Nevertheless, they didn't put it in the storyline, because I guess it wasn't important enough. They just tacked a campaign message onto the end.

    In Atlanta, there were a lot of big suburban houses built in the 1980’s with really awkward designs built that started coming on to the market in the 00’s. I remember a realtor joking that he kept them on a separate list to show Chinese families.

  136. I almost look forward to another housing crash. I made a quarter-million dollars in the last one!

  137. @Steve Sailer
    Lots of immigration to Spain and Ireland during their Housing Bubbles.

    Anyway, why not look at where the Housing Bubble in U.S. was biggest and burst first/worst: the Sand States.

    Also plenty of immigration at many points in time and place without housing bubbles. It is quite possible that places experiencing housing bubbles would attract immigrants. There is not likely to be a single root cause but I think immigration was, if anything, a minor contributing factor. I’d wager that the larger effect of immigration was providing cheap construction labor

    • Replies: @Opinionator
    If the US population increases by 15 percent every decade, mostly driven by immigration, what do you think that does to housing prices?
  138. @Art Deco
    The bulk of the negative equity was to be found on the books of prime borrowers. Plying people with sketchy credit histories and / or insufficient income streams was a part of the story, but most of the force of the problem was derived from the condition of other sectors of the population.

    Various subfractions of the economics profession have their hobbyhorses. Their contentions are not necessarily well-established in the body of theoretical and empirical research. So you get fringe Austrians contending that it was all the Federal Reserve's doing with their inflation-targeting fandango and we need to replace central banking with a currency board (diagnosis odd - the run up in housing prices dates from 1997 while the Fed Funds rate was abnormally low only from the fall of 2002 to the fall of 2004; prescription frankly crackers, as can be seen with our own experience of the gold standard and foreign country's experience with unyielding currency pegs). Or you have a policy entrepreneur like Scott Sumner contending that it was all the Federal Reserve's doing with their paying interest on reserves and 'there's no such thing as bubbles' (about the bubbles, who do you believe, Sumner or your lying price indices? About the Fed's responsibility, wasn't it amazing that Dr. Bernanke and the Fed Governors managed to generate a severe economic crisis in Britain (using sterling), continental Europe (using the Euro), and Japan (using the Yen) all by paying 0.25% on reserves?). Then we've got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating).

    Here's a suggestion: you were looking at a perfect storm of several problems: undigested financial innovation (credit default swaps - emerging in 1995), institutional stupidity (Joseph Cassano's Financial Products Unit at AIG), the promotion of poor underwriting (Freddie Mac slashed underwriting standards in 2003), and manias which require the tools of social psychology to explore (manias on the part of borrowers to be sure, but also financiers in many cases - about 46% of the value of Countrywide's loan portfolio went sour). You also had panic inasmuch as problems came to a head at a mess of large institutions all at the same time (Fannie Mae, Freddie Mac, Lehman, WaMu, Wachovia, Fortis, the Royal Bank of Scotland, Merrill Lynch, Citigroup, and especially, AIG) . Some unexpected phenomena also blindsided the financial press (the implosion of some money market funds and the revelation that Bernard L. Madoff was running a Ponzi scheme - something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math).

    Wall Street was the primary reason that credit standards all across the board were slashed. Prior to Wall Street buying anything that moved in the residential mortgage market, you had conforming and non-conforming loans. The agencies like Freddie and Fanny could only buy conforming loans. These were relatively low amount loans where it was well underwritten that the borrower could afford the loans. Other loans could generally not be sold unless to some private entity and usually were held by the bank to maturity. Into the market steps Wall Street and their belief that by using some math, they could turn any income stream into a bond with whatever rating they wanted by prioritizing the payouts.

    This is the big blind spot that the “free market” types don’t understand. A free market in financial services usually results in lower standards as more people vie for whatever service fee pie is out there and the best way to generate fees is to take on the marginal clients that would never have been serviced before. We saw this in the junk bond boom. As long as Michael Milken was the only game in town, the bonds generally were not trash like they were when every Wall Street firm got into the action.

    Getting back to Wall Street, if you have a pile of trash and you promise to pay somebody as though he didn’t have trash then you must have some of the pile left over to sell that is actually worth less than trash. People started buying credit default swaps against this trash of trash. Not only that but Wall Street started selling synthetic products based on the people betting against
    the trash and doubling their potential liability when they couldn’t sell off this junk to their clients.

    What quickly happened as standards collapsed was that the real money was not in selling home loans and collecting the interest but in cycling the money as fast as you can. You make a bundle of loans to anybody with a pulse, you sell it off to Wall Street, and you make more loans – each time generating fees much higher than the interest rate. This cycle keeps itself going by bringing in new marginal people and the extra home buyers cause the prices to rise fast enough that even existing marginal buyers can refinance just before they start getting their default notices.

    People want to blame sub-prime loans but this makes no sense if the loans are well underwritten. Handling mortgages is relatively simple. You make people put down enough of their own money so that the bank doesn’t lose much in a default. You do a good estimate of the default risk of the borrower. You do a good estimate of the potential lose for a default. You plug those numbers into a formula to determine an interest rate that will pay you more than you can get lending to prime borrowers and low enough that you can still attack clients. Once you make the loan you have to monitor it more closely.

    The main culprit in all of this is Wall Street and the free market. If Wall Street never enters the game then standards aren’t pulled down and very few sub-prime mortgages are made. If Wall Street doesn’t enter the game then the flood of marginal buyers don’t push up the prices and let the marginal borrowers stay in the game for the many years that it lasted – the earliest sub-prime borrowers would have had much higher default rates than predicted by the underwriting models and the mortgage brokers specializing in sub-prime mortgages would have had to cut their lending way back or go bankrupt years sooner than they did.

  139. @Ed
    One of my business school professors blamed black people. He showed some clip of a British comedian interviewing a black guy that bought a home to only lose it a few years later. This was in '08.

    So I think many academics know the cause but blaming it on minorities or recklessness on the borrowers part can't be done. At the same time blaming it solely on bankers is a bridge too far to the few remaining academics that value intellectual integrity.

    One obvious reason that academic economists so seldom have had insights into housing issues is because the discipline of economics traditionally doesn’t include many of the relevant factors that effect housing.

    For example most people have heard the story that the Swiss will be out on the side walk in front of their home cleaning the curb stones with a tooth brush. This story and others like it are true. When I was in Switzerland on my way down to Italy I stayed in a small hotel where the proprietors had polished off the chrome plating on the bathroom faucets. The Swiss were compulsively clean and orderly.

    I was born and grew up in Washington DC. We had a majority black population. They did not behave like the Swiss.

    Economics (I was an econ major as an undergraduate) simply ignores the differences between races and nationalities. Steve is right. You can’t expect a discipline that is so purposefully blind to relevant distinctions to be able to make decent predictions.

    • Replies: @Art Deco
    Economics (I was an econ major as an undergraduate) simply ignores the differences between races and nationalities.

    Of course it does. "Races and nationalities" is not the subject of economics, just as family dynamics is not the subject of political science. If you want to read discussions of 'race and nationalities', read literature in sociology and anthropology.
    , @JackOH
    "You can’t expect a discipline that is so purposefully blind to relevant distinctions to be able to make decent predictions."

    I've wondered whether the Yankee abolitionists' animus toward the Southern plantocracy was about economics and the unpalatability of the master-slave chattel relationship, or was it the race of the chattels?
  140. @eric
    Academics and the Fed have officially rejected the theory that explicit targeting of low income borrowers caused the recession. They point to data where explicitly-targeted borrowers were relatively few and did not experience much higher default rates. What this ignores is that to get these borrowers in, they brought down the standards for everyone.

    Fannie Mae's MyCommunity MortgageTM was at the forefront of the credit crisis, and had many sub-programs, all targeted at low-income communities and borrowers. MyCommunity Mortgage got bundled into Fannie's ubiquitous DeskTop Underwriter, a mortgage origination program that made these abominations standard. Once they set this up (around 2000, with new twists every year), one can see how these bad ideas spread all over the industry. The method to process the innovative loans needed no extra work, and as to the 'risk', the regulators could not simultaneously view these loans as risky while another government branch created them, in the same way they can't push affirmative action and sue firms for having de facto quotas.

    One interesting aspect of this program is how disingenuous it is. They are 4 exceptions to having sufficient 'traditional credit history', with several pages of nuance often referring to another document entirely. They don't say NINJA loans, but that's what they mean. Such criteria are not meant to be read and understood, they just mean, if you wave this in front of someone (eg, regulator) no one will question you because you are probably correct (and we all know what the program wants--more poor people with houses).

    So, technically, they can say all those other loans were the real cause, but the lowering of underwriting standards was clearly driven by the Community Reinvestment Act (CRA) and related initiatives.

    So, technically, they can say all those other loans were the real cause, but the lowering of underwriting standards was clearly driven by the Community Reinvestment Act (CRA) and related initiatives.

    What came first the chicken or the egg? Wall Street was buying mortgages that Freddie and Fanny could not and that was what was fueling all those unregulated mortgage companies. That the standards were lowered later by Freddie and Fannie was a reaction to the market and not something they caused.

  141. anon • Disclaimer says:
    @Whiskey
    I have not seen in SoCal anyone working at a Bank who is not Hispanic or Black or Muslim in decades. Since in fact, the 1990s. That's just by personal set of data.

    I will also say that immigration helped churn the housing market. Whites have been able to flee first Desegregation and "let em crime-wave" Black crime aimed solidly at Whites in places where Blacks moved to, after housing covenants were ended by the Supreme Court; and later from immigrant waves that either lapped up and displaced Whites from their old neighborhoods or drove Blacks into theirs.

    The housing boom/bubble in SoCal was partly driven by mass Mexican/Central American immigration driving Blacks out of Compton and South Central where they had displaced Whites years before into places like Long Beach, San Bernadino, and the Antelope Valley.

    At least part of the bubble was the physical limits of commutes of Whites forced by rising prices of Chinese money, immigrants bidding up prices in nice areas, and pressure of non-White particularly Black underclass presence in formerly all White areas. At some point the commute from say, a house out in the Mojave to LA which is where all this logically takes one becomes impossible.

    And of course the habit of the Chinese in particular in salting away money in the US by housing purchases, where the house stands mostly empty or holds some family member often a young kid mostly unsupervised or poorly so "going to school" aka putting family hostages out of the government's reach does not help things either. It bids up prices and makes whole areas Gwailo no-go zones for native Whites.

    Where it all comes together is the intersection between immigration and globalization. That is, we don’t have literal deflation but we have major deflationary pressures. The causes are technology (which is mostly good deflation) and importing goods with significant labor content (usually ok by me) and importing cheap labor (tragically bad).

    We see deflation wherever prices are subject to competition in general and more in places where competition is intensified by arbitrage between developed country wages and emerging market nations.

    Housing is economically ambiguous – it has commodity like properties, but is mostly valuable because of the desirability of its location. It can be an investment but is also consumption — or simply paying rent in advance. No one would ever say they are investing in prepaying their utility bill. US single family houses also have an element of extravagance, exemplified by the bubble symbol of granite countertops (which now sounds incredibly dated). A house is just a box of air — its value is associated with its location. The same conundrum exists with college education, which was always sold as an ‘investment’ in ones self but now has turned out for many as a four year vacation.

    We are still in this conundrum. Anything subject to competitive pressures is deflating and everything exempt is inflating. Usually by some sort of rent seeking. For housing, zoning and everything else that limits supply can raise prices above replacement cost of the dwelling. Education, health care, etc. There are constraints on supply and rent seeking and all sorts of supply constraints.

    But to tie this together, consider the notion of ‘real’ interest rates — the difference between the nominal rate and inflation. If we consider housing independently of everything else — like its own little closed economy — then the interest rate is the mortgage rate (simple enough) and inflation is the change in housing prices. If housing is tied to wider inflation rates, it isn’t a problem. If housing is rising at exactly the rate of the CPI, then it tends to be a great deal with a tax advantaged loan and a lot of leverage. With higher housing inflation, it is an incredible leveraged investment. However — in a bubble, the ‘real’ interest rate on a gimmick bubble product is ridiculously high. It is, for example, 1% minus negative inflation or deflation of 10% or 11%. And this was the economic proposition that faced the subprime who could only afford the effective negative real rates of a boom but signed up for the extremely high rates of a deflating bubble.

    Race + low skilled immigration + foreign investment fed the bubble by reducing supply (destroying the value of neighborhoods), increasing demand (physical immigration), and providing a safe investment for Chinese money (by allowing them to speculate in housing) and finally allowing them to buy US bonds – suppressing interest rates). There are plenty of places in the world where foreigners aren’t allowed to buy property or housing. And then, the boom created construction jobs which drove more immigration from Mexico.

    People aren’t allowed to use the ‘D’ word — deflation. But a 1930’s style debt deflation (see Irving Fisher) is quite awful and almost needs to be experienced to appreciate its destructive effects. Although now people seem to be able to throw around the term ‘reflation trade’ — that is now the Bloomberg News speak for the reversal of some of the deflation that we experienced.

    Deflation is dumping cheap, subsidized, environmentally destructive manufactured goods on the US. It’s also visible with Oil prices, basic commodity prices, and agricultural commodity prices. $35 oil — now bouncing around $50 and $4 bbl corn prices. Its not just Walmart priced junk and wages for lower skilled jobs.

    The worst part of this is that the immediate impact of low skilled immigration is the obvious suppression of wages — but also that we are accruing future liabilities for the health and educational costs of these immigrants which must be preformed by economic sectors immune to competitive forces and fully externalized to the current citizens.

    • Replies: @Neoconned
    Probably the best explanation I've ever read of the financial crisis/real estate bubble -- at least summed up into a few paragraphs.....
  142. @Oleaginous Outrager
    The house flipping phenomenon is more of an indicator (and a trailing one at that) than a proximate cause. Of course, viewing a house as an investment rather than a place to live was and is a fallacy many people who were actually "homeowners" also chose to believe.

    The cheap credit (commonly known as "easy money") was a big part, because the indicator I remember even more than the house flipping was all the MSM stories about the new gambling wave, especially Texas Hold 'Em, that was spreading like wildfire at just before the bursting point of the bubble.

    "Immigrants, legal or otherwise were a small, almost insignificant part."

    Not true, certainly not in California and especially not Steve Sailer's SoCal. Or much of the Southwest. Or much of the Southeast for that matter. It had an effect in Northwest too, although the impact was more sporadic.

    "Then we’ve got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating)."

    When a law hits the book matters not. The crux of the matter is when someone chooses to enforce it.

    Of course, viewing a house as an investment rather than a place to live was and is a fallacy many people who were actually “homeowners” also chose to believe.

    Right.

  143. @Intelligent Dasein
    I'm disappointed by the fact that Steve's usually supportive readership has decided to turn and rend him over---of all things!---their belief that he criminally mis-ranked the relative factors leading to the 2008 housing bust. "It wasn't Diversity, it was the regulatory environment what did it! Liar's loans and dodgy financial instruments brought the housing market down." As a matter of fact, those of you waxing indignant about this are missing the point. Diversity / Immigration was a huge and underappreciated factor in the housing crash at three different levels of analysis.

    On the primary level, loans were made to people who could not pay them back, many of whom happened to be diverse. This was an immediate cause of the crash.

    On the secondary level, as I described in my comment above, the social mood engendered by the bubble phase of the housing market distortion led to an attitude of tolerance towards immigration and a demand for more of it.

    On the tertiary level, the ever-present god of diversity, the New Colossus, was directly cited by policy makers as the reason why lending standards must be lowered and home ownership encouraged.

    The entirely foreseeable economic results of these actions are something Steve understands quite well. Those are but the mechanical effects that must play out given their antecedent causes and are therefore baked into the cake. The point is that even forearmed with such knowledge, policy makers went ahead with their decision because diversity, and refused to honestly acknowledge what had happened afterward because diversity.

    The dirigistes are correct when they say that economics is no end in itself, that economics is only the handmaid of policy. Economics describes the 'how' of the housing crash but not the 'why.' Diversity describes the 'why.'

    On the primary level, loans were made to people who could not pay them back, many of whom happened to be diverse. This was an immediate cause of the crash.

    No. The non-performing loans had been accumulating for years. The immediate cause of the crash were the financial institutions hiding their bad debt from one another.

    On the secondary level, as I described in my comment above, the social mood engendered by the bubble phase of the housing market distortion led to an attitude of tolerance towards immigration and a demand for more of it.

    You have that exactly backwards. It was a toleration of illegal immigration that helped lead to a demand for more housing. I don’t think this was particularly key. The savings and loan disaster in the 1980’s was not fueled by immigration and MOST bad loans were not made to immigrants. It was entirely the fault of crooked bankers as was the case in 2008.

    On the tertiary level, the ever-present god of diversity, the New Colossus, was directly cited by policy makers as the reason why lending standards must be lowered and home ownership encouraged.

    You are just repeating your first argument here. What you are leaving out are two key factors.

    1) The bundling of loans into bonds, which is not itself necessarily a bad thing, was accompanied by the rating agencies giving these securities triple A ratings even though they contained non performing loans. This was criminal fraud. In Germany the law requires that these sorts of securities immediately sell any underlying mortgages that have even one late payments.

    2) The securities were further tranched by splitting the interest payments from the principal amounts for these mortgage bonds and then issuing separate securities made up of the each part. These securities were then further obfuscated from the underlying real estate by the financial institutions trading these synthetic financial instruments back and forth in highly leveraged credit swaps. The banks had no idea of the real underlying value of these instruments. When real estate prices dropped Bear Stearns needed to sell some of these junk instruments and nobody knew what they were really worth. Panic set in and Freddie and Fannie were told to take on bad mortgages, it smowballed into IndyMac going bankrupt, then Lehman Brothers, and finally foreign insurance company AIG. Congress was instructed to legislatively bail them out to the tune of 700 billion dollars. The Federal Reserve started to print money hand over fist and it is still doing so 10 years on.

    The problem is our corrupt fractional reserve banking system and instruments like credit swaps that leverage garbage paper at 30 to 1. This has not stopped and the government now has taken on providing liquidity for all this nonsense. As much as I deplore the massive invasion of the United States by Mexico it is not your cleaning lady who is responsible for our Potemkin Village economy. It is the crooked bankers and their bought politicians in Washington DC.

    Buy some gold coins and make sure you have plenty of rice and beans stored in you larder. It’s only going to get worse.

    • Replies: @anon

    This has not stopped and the government now has taken on providing liquidity for all this nonsense.
     
    Overall your comment is great. Except that things aren't the same. There is no demand for 'CDO Squared' or the more Byzantine structured finance products. And the rating agencies had their come to Jesus moment and no longer bend over to approve these things.

    If you are talking about the Fed subsidizing the housing market -- yea. That's still going on. They buy agency (government guaranteed) mortgage securities which throws a lot of liquidity at the housing market.
  144. @Art Deco
    An absolutely terrible indictment of the economics profession.

    Why? Economists are not engaged in the business of finance and only a modest minority of them are specialists in financial economics (and I suspect you'll discover that most such specialists teach at business schools rather than on arts-and-sciences faculties). Nearly all the underwater properties were so due to loans made after 2003 - it all emerged in just a few years. One crucial component of the crisis was the uncertainty over what obligations due per credit default swaps would do to institutions. I talked to a macroeconomist in 2008 who told me that textbooks on financial economics published as late as 2001 had nothing on credit-default-swaps. They were financial sector esoterica.

    Nearly all the underwater properties were so due to loans made after 2003 – it all emerged in just a few years.

    Well technically true but you are forgetting a lot of those mortgages made after 2003 were refinances of loans made earlier that would have gone into default if not for the continuing bubble.
    I buy a house I really can’t afford in 1999. Right before my mortgage reset in 2004 I refinance and continue for another few years. Wasn’t the real problem that I was given the loan in 1999?

  145. @Gabriel M
    I save about a quarter of my income every month, whereas most of my university friends went into debt to buy houses (and I mean serious debt, since we are talking UK house prices). I told them they were nuts, but I can't help but notice that their net worth goes up by 5% a year whilst the average cost of housing increases by more than I save each month....

    their net worth goes up by 5% a year whilst the average cost of housing increases by more than I save each month….

    Isn’t the appreciation of your invested savings a more relevant comparison?

  146. @eric
    Lowering standards shifted the demand curve and created the bubble, which when reversed affected all borrowers. Once many were underwater on their homes, many not just defaulted, but lived in their home for 2 years not paying anything, because evil Wall Street was truly at fault. The net result was to make everything worse, because recovery rates on defaulted homes went from 90% to 20%, which is now baked into the costs of borrowing. The lower standards were the key to the story.

    Default swaps are a red herring, little different than in the 'bad old days' when people just sold the mortgages via securitizations. Alas, corporate default swaps used to be a big market, but the Fed discourages these so that dried up, and it's a shame because these helped diversify risk; it's like blaming the stock market for business cycles, common, but incorrect.

    The idea that if these were done on exchanges, and regulated, the crisis would have been much less severe is misguided because the problem was the underwriting of the loans that served as collateral, and no one was concerned about Ninja loans pre-2007, in fact, they were encouraged precisely because they helped CRA objectives. Regulators would have just added some other forms to CDS, not changed their nature.

    Lowering standards shifted the demand curve and created the bubble,

    That is not a necessary condition to create an asset bubble and you had bubbles in Britain and in Spain without any Community Re-investment Act’ and without our government-sponsored conduits and their incestuous association with the Democratic Party. That aside, the share of the population living in owner-occupied housing increased from about 65% to about 68%. Is it really all that plausible that that’s going to generate a nine-year long inflation in real-estate prices which leaves prices 40% above long-term trends, an inflation manifest in the market for commercial and residential real-estate alike?

    • Replies: @Johann Ricke

    That aside, the share of the population living in owner-occupied housing increased from about 65% to about 68%. Is it really all that plausible that that’s going to generate a nine-year long inflation in real-estate prices which leaves prices 40% above long-term trends, an inflation manifest in the market for commercial and residential real-estate alike?
     
    It's a frequently observed phenomenon in economic history that small changes in demand or supply, if they occur on the frontiers, can induce large changes in price. For instance, oil prices in the 2008 time frame went to $150 based on ~1% changes in world demand and supply.
  147. @Opinionator
    But isn’t it striking that after almost a decade: “There is still no consensus on why the last housing boom and bust happened”? It was the biggest news story since 9/11

    After more than 15 years we still don't understand why 9/11 happened. And our inability to understand is due to much the same pressures Steve cites with respect to the housing bubble--it's safer, career-wise, to remain puzzled about the motivations of the Arab resistance fighters, or to ascribe their actions to "Islamic radicalism."

    I will mark you down as a pro-Islamic sad sack. Like Angela Merkel and the new big fromage in France.

    Parisian Women Face Constant Harassment By Migrants
    http://tinyurl.com/m3cgem6 from Breitbart May 22 2017
    Women in the east Paris district of Chapelle-Pajol are claiming that they cannot leave their homes without being subjected to verbal abuse from migrants in the area.

    Over the past year or so the district has become a no-go area for women as migrants and drug dealers have flooded the area. Dozens of these groups of young men crowd the streets, harassing women who walk by wearing what they consider to be immodest clothing Le Parisien reports.

    The situation for women has gotten so bad in the area that many women are effectively banned from cafes and bars. 50-year-old Natalie, who has been a resident of the area for 30 years said, “these are insults, incessant reflections. The atmosphere is agonising, to the point of having to modify our itinerary, our clothes. Some even gave up going out.”

    • Replies: @Opinionator
    You are a case in point of Americans still not comprehending why 9/11 happened.

    Keep chasing your tail with that Zionist propaganda.
  148. @Pat Boyle
    One obvious reason that academic economists so seldom have had insights into housing issues is because the discipline of economics traditionally doesn't include many of the relevant factors that effect housing.

    For example most people have heard the story that the Swiss will be out on the side walk in front of their home cleaning the curb stones with a tooth brush. This story and others like it are true. When I was in Switzerland on my way down to Italy I stayed in a small hotel where the proprietors had polished off the chrome plating on the bathroom faucets. The Swiss were compulsively clean and orderly.

    I was born and grew up in Washington DC. We had a majority black population. They did not behave like the Swiss.

    Economics (I was an econ major as an undergraduate) simply ignores the differences between races and nationalities. Steve is right. You can't expect a discipline that is so purposefully blind to relevant distinctions to be able to make decent predictions.

    Economics (I was an econ major as an undergraduate) simply ignores the differences between races and nationalities.

    Of course it does. “Races and nationalities” is not the subject of economics, just as family dynamics is not the subject of political science. If you want to read discussions of ‘race and nationalities’, read literature in sociology and anthropology.

    • Replies: @Pat Boyle
    That's just the point. Excluding race and nationalities from economics is an error that needs to be remedied. Biology adapted to the ideas of evolution. Chemistry incorporated the insights of the physics of atomic particles. But economics has made no significant effort to include new knowledge about humans. It acts as if the simplifying assumptions of the eighteenth century will never need to be updated.
  149. @Art Deco
    An absolutely terrible indictment of the economics profession.

    Why? Economists are not engaged in the business of finance and only a modest minority of them are specialists in financial economics (and I suspect you'll discover that most such specialists teach at business schools rather than on arts-and-sciences faculties). Nearly all the underwater properties were so due to loans made after 2003 - it all emerged in just a few years. One crucial component of the crisis was the uncertainty over what obligations due per credit default swaps would do to institutions. I talked to a macroeconomist in 2008 who told me that textbooks on financial economics published as late as 2001 had nothing on credit-default-swaps. They were financial sector esoterica.

    Economics is a worthless pseudo-science that usually does nothing more than provide assurances that whatever is happening now is normal and should not be tampered with. Remember all those morons coming out during the dot com bubble telling us that this was the “new paradigm”. Remember Jeffrey Sachs and crew screwing things up in Eastern Europe with their big bang nonsense. Remember Greenspan telling us that we can’t determine what a bubble is?

  150. MW says:
    @Beckow
    There was another macro contributing factor - mankind has moved from food scarcity to housing (usable living space) scarcity. What is scarce will experience bubbles and shortages, often in parallel, there is always speculation and manias. Scarcity is also not manageable.

    We used to have famines and the main political factor was the price of bread. That seems to be gone for now. Today most of the advanced world is dealing with housing as the core unresolved (and maybe unresolvable) issue. It has become the main cost (up to 50% for younger people), main asset, main investment. Housing drives migration since owners want more renters/buyers, it determines who is comfortable and who is poor. It is an obsession as it has never been before. Watch what is happening in the most 'advanced' parts of the world, from London and Silicon Valley, to Tokyo, Moscow and China, housing and asset prices are the core issue for most people. One's access to housing determines almost everything - it is more important than skills, education, status, jobs, etc...

    2007-8 was a harbinger of things to come. This is not about to get better. So find a comfortable spot on the bubble and take a ride. Scarcity cannot be managed.

    There are probably many causes to the concentration of industries and “good jobs” in ever fewer cities. I see very little political will to do anything about it. Even the Jane Jacobs disciples who tend to see concentration as a good thing, still complain about high housing prices, but tend to assume we could fix the problem by building 40-storey tenements Hong Kong-style. Few acknowledge the connection with the decline of economic opportunity elsewhere.

  151. @eric
    Lowering standards shifted the demand curve and created the bubble, which when reversed affected all borrowers. Once many were underwater on their homes, many not just defaulted, but lived in their home for 2 years not paying anything, because evil Wall Street was truly at fault. The net result was to make everything worse, because recovery rates on defaulted homes went from 90% to 20%, which is now baked into the costs of borrowing. The lower standards were the key to the story.

    Default swaps are a red herring, little different than in the 'bad old days' when people just sold the mortgages via securitizations. Alas, corporate default swaps used to be a big market, but the Fed discourages these so that dried up, and it's a shame because these helped diversify risk; it's like blaming the stock market for business cycles, common, but incorrect.

    The idea that if these were done on exchanges, and regulated, the crisis would have been much less severe is misguided because the problem was the underwriting of the loans that served as collateral, and no one was concerned about Ninja loans pre-2007, in fact, they were encouraged precisely because they helped CRA objectives. Regulators would have just added some other forms to CDS, not changed their nature.

    Default swaps are a red herring, l

    No it’s not. An important component of the crisis was the distress of AIG, which derived from their sales of credit default swaps.

    • Agree: James Richard, prole
    • Replies: @MarkinLA
    And remember that AIG was in talks to pay off those swaps at 40 cents on the dollar when Bernanke stepped in and used the Fed to pay them off at 100 cents on the dollar.
    , @prole
    True , the credit default swaps were sold too cheap, exposing the sellers to bankrupcy...in addition the synthetic CDOs created more exposure to toxic debt....

    In 2015 $15 billion of synthetic CDOS were sold. In 2006 $70 billion were sold. Demand was high, less costly to buy than actual CDOs.
  152. @Intelligent Dasein
    Massive bubble in housing right now due to restricted supply at the lower end. Houses are unaffordable to first-time buyers and rents are exorbitant

    That doesn’t sound like a “bubble” though. Sounds more fundamental.

  153. @Art Deco
    Default swaps are a red herring, l

    No it's not. An important component of the crisis was the distress of AIG, which derived from their sales of credit default swaps.

    And remember that AIG was in talks to pay off those swaps at 40 cents on the dollar when Bernanke stepped in and used the Fed to pay them off at 100 cents on the dollar.

    • Replies: @anon
    MarkinLA

    https://www.newyorkfed.org/markets/maidenlane.html

    The AIG credit default swaps ended up making money for the treasury. They 'settled' the CDS's by buying the underlying securities at face value. This involved roughly a $20 billion loan to a conduit called Maiden Lane III. The underlying securities were then sold for enough to pay back the $20 billion and realize a cash profit of $7 billion.

    The problem that AIG had was that the counterparts demanded cash collateral based on estimates of market prices which turned out to be much lower than the price they were sold for a couple of years later.

    I don't want to appear to be picking on you, but this is an important point because Elizabeth Warren, etc. insist that the 'taxpayer' directly spent billions bailing out the banks. After TARP was fully settled, this group still insists that these were direct cash costs to the taxpayer and they refuse to acknowledge the actual cash on cash returns.
    ,
    The amount of effort that went into not noticing that TARP cash was returned is enormous and was largely successful. The fallback argument is that the government deserved a market level return on their 'investment'. I'm fine with saying that the taxpayer roughly broke even on a cash basis. This was never intended to be an investment it wouldn't have mattered if it made $1 billion or lost $1 billon (5%) -- and the excess $7 billion was just a fortunate windfall.

    The underlying logic of AIG is that they started with roughly $100 billion in capital, unlike the investment banks. This capital was very illiquid and the bailout allowed a relatively orderly liquidation over several years. The reason was to prevent contagion of the panic to AIG's counterparties. Of course I would be happy to see the counterparties executive officers face a firing squad, but once again, their failure would have caused further contagion and blown up more of the real economy.
    , @Art Deco
    And remember that AIG was in talks to pay off those swaps at 40 cents on the dollar when Bernanke stepped in and used the Fed to pay them off at 100 cents on the dollar.

    Talks with whom? Andrew Ross Sorkin offers an account of Robert Willumsted's initial contacts with the Board and the Federal Reserve Bank of New York. They were completely off Timothy Geithner's radar screen and Willumsted contacted them in a state of desperation.

    There were three components of the AIG rescue: Maiden Lane II, Maiden Lane III, and TARP. The first two are Federal Reserve subsidiaries. The third was run by the Treasury. The Fed and the Treasury eventually lost about $23 bn on the deal, IIRC.

    , @Cicatrizatic
    Yep. AIG was re-capitalized to save the investment banks counter-parties who had bought AIG's default swaps. Paulson admitted in 2014 that the TARP money was not enough to save the system. Without getting full payment from AIG on the swaps, investment banks like Goldman Sachs likely would have gone bankrupt.

    Chuck Grassley: “It’s as if the New York Fed used AIG as a front man to bail out banks all over the world.”
  154. The fundamental economic cycles continue underneath the froth. One major one is the raw materials cycle, epitomized by oil. It is a 25 year cycle. When raw material prices rise, as they did in 2007, especially oil, life gets more expensive in real ways. Those at the margin can no longer afford loans.

    Usurers always find new ways to avoid regulation and lend money, especially when the Germans and Japanese provide it for free. In good times, borrowed money gears (levers in American) the positive trend to an higher level. The more debt, the more gearing. Unfortunately, there is a reverse gear too. So a magnitude 8 oil shock hits an over geared economy. Crash!

    This is well known. Avoiding the raw materials cycle is impossible even in theory. Controlling debt ought to be possible but isn’t in practice. Everyone in power at the time has forgotten the lessons the previous generation learnt.

    The finance industry habit of pushing out the over 40’s has its price.

  155. If you want a fundamental understanding of what is going on in the industrialized economies then read this book. It helped me unlearn all the garbage I was taught when getting my economics degree at the University of California.

    https://mises.org/library/mystery-banking

    • Replies: @Old Palo Altan
    Something had already got me thinking that you were a CAL man.
    Berkeley I presume (since you seem to know the Bay Area well).
    Like me and a surprising number of people who are regulars here.
    , @Old Palo Altan
    PS. I met Rothbard once, back in 1990 I think it was. A group of us were discussing the fall of communism and what it might mean for the future.
    We all naively thought that the eastern nations would all turn Right, and stay that way.
    Only he sounded a warning.
  156. @Intelligent Dasein
    Immigration / Diversity may be a sacred cow, but so too is the unquestionable rectitude of the Middle Class. Unfortunately, White Americans, particularly of the Boomer generation, also revealed their full propensity for short-sighted, socially destructive behavior during the housing bubble and the preceding tech boom.

    Nobody likes to talk about this, either. But it was all too apparent to me in those days. Watching an entire generation of parvenus gleefully running their shekels through their hands while destroying my future is enough to black-pill anybody. And don't think this didn't also feed back into the immigration issue. People in the grip of a rising---nay, ebullient---social mood are not going to spoil the party by taking a hard line against immigrants. "Come on in, the water's fine!", is the more likely response. And if this just so happens to coincide with the desire for cheap Mexican labor to build and landscape the new McMansions, who's going to complain?

    My overriding impression is that in the months immediately preceding the turn of the Millennium (ca. WTO riots?) and in the several years thereafter, something broke down in American culture. The whole zeitgeist took an irretrievable swerve into tackiness and cynicism, and the etiolated outlook of the managerial class, coincident with the explosive growth of the internet and the mainstreaming of corporate-speak, actually became the dominate social milieu. This was the dawn of Globalism in the specifically self-conscious sense in which the term is used today, and what followed was inevitable: the increasing financialization of the economy ultimately culminating in the housing crash.

    With the Western world finally beginning to feel the pinch from the diminishing returns of diversity, it's important to remember that, once you drill down beneath the level of immediate material causes, the immigration problem is really a White problem. We did this to ourselves. We created the conditions requisite for globalism and financialization and immigrant flows. We brought these people here. We indoctrinated ourselves with diversity gibberish. And while I'm all in favor of "Build the Wall" and "Send them Back," that alone isn't going to solve the problem. If, cateris paribus, cheap Mexican labor had not been available, we would have found some substitute for it by creating our own underclass, possibly by abolishing the minimum wage and outlawing organized labor. The real problem is buried deep inside ourselves and our institutions.

    Mulling over all this in those depressing days nearly a decade and a half ago, that is when I eventually arrived at the necessity of building something like a Catholic -Monarchist-Falangist-National-Socialist state, and that is what I believe to this day.

    “Catholic -Monarchist-…” Do you mean “Catholic” as in the RCC? That is the problem. I am a cradle RCCer but left the RCC because I don’t accept black/Asian priests-popes.

    Unless the West reconfigures the RCC as a Caucasian/European only entity, your idea is a non-starter.

    • Replies: @Intelligent Dasein
    You do realize, don't you, that the post-Vatican II establishment Church headed by witch doctor Francis-Bergoglio is no longer Catholic? That's pretty much an open secret these days. The faith was officially abandoned in 1965. Nowadays, even the pretense of fidelity to doctrinal and liturgical Tradition is steadily being shed.

    I'm a Traditional Catholic. The Roman Cucked Church is just another modern-day social phenomenon. It has nothing to do with the religion.
  157. MW says:
    @EriK
    Buying a home is a lifestyle choice. It's not an investment choice. So please explain, what harm?

    It’s a lifestyle choice with an enormous impact on your personal finances. There are lots of factors, but the main ones in my opinion are:

    1) Far more Americans have had their home prices appreciate significantly, than the unlucky ones who bought into a doomed area or overpaid for a shoddily constructed house. This is a source of wealth available to landlords and owner-occupiers, but not to renters.

    2) Federally subsidized mortgages have generally been a sweet deal for borrowers. If rates go down you can refi, and if rates go up, you are locked in at a low rate which you can pay down slowly. Most Americans are not going to get credit at anywhere near the terms generally available to homeowners. A homeowner with access to home equity can deal with a financial emergency on much better terms than a comparable renter. And the first home makes it much easier to buy an investment property, which opens up new routes for building wealth.

    3) The commitment to a single place, I’m convinced, is a good financial decision for most people. Some people will benefit from the opportunity to move anywhere in the world for an opportunity, but for most, the freedom of renting is enough rope to hang themselves. The ability to make long-term plans, financial or otherwise, around the expectation of being in the same house for a long time, is very valuable.

  158. @Pat Boyle
    One obvious reason that academic economists so seldom have had insights into housing issues is because the discipline of economics traditionally doesn't include many of the relevant factors that effect housing.

    For example most people have heard the story that the Swiss will be out on the side walk in front of their home cleaning the curb stones with a tooth brush. This story and others like it are true. When I was in Switzerland on my way down to Italy I stayed in a small hotel where the proprietors had polished off the chrome plating on the bathroom faucets. The Swiss were compulsively clean and orderly.

    I was born and grew up in Washington DC. We had a majority black population. They did not behave like the Swiss.

    Economics (I was an econ major as an undergraduate) simply ignores the differences between races and nationalities. Steve is right. You can't expect a discipline that is so purposefully blind to relevant distinctions to be able to make decent predictions.

    “You can’t expect a discipline that is so purposefully blind to relevant distinctions to be able to make decent predictions.”

    I’ve wondered whether the Yankee abolitionists’ animus toward the Southern plantocracy was about economics and the unpalatability of the master-slave chattel relationship, or was it the race of the chattels?

    • Agree: Opinionator
    • Replies: @Pat Boyle
    You might want to read "Time on the Cross" by Robert Fogel. He won the Nobel Prize in economics (yes I know it's not a 'real' Nobel) for his study of the economics of slavery.
  159. Bill says:
    @Art Deco
    The bulk of the negative equity was to be found on the books of prime borrowers. Plying people with sketchy credit histories and / or insufficient income streams was a part of the story, but most of the force of the problem was derived from the condition of other sectors of the population.

    Various subfractions of the economics profession have their hobbyhorses. Their contentions are not necessarily well-established in the body of theoretical and empirical research. So you get fringe Austrians contending that it was all the Federal Reserve's doing with their inflation-targeting fandango and we need to replace central banking with a currency board (diagnosis odd - the run up in housing prices dates from 1997 while the Fed Funds rate was abnormally low only from the fall of 2002 to the fall of 2004; prescription frankly crackers, as can be seen with our own experience of the gold standard and foreign country's experience with unyielding currency pegs). Or you have a policy entrepreneur like Scott Sumner contending that it was all the Federal Reserve's doing with their paying interest on reserves and 'there's no such thing as bubbles' (about the bubbles, who do you believe, Sumner or your lying price indices? About the Fed's responsibility, wasn't it amazing that Dr. Bernanke and the Fed Governors managed to generate a severe economic crisis in Britain (using sterling), continental Europe (using the Euro), and Japan (using the Yen) all by paying 0.25% on reserves?). Then we've got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating).

    Here's a suggestion: you were looking at a perfect storm of several problems: undigested financial innovation (credit default swaps - emerging in 1995), institutional stupidity (Joseph Cassano's Financial Products Unit at AIG), the promotion of poor underwriting (Freddie Mac slashed underwriting standards in 2003), and manias which require the tools of social psychology to explore (manias on the part of borrowers to be sure, but also financiers in many cases - about 46% of the value of Countrywide's loan portfolio went sour). You also had panic inasmuch as problems came to a head at a mess of large institutions all at the same time (Fannie Mae, Freddie Mac, Lehman, WaMu, Wachovia, Fortis, the Royal Bank of Scotland, Merrill Lynch, Citigroup, and especially, AIG) . Some unexpected phenomena also blindsided the financial press (the implosion of some money market funds and the revelation that Bernard L. Madoff was running a Ponzi scheme - something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math).

    the revelation that Bernard L. Madoff was running a Ponzi scheme – something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math

    This is a solved problem, though. In their anti-trust enforcement functions, both FTC and DOJ have fleets of economists to help the lawyers understand the math. If the SEC wanted to be able to understand the math, it would understand the math.

    • Replies: @Art Deco
    The woman he spoke to in 2005 was a young lawyer whose name I've forgotten (she was ethnic Chinese, IIRC). I think she was some sort of enforcement functionary. He never got past her if I'm recalling his account of his dealings with the SEC.
  160. Bill says:
    @Anonymous
    The other sacred cow is neoliberalism and the idea that the middle class being force dinto debt to buy a home is “good economic sense”.

    Forcing people into debt used to be seen as a bad idea, but somehow over the years endlessly skyrocketing land prices have become the “new norm” that we’re all supposed to accept and even encourage.

    Would you mind briefly explaining why anyone would think that forcing people into debt is a good thing? I've heard other people mention such an idea, but I really don't understand it at all. Thanks.

    If you insist on paying for your house cash, you will get 1/5 the house, assuming you would take out a mortgage with a 20% downpayment.

    More generally, contemporary people’s consumption needs (mostly housing) are more front-loaded over their lifetimes than are their income streams. Debt is how you align the two.

    You could imagine a US without mortgage debt. But that world would either involve families living in considerably less space than they now do or extended families living in the same (ie grandpa’s) house.

  161. @ben tillman

    The last housing boom and bust came about because it was made too easy to get mortgage money by offering low teaser entry rates of interest, so that buying became much cheaper than renting in many part of the country.
     
    And lenders were offering cash-out refis at LTVs that were way too high. The LTV is capped at 80% in Texas, which is one reason there was no bubble in Texas.

    True, but there is a more significant factor.

    When the Texas real estate boom of the 80s collapsed, we prosecuted crooked real estate appraisers and S&L directors. Some even went to jail.

  162. @Lot

    your friends are tied down to their nests
     
    Selling a house with a real estate agent is only marginally more complicated than moving out of a rental.

    That’s true in a hot housing market. If you have to move in a cold housing market, not so much.

  163. @biz
    9/11 happened because of the Islamic religious beliefs of the terrorist perpetrators, most importantly the belief that actions like theirs would result in an eternity in paradise,

    9/11 happened chiefly because their homeland is under Zionist invasion. The Arab resistance were explicit about that and had no reason to lie.

    But people in the United States are not allowed to talk about this in public.

    • Replies: @biz
    Come on, you didn't type that with a straight face.

    9/11 perps "homeland" was mostly Saudi Arabia. No Zionist invasion there, even by the wildest stretches of the Unz commentariat.
    , @Erik L
    Actually the original stated reason was that infidels (us) were still in the holy lands of Saudi Arabia after the first gulf war and also we were perceived as propping up the Saudi regime
    , @Art Deco
    9/11 happened chiefly because their homeland is under Zionist invasion. The Arab resistance were explicit about that and had no reason to lie.

    Osama bin Laden's family is from Yemen originally, part of which was a set of British protectorates and most of which has never been a dependency of any European power. The family has been in Saudi Arabia for generations. Neither the Hijaz nor the Nejd was ever a dependency of any European power. He squatted in Afghanistan for 3 decades, a country which has never been a dependency of any foreign power.

    A portion of the Levant which had an Arab population of about 700,000 in 1947 now has a Jewish majority (along with a swatch of desert that in 1947 had a 5-digit population of Bedouin). None of the crew responsible for the 9/11 caper have a grievance with regard to this and incinerating 3,000 office workers in New York would be a bizarre way to address it even if they did.

    As for the 'occupation' of Saudi Arabia, there were between 1990 and 2002 a mean of 6,200 American troops there, which might be enough to secure a city with 800,000 residents, not a territorial state with 19 million residents. It's doubtful they were much noticed by Saudi residents: north of 20% of those residing in Saudi Arabia are expatriates. This has been so for decades.
  164. @TomSchmidt
    The character played by Steve Carell was pretty clearly Jewish.

    The Carrell character was portrayed sympathetically.

    • Replies: @biz
    Most of the main Wall Street characters in that movie were portrayed sympathetically. The issue at hand was whether they were erroneously portrayed at WASPs, which they were clearly not.
  165. @Jefferson
    "Even the Daily Show in 2007 did not point any fingers at immigrants"

    In The Big Short they only portray White homeowners as defaulting on their mortgages. The housing bubble version of Law & Order where only Whites commit murders.

    This exactly how UK comedians and pundits describe the crisis. All the enriching diversity which is supposed to be ‘America’ disappears at these times. Apparently the bubble was entirely the fault of stereotypical white/overweight/stupid/gun owning/Republicans/Tea Partiers (and now Trump voters).

    This is how any negative news is spun. Non-whites have no agency at all in these matters.

  166. @TomSchmidt
    A quick search at Amazon in the book for the phrase "immigrant" shows that that group was targeted because they had NO credit history, and so no history of defaults. There is also a disparaging remark on page 145 about someone "hunting" illegal immigrants.

    So Michael Lewis wasn't oblivious to one source of housing bubble purchasing supply.

    Guest is referring to the movie, not the book.

    • Replies: @TomSchmidt
    Oh, sure.

    The book did in fact have the string "immigrant" in it in three places, but not in the way portrayed in the movie. So the movie's ending was a political statement, not something they got from the book. I was confirming his observation, but unobviously.
  167. @Svigor
    You forgot the "PC makes you stupid" tag.

    But the explanations for what happened in housing are not, I think, to be found in the conventional data favored by economists but rather in sociologically important narratives
     

    So without grappling with things like the Bush Administration’s Ownership Society and anti-downpayment, anti-documentation Increasing Minority Homeownership initiatives, you can’t get close to the full story.
     
    He was sorta in the ballpark. The anti-racist/equalitarian/PC/leftist/racially enstupidated Narrative is a sociologically important one. The way cancer is medically important.

    After more than 15 years we still don’t understand why 9/11 happened. And our inability to understand is due to much the same pressures Steve cites with respect to the housing bubble–it’s safer, career-wise, to remain puzzled about the motivations of the Arab resistance fighters, or to ascribe their actions to “Islamic radicalism.”
     
    It's interesting to speculate what the excuses would be, if SW Asia weren't rich in oil.

    Even the Daily Show in 2007 did not point any fingers at immigrants
     
    You say that like it's unexpected.

    You’d do much better just putting a stack of cash in a safe deposit box, which many people do, but the Swiss can’t keep up with demand for high denomination bills and investors with hundreds of millions do not find piles of cash practical.
     
    No certificates of deposit in Germany or NE Asia? They still pay (very small amounts of) interest, don't they?

    Immigrants, legal or otherwise were a small, almost insignificant part.
     

    To view this as a diversity and immigrant problem shows a leaning to an interpretation of all things within that paradigm.

    To do this and publish this as a journalist is particularly dangerous.
     
    This kind of argument ignores the motives and/or excuses for lowering standards for everybody.

    It’s interesting to speculate what the excuses would be, if SW Asia weren’t rich in oil.

    Foreign invasion (in the form of Zionism in this circumstance) can hardly count as an “excuse.” It has been the chief source of conflict among men for time immemorial.

  168. @Erik L
    Also plenty of immigration at many points in time and place without housing bubbles. It is quite possible that places experiencing housing bubbles would attract immigrants. There is not likely to be a single root cause but I think immigration was, if anything, a minor contributing factor. I'd wager that the larger effect of immigration was providing cheap construction labor

    If the US population increases by 15 percent every decade, mostly driven by immigration, what do you think that does to housing prices?

    • Replies: @Erik L
    Depends on what happens to housing supply, where it happens to housing supply, where the immigrants move to in America, how emotions about housing run, etc... sure all other things being equal and increase in demand without an increase in supply increases prices. In the real world things are complex
    , @MarkinLA
    what do you think that does to housing prices?

    It does nothing if wages don't go up and the bank requires a 20% down payment and that no more than 40% of your income go into housing costs (mortgage, insurance, and property tax) and any other debt obligations (such as a car or student loan) you have. If the bank won't lend you money you can only afford a house if you are like those immigrants who are on welfare but working for cash under the table and save enough to buy it for cash (usually with more than one family).
  169. “I would suggest that one reason economists are still so baffled by what happened is because one obvious partial contributor to the fiasco — immigration / diversity — is a Sacred Cow”.

    – 0r a blind spot.

  170. @Clyde
    I will mark you down as a pro-Islamic sad sack. Like Angela Merkel and the new big fromage in France.

    Parisian Women Face Constant Harassment By Migrants
    http://tinyurl.com/m3cgem6 from Breitbart May 22 2017
    Women in the east Paris district of Chapelle-Pajol are claiming that they cannot leave their homes without being subjected to verbal abuse from migrants in the area.

    Over the past year or so the district has become a no-go area for women as migrants and drug dealers have flooded the area. Dozens of these groups of young men crowd the streets, harassing women who walk by wearing what they consider to be immodest clothing Le Parisien reports.

    The situation for women has gotten so bad in the area that many women are effectively banned from cafes and bars. 50-year-old Natalie, who has been a resident of the area for 30 years said, “these are insults, incessant reflections. The atmosphere is agonising, to the point of having to modify our itinerary, our clothes. Some even gave up going out.”

    You are a case in point of Americans still not comprehending why 9/11 happened.

    Keep chasing your tail with that Zionist propaganda.

  171. Nico says:
    @Opinionator
    But isn’t it striking that after almost a decade: “There is still no consensus on why the last housing boom and bust happened”? It was the biggest news story since 9/11

    After more than 15 years we still don't understand why 9/11 happened. And our inability to understand is due to much the same pressures Steve cites with respect to the housing bubble--it's safer, career-wise, to remain puzzled about the motivations of the Arab resistance fighters, or to ascribe their actions to "Islamic radicalism."

    After more than 15 years we still don’t understand why 9/11 happened.

    Anyone whose opinion counts for more than a writeback on a web form and who does not understand why 9/11 happened does not want to. Broadly speaking, 9/11 happened because the perpetual imposition of the liberal international order from 1946 onward met its match in the form of Islam. If you don’t understand why Islam is a particular thorn in the door of the modern world it’s because you don’t want to believe it.

    the motivations of the Arab resistance fighters

    QED.

    • Replies: @Opinionator
    Your explanation appears to be overdetermined by the facts. The vague reference to "liberal international order" obscures the concrete facts of physical invasion and occupation, ethnic cleansing, cooptation of government, and killing sanctions (500,000 Iraqi babies).
  172. Abe says: • Website
    @TomSchmidt
    The character played by Steve Carell was pretty clearly Jewish.

    The character played by Steve Carell was pretty clearly Jewish.

    HBO is right now plugging its new Madoff biopic starring DeNiro. If there were a a consistent policy to “whitewash” the (((ethnicities))) of financial wrong-doers you’d think they’d have let this one die (Madoff who?), as DeNiro looks like Philip Roth’s brother crossed with some angry rabbi in the promo pic I saw.

    • Replies: @Opinionator
    Straw man
    , @Alden
    De Niro's Mother was Jewish but since he plays Italians most of his audience thinks of him as Italian.
    , @Jefferson
    "If there were a a consistent policy to “whitewash” the (((ethnicities))) of financial wrong-doers"

    Whitewashing Jews because their skin color is so dark compared to the Goys right? Robert De Niro should go black face or at the very minimum get a tan to play Bernie Madoff. A White person playing a Jew is the equivalent of Aziz Ansari playing Edgar Winter in a film about the rocker's life.

  173. @Art Deco
    Economics (I was an econ major as an undergraduate) simply ignores the differences between races and nationalities.

    Of course it does. "Races and nationalities" is not the subject of economics, just as family dynamics is not the subject of political science. If you want to read discussions of 'race and nationalities', read literature in sociology and anthropology.

    That’s just the point. Excluding race and nationalities from economics is an error that needs to be remedied. Biology adapted to the ideas of evolution. Chemistry incorporated the insights of the physics of atomic particles. But economics has made no significant effort to include new knowledge about humans. It acts as if the simplifying assumptions of the eighteenth century will never need to be updated.

    • Replies: @Art Deco
    That’s just the point. Excluding race and nationalities from economics is an error that needs to be remedied.


    It's not an error. What you're suggesting is irrelevant to the construction of economic theories or to testing economic theories.
  174. @attilathehen
    "Catholic -Monarchist-..." Do you mean "Catholic" as in the RCC? That is the problem. I am a cradle RCCer but left the RCC because I don't accept black/Asian priests-popes.

    Unless the West reconfigures the RCC as a Caucasian/European only entity, your idea is a non-starter.

    You do realize, don’t you, that the post-Vatican II establishment Church headed by witch doctor Francis-Bergoglio is no longer Catholic? That’s pretty much an open secret these days. The faith was officially abandoned in 1965. Nowadays, even the pretense of fidelity to doctrinal and liturgical Tradition is steadily being shed.

    I’m a Traditional Catholic. The Roman Cucked Church is just another modern-day social phenomenon. It has nothing to do with the religion.

    • Replies: @Old Palo Altan
    So it is.
    One day it will be understood that Bergoglio was never actually pope, because cowardly Benedict's abdication was not a free act on his part.
    To this day he is a prisoner in the Vatican, and only let out when it suits his keepers.
  175. @Yak-15
    Having more people take on debt increases the amount of money in an economy and is the basis for economic growth. When a loan is taken by a homebuyer, the bank credits his account with newly created money which the homebuyers uses to buy a home. This money accrues at the seller's bank account and can be used to create new loans because a bank creates money as a function of the deposits it keeps on hand. As more deposits come in from people receiving loans and purhashing things, more money can be created with new loans.

    Individuals and business borrowing money is the basis of economic growth because the money created out of nothing funds construction of new houses, purchase of new machinery, creation of new consumer goods etc. By proxy, it also creates new jobs to build/run everything. All of this is based on the initial creation of money.

    The problem occurs and did occur when the individuals were unable to pay back the loans they took out. That money exists only as function of the future claim held by the bank, the loan, being satisfied. If that claim cannot be paid, that money is, in essence, non-existent. For lack of a better term, the money is destroyed. At that point, the money creation dynamic slows or reverses as banks can no longer create new loans.

    It’d be cool if someone (Mr. Derbeyshire?) with the time
    and mathematical aptitude wrote a book explaining this stuff for laymen; perhaps it could be entitled Fractional Reserve Banking & Other Lies Your Government Told You.

    • Agree: James Richard
    • Replies: @guest
    Go read Murray Rothbard.
    , @Yak-15
    Agreed
    , @ANON
    See Chris Martensen "crash course" available online in text & video formats.
    , @ANON
    See Chris Martensen "crash course" available online in text & video formats.
  176. @JackOH
    "You can’t expect a discipline that is so purposefully blind to relevant distinctions to be able to make decent predictions."

    I've wondered whether the Yankee abolitionists' animus toward the Southern plantocracy was about economics and the unpalatability of the master-slave chattel relationship, or was it the race of the chattels?

    You might want to read “Time on the Cross” by Robert Fogel. He won the Nobel Prize in economics (yes I know it’s not a ‘real’ Nobel) for his study of the economics of slavery.

    • Replies: @JackOH
    Pat, thanks for the reference. A relative of mine volunteers at a local museum dedicated to the memory of a prominent local family. They were abolitionist in thought and action, and one supported Lincoln over Seward as the moderate candidate regarding slavery.

    It's at least imaginable to me the family was moved in part by an unspoken Puritan contempt for the southern Cavaliers importing as slaves a race that was alien to both, and, of course, remarkably different from the impoverished British and Continental slum-dwellers the Puritans imported. Just speculation.
  177. anon • Disclaimer says:
    @MarkinLA
    And remember that AIG was in talks to pay off those swaps at 40 cents on the dollar when Bernanke stepped in and used the Fed to pay them off at 100 cents on the dollar.

    MarkinLA

    https://www.newyorkfed.org/markets/maidenlane.html

    The AIG credit default swaps ended up making money for the treasury. They ‘settled’ the CDS’s by buying the underlying securities at face value. This involved roughly a $20 billion loan to a conduit called Maiden Lane III. The underlying securities were then sold for enough to pay back the $20 billion and realize a cash profit of $7 billion.

    The problem that AIG had was that the counterparts demanded cash collateral based on estimates of market prices which turned out to be much lower than the price they were sold for a couple of years later.

    I don’t want to appear to be picking on you, but this is an important point because Elizabeth Warren, etc. insist that the ‘taxpayer’ directly spent billions bailing out the banks. After TARP was fully settled, this group still insists that these were direct cash costs to the taxpayer and they refuse to acknowledge the actual cash on cash returns.
    ,
    The amount of effort that went into not noticing that TARP cash was returned is enormous and was largely successful. The fallback argument is that the government deserved a market level return on their ‘investment’. I’m fine with saying that the taxpayer roughly broke even on a cash basis. This was never intended to be an investment it wouldn’t have mattered if it made $1 billion or lost $1 billon (5%) — and the excess $7 billion was just a fortunate windfall.

    The underlying logic of AIG is that they started with roughly $100 billion in capital, unlike the investment banks. This capital was very illiquid and the bailout allowed a relatively orderly liquidation over several years. The reason was to prevent contagion of the panic to AIG’s counterparties. Of course I would be happy to see the counterparties executive officers face a firing squad, but once again, their failure would have caused further contagion and blown up more of the real economy.

    • Agree: Jim Don Bob
    • Replies: @MarkinLA
    The underlying securities were then sold for enough to pay back the $20 billion and realize a cash profit of $7 billion.

    I guess if you wait long enough and catch another bubble that anything could look good on paper. The problem with that is you are looking with 20/20 hindsight. If this collapse had been the initiation of Great Depression II it would have never worked out and the present value is the only thing you can base anything on.

    Nobody lets the average guy who gets foreclosed upon collect a check from the bank 20 years later for what the price of the house is then do they? The average guy doesn't have the FED pushing interest rates down to nothing explicitly for him as a stealth tax on the taxpayer to prop up that worthless real estate and make everything look good.
  178. @Judah Benjamin Hur
    What sites were you looking at? People I know in Pennsylvania could sense Trump was doing well but it's hard to notice if you live somewhere or read sources that lean mostly one way or another.

    You’d be surprised even the NYT comment section had some pretty harsh comments that ran in opposition to editorials on school segregation, immigration & BLM. In general local news story though are a good barometer I’ve found.

  179. @Art Deco
    Default swaps are a red herring, l

    No it's not. An important component of the crisis was the distress of AIG, which derived from their sales of credit default swaps.

    True , the credit default swaps were sold too cheap, exposing the sellers to bankrupcy…in addition the synthetic CDOs created more exposure to toxic debt….

    In 2015 $15 billion of synthetic CDOS were sold. In 2006 $70 billion were sold. Demand was high, less costly to buy than actual CDOs.

  180. The answer is simple, if you giveth they shall taketh. It was looked at as another government freebie.
    It was a perfect storm. Since we all know it’s racist to do credit checks on certain people, or to verify their income it makes sense that people who normally can’t get a landlord to rent to them that they should be able to purchase a 250,00 dollar home with no money down.
    There was so much crooked feelings going on atevery level that it would take book with many sequels to get started.
    The politicians, the banks, housing inspectors, realities, title companies, appraises, they all did their part. But let’s not forget about the buyers. They for the most part have been portrayed as the victim in this, but let’s be honest they’re not all that blameless.

  181. @Smitty
    I read somewhere the federal Reserve has 8000 "economists" on their payroll, that's a lot of propaganda. If you objectively look at the sub-prime collapse you quickly realize it didn't just happen, it was a focused public policy to harness (loot) the state treasury to finance invasion.

    Every single player in the govt guaranteed home loan food chain was funneled to finance criminal invasion and loan fraud through the FNM foundation, US chamber of commerce, NAR, NAB, etc.

    FNM was run bolchevicks that control the fed and USDOJ, they hatched plan to finance invasion through fha loan guarantees and tip the national political makeup "Communist" through mass immigration, (a mathematically predictable model), the FNM collapse was the coup DE grace of USSR cold war strategy, Russia going full retard capitalist wasn't part of the plan, and now Islam is a retarded commie salvage op.

    At the same time the hyper printing of currency allowed the financial consolidation of nearly every business in America and transfer off shore the assets and more importantly production and intellectual property.

    Our F16s are now made in India.

    Economists understand the bubble perfectly, they were paid to blow it.

    If every economist on the planet were instantly executed nobody would notice.

    I read somewhere the federal Reserve has 8000 “economists” on their payroll,

    There are 13,000 economists on college faculties and 19,000 and change working for private companies and public agencies. I tend to doubt a quarter of the working economists in the country work for a single agency and it’s affiliates. The Board of Governors of the Federal Reserve System has about 340 employees. The Consolidated Statement of Operations for the Federal Reserve Banks reports $2.8 bn in employee compensation. That suggests they have about 22,000 employees in toto if their compensation scale is similar to that of the federal civil service and military. I doubt 35% of their employees are economists.

    that’s a lot of propaganda. If you objectively look at the sub-prime collapse you quickly realize it didn’t just happen, it was a focused public policy to harness (loot) the state treasury to finance invasion.

    Invasion of what? The corporate offices of the American International Group?

  182. @Pat Boyle
    That's just the point. Excluding race and nationalities from economics is an error that needs to be remedied. Biology adapted to the ideas of evolution. Chemistry incorporated the insights of the physics of atomic particles. But economics has made no significant effort to include new knowledge about humans. It acts as if the simplifying assumptions of the eighteenth century will never need to be updated.

    That’s just the point. Excluding race and nationalities from economics is an error that needs to be remedied.

    It’s not an error. What you’re suggesting is irrelevant to the construction of economic theories or to testing economic theories.

    • Replies: @MarkinLA
    It isn't irrelevant if different races have different tendencies as related to economic activity. If some races seem to be more frugal than others why wouldn't that have an effect on their economies. What about industriousness or self-sacrifice for the common good? There are a whole host of tendencies that seem to define some people as opposed to others to assume these tendencies have no effect on the economy is something only an economist can believe.

    When testing economic theories over a long time you have the same issue as when looking at financial returns over a long time - a small difference in performance can mean a lot in terms of overall performance. That is unless you remove the quantitative aspects of the theory - something economists don't want to do so they can continue to pretend they are real scientists.
  183. @Abe

    The character played by Steve Carell was pretty clearly Jewish.
     
    HBO is right now plugging its new Madoff biopic starring DeNiro. If there were a a consistent policy to "whitewash" the (((ethnicities))) of financial wrong-doers you'd think they'd have let this one die (Madoff who?), as DeNiro looks like Philip Roth's brother crossed with some angry rabbi in the promo pic I saw.

    Straw man

  184. anon • Disclaimer says:
    @James Richard

    On the primary level, loans were made to people who could not pay them back, many of whom happened to be diverse. This was an immediate cause of the crash.
     
    No. The non-performing loans had been accumulating for years. The immediate cause of the crash were the financial institutions hiding their bad debt from one another.

    On the secondary level, as I described in my comment above, the social mood engendered by the bubble phase of the housing market distortion led to an attitude of tolerance towards immigration and a demand for more of it.

     

    You have that exactly backwards. It was a toleration of illegal immigration that helped lead to a demand for more housing. I don't think this was particularly key. The savings and loan disaster in the 1980's was not fueled by immigration and MOST bad loans were not made to immigrants. It was entirely the fault of crooked bankers as was the case in 2008.

    On the tertiary level, the ever-present god of diversity, the New Colossus, was directly cited by policy makers as the reason why lending standards must be lowered and home ownership encouraged.

     

    You are just repeating your first argument here. What you are leaving out are two key factors.

    1) The bundling of loans into bonds, which is not itself necessarily a bad thing, was accompanied by the rating agencies giving these securities triple A ratings even though they contained non performing loans. This was criminal fraud. In Germany the law requires that these sorts of securities immediately sell any underlying mortgages that have even one late payments.

    2) The securities were further tranched by splitting the interest payments from the principal amounts for these mortgage bonds and then issuing separate securities made up of the each part. These securities were then further obfuscated from the underlying real estate by the financial institutions trading these synthetic financial instruments back and forth in highly leveraged credit swaps. The banks had no idea of the real underlying value of these instruments. When real estate prices dropped Bear Stearns needed to sell some of these junk instruments and nobody knew what they were really worth. Panic set in and Freddie and Fannie were told to take on bad mortgages, it smowballed into IndyMac going bankrupt, then Lehman Brothers, and finally foreign insurance company AIG. Congress was instructed to legislatively bail them out to the tune of 700 billion dollars. The Federal Reserve started to print money hand over fist and it is still doing so 10 years on.

    The problem is our corrupt fractional reserve banking system and instruments like credit swaps that leverage garbage paper at 30 to 1. This has not stopped and the government now has taken on providing liquidity for all this nonsense. As much as I deplore the massive invasion of the United States by Mexico it is not your cleaning lady who is responsible for our Potemkin Village economy. It is the crooked bankers and their bought politicians in Washington DC.

    Buy some gold coins and make sure you have plenty of rice and beans stored in you larder. It's only going to get worse.

    This has not stopped and the government now has taken on providing liquidity for all this nonsense.

    Overall your comment is great. Except that things aren’t the same. There is no demand for ‘CDO Squared’ or the more Byzantine structured finance products. And the rating agencies had their come to Jesus moment and no longer bend over to approve these things.

    If you are talking about the Fed subsidizing the housing market — yea. That’s still going on. They buy agency (government guaranteed) mortgage securities which throws a lot of liquidity at the housing market.

  185. But economics has made no significant effort to include new knowledge about humans.

    Economists are in the business of studying human behavior in markets and the characteristics of human aggregations in the spheres of production and consumption. If this dimension of human behavior doesn’t interest you, you’re free to study some other dimension of human behavior.

  186. The FED blows bubbles Steve. Economists are ignorant because their professors are ignorant. It’s tradition.

  187. @Jonathan Mason
    The last housing boom and bust came about because it was made too easy to get mortgage money by offering low teaser entry rates of interest, so that buying became much cheaper than renting in many part of the country.

    The easy money tempted home builders to vastly increase profit margins so that new homes were being sold for prices that bore no relation to the cost of construction plus land, plus a reasonable profit, and no sensible relation to average earnings.

    Eventally when the teaser rates expired, people stopped paying, or were no longer able to pay, and there were larger numbers of defaults than expected leading to larger numbers of poorly-built homes on the market and a shortage of buyers. People who could no longer pay the mortgages were then unable to sell the homes either.

    Even the wise virgins who had plenty of equity in their homes were suckered into taking out "home equity loans" (actually second mortgages) on their homes to spend money on luxuries, or home improvements, but when home prices crashed the equity disappeared and the home improvements turned out to have added nothing to the value of the homes.

    At least that is how it was in Florida.

    During the run up to the bubble, I knew somebody who was an Assistant Manager at a McDonalds who got a loan for a $200000 house. He was only making like $10 an hour.

  188. @Bill

    the revelation that Bernard L. Madoff was running a Ponzi scheme – something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math
     
    This is a solved problem, though. In their anti-trust enforcement functions, both FTC and DOJ have fleets of economists to help the lawyers understand the math. If the SEC wanted to be able to understand the math, it would understand the math.

    The woman he spoke to in 2005 was a young lawyer whose name I’ve forgotten (she was ethnic Chinese, IIRC). I think she was some sort of enforcement functionary. He never got past her if I’m recalling his account of his dealings with the SEC.

    • Replies: @Bill
    OK, but from that we conclude that they don't want to understand the math.
  189. @Charles Pewitt
    Economist Robert J. Shiller is a shyster. Shiller is an economist. Shiller is unscrupulous. Shiller is an academic. Shiller pushes globalization and mass immigration. What more do you need to know?

    Shiller and his ilk will defend this rotting globalized economic and political system until they expire and go to hell. My favorite economist croaked while in the middle of a lecture. He dropped dead of a heart attack. True story. Economists are evil beyond redemption.

    Shiller used sophisticated data analysis to predict the 2000 stock market collapse and the 2009 housing market collapse. Seems like great achievements to me

    • Replies: @Charles Pewitt
    Mr. Hume says this: "Schiller used sophisticated data analysis to predict the 2000 stock market collapse and the 2009 housing market collapse. Seems like great achievements to me."

    I say that I'm dumber than a box of rocks and I knew the tech bubble in the late 1990s was a big fat bubble cooked up by cheap money from the Federal Reserve Bank. I also knew that the real estate bubble was simmering away until the tech bubble burst and then the Federal Reserve Bank cranked up the dial from low to high to keep things bubbling. The real estate bubble was deliberately created by the Fed to compensate for the wealth destruction caused by the collapse of the tech bubble.

    Double, double toil and trouble; Fire burn, and caldron bubble.

    The current asset bubbles in stocks, real estate and bonds will implode soon.
  190. @Art Deco
    The bulk of the negative equity was to be found on the books of prime borrowers. Plying people with sketchy credit histories and / or insufficient income streams was a part of the story, but most of the force of the problem was derived from the condition of other sectors of the population.

    Various subfractions of the economics profession have their hobbyhorses. Their contentions are not necessarily well-established in the body of theoretical and empirical research. So you get fringe Austrians contending that it was all the Federal Reserve's doing with their inflation-targeting fandango and we need to replace central banking with a currency board (diagnosis odd - the run up in housing prices dates from 1997 while the Fed Funds rate was abnormally low only from the fall of 2002 to the fall of 2004; prescription frankly crackers, as can be seen with our own experience of the gold standard and foreign country's experience with unyielding currency pegs). Or you have a policy entrepreneur like Scott Sumner contending that it was all the Federal Reserve's doing with their paying interest on reserves and 'there's no such thing as bubbles' (about the bubbles, who do you believe, Sumner or your lying price indices? About the Fed's responsibility, wasn't it amazing that Dr. Bernanke and the Fed Governors managed to generate a severe economic crisis in Britain (using sterling), continental Europe (using the Euro), and Japan (using the Yen) all by paying 0.25% on reserves?). Then we've got others contending the Community Re-investment Act is at fault. (Bad law, but on the books for 20 years before the housing market began overheating).

    Here's a suggestion: you were looking at a perfect storm of several problems: undigested financial innovation (credit default swaps - emerging in 1995), institutional stupidity (Joseph Cassano's Financial Products Unit at AIG), the promotion of poor underwriting (Freddie Mac slashed underwriting standards in 2003), and manias which require the tools of social psychology to explore (manias on the part of borrowers to be sure, but also financiers in many cases - about 46% of the value of Countrywide's loan portfolio went sour). You also had panic inasmuch as problems came to a head at a mess of large institutions all at the same time (Fannie Mae, Freddie Mac, Lehman, WaMu, Wachovia, Fortis, the Royal Bank of Scotland, Merrill Lynch, Citigroup, and especially, AIG) . Some unexpected phenomena also blindsided the financial press (the implosion of some money market funds and the revelation that Bernard L. Madoff was running a Ponzi scheme - something the SEC did nothing about one might guess because Mr. Markopolous had to make his case to a lawyer bad at math).

    Complexity defies simplistic (and consensus) explanations. The answer to the multiple choice question is: E–all of the above.

  191. @MarkinLA
    And remember that AIG was in talks to pay off those swaps at 40 cents on the dollar when Bernanke stepped in and used the Fed to pay them off at 100 cents on the dollar.

    And remember that AIG was in talks to pay off those swaps at 40 cents on the dollar when Bernanke stepped in and used the Fed to pay them off at 100 cents on the dollar.

    Talks with whom? Andrew Ross Sorkin offers an account of Robert Willumsted’s initial contacts with the Board and the Federal Reserve Bank of New York. They were completely off Timothy Geithner’s radar screen and Willumsted contacted them in a state of desperation.

    There were three components of the AIG rescue: Maiden Lane II, Maiden Lane III, and TARP. The first two are Federal Reserve subsidiaries. The third was run by the Treasury. The Fed and the Treasury eventually lost about $23 bn on the deal, IIRC.

    • Replies: @anon
    https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/aig/Pages/status.aspx

    "The combined profit of $9.5 billion from the Maiden Lane II and III special purpose vehicles, which purchased mortgage-related assets from AIG and its counterparties, represented the largest portion of the overall $22.7 billion positive return."

    Treasury wording: " the overall positive return"

    Maiden Lane loans included interest. But otherwise, it is just cash on cash return. Its a mistake to consider this an 'investment' but the fact that it was cash positive is noteworthy.

    GM cost money on a cash basis. But the government has a perpetual claim on roughly 1/5 of the GDP and a statutory corporate profit tax of 35% means there were knock on benefits that were reasonably direct.
    , @MarkinLA
    http://gawker.com/5391174/aig-only-wanted-to-give-goldman-sachs-40-60-cents-on-the-dollar-then-geithner-stepped-in

    Sorry I thought it was Bernanke.
  192. @Nico

    After more than 15 years we still don’t understand why 9/11 happened.
     
    Anyone whose opinion counts for more than a writeback on a web form and who does not understand why 9/11 happened does not want to. Broadly speaking, 9/11 happened because the perpetual imposition of the liberal international order from 1946 onward met its match in the form of Islam. If you don't understand why Islam is a particular thorn in the door of the modern world it's because you don't want to believe it.

    the motivations of the Arab resistance fighters
     
    QED.

    Your explanation appears to be overdetermined by the facts. The vague reference to “liberal international order” obscures the concrete facts of physical invasion and occupation, ethnic cleansing, cooptation of government, and killing sanctions (500,000 Iraqi babies).

  193. anon • Disclaimer says:

    Read this book:

    False Security: The Betrayal of The American Investor
    Bernard J Reis
    1937

    Chapter 4: Guaranteed Mortgages

    Chapter 7: Real Estate Bonds

    The 1920’s had a huge real estate boom. And its own housing related financial schemes, including securities innovation. One of the bizarre aspects of the 2008 crisis is that some of the legacy legislation ended up providing firewalls since they hadn’t been fully extracted from the regulatory scheme.

  194. @Robert Hume
    Shiller used sophisticated data analysis to predict the 2000 stock market collapse and the 2009 housing market collapse. Seems like great achievements to me

    Mr. Hume says this: “Schiller used sophisticated data analysis to predict the 2000 stock market collapse and the 2009 housing market collapse. Seems like great achievements to me.”

    I say that I’m dumber than a box of rocks and I knew the tech bubble in the late 1990s was a big fat bubble cooked up by cheap money from the Federal Reserve Bank. I also knew that the real estate bubble was simmering away until the tech bubble burst and then the Federal Reserve Bank cranked up the dial from low to high to keep things bubbling. The real estate bubble was deliberately created by the Fed to compensate for the wealth destruction caused by the collapse of the tech bubble.

    Double, double toil and trouble; Fire burn, and caldron bubble.

    The current asset bubbles in stocks, real estate and bonds will implode soon.

    • Replies: @Art Deco
    I say that I’m dumber than a box of rocks and I knew the tech bubble in the late 1990s was a big fat bubble cooked up by cheap money from the Federal Reserve Bank.

    See John Taylor of Stanford: rules based monetary policy was the order of the day from 1985 to 2003. There was no 'cheap money. '
  195. Anonymous • Disclaimer says:

    The ‘conventional wisdom’ these days, as endlessly parrotted by The Economist magazine can be summed up the notion that ‘economic growth’ is merely a function of stuffing as many warm bodies of third world origin as humanly possible into every square meter of any given first world nation.

    Even bloody Neanderthal man was more intelligent.

  196. @Autochthon
    It'd be cool if someone (Mr. Derbeyshire?) with the time
    and mathematical aptitude wrote a book explaining this stuff for laymen; perhaps it could be entitled Fractional Reserve Banking & Other Lies Your Government Told You.

    Go read Murray Rothbard.

  197. @MarkinLA
    And remember that AIG was in talks to pay off those swaps at 40 cents on the dollar when Bernanke stepped in and used the Fed to pay them off at 100 cents on the dollar.

    Yep. AIG was re-capitalized to save the investment banks counter-parties who had bought AIG’s default swaps. Paulson admitted in 2014 that the TARP money was not enough to save the system. Without getting full payment from AIG on the swaps, investment banks like Goldman Sachs likely would have gone bankrupt.

    Chuck Grassley: “It’s as if the New York Fed used AIG as a front man to bail out banks all over the world.”

    • Replies: @Art Deco
    Paulson admitted in 2014 that the TARP money was not enough to save the system. Without getting full payment from AIG on the swaps, investment banks like Goldman Sachs likely would have gone bankrupt.

    Again, the Maiden Lane deals were negotiated before TARP was enacted. I doubt you would see credit default swaps on Goldman's balance sheet listed at their notional value. There's some estoteric set of formulae about how derivatives are booked.
  198. @Anonymous
    An absolutely terrible indictment of the economics profession.

    The really sad, shocking thing is that government policy/strategy is, ultimately, based upon the findings and recommendations of the economic profession.
    If, as Steve argues, the economics profession is too cowardly, prejudiced or downright incompetent to discern the causes of what was - let's not mince words here - a catastrophe of the highest order - then we are well and truly screwed.

    The correct analogy is to Galileo and the other scientists of the enlightenment who followed him. Galileo had the guts to argue against the prevailing, political/religious dogma when he knew it was erroneous. He jeopardized his life and freedom for truth, but had the courage not to mislead and deny for the sake of dogma.
    If he concealed and lied, where would we be today?

    As the economics profession is criminal–an indictment is in order.

    Economics works much like Yogi Berra described: “In theory there is no difference between theory and practice. In practice there is.”

    The problem with most economic theories is that they don’t (can’t) account for secondary (second order) effects–those inconveniences that show up as unintended consequences.

    The Galileo argument doesn’t apply to economics–arguing economics is arguing competing dogmas. Galileo had evidence.

  199. anon • Disclaimer says:
    @Art Deco
    And remember that AIG was in talks to pay off those swaps at 40 cents on the dollar when Bernanke stepped in and used the Fed to pay them off at 100 cents on the dollar.

    Talks with whom? Andrew Ross Sorkin offers an account of Robert Willumsted's initial contacts with the Board and the Federal Reserve Bank of New York. They were completely off Timothy Geithner's radar screen and Willumsted contacted them in a state of desperation.

    There were three components of the AIG rescue: Maiden Lane II, Maiden Lane III, and TARP. The first two are Federal Reserve subsidiaries. The third was run by the Treasury. The Fed and the Treasury eventually lost about $23 bn on the deal, IIRC.

    https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/aig/Pages/status.aspx

    “The combined profit of $9.5 billion from the Maiden Lane II and III special purpose vehicles, which purchased mortgage-related assets from AIG and its counterparties, represented the largest portion of the overall $22.7 billion positive return.”

    Treasury wording: ” the overall positive return”

    Maiden Lane loans included interest. But otherwise, it is just cash on cash return. Its a mistake to consider this an ‘investment’ but the fact that it was cash positive is noteworthy.

    GM cost money on a cash basis. But the government has a perpetual claim on roughly 1/5 of the GDP and a statutory corporate profit tax of 35% means there were knock on benefits that were reasonably direct.

  200. Thomas Sowell would agree: Relaxed lending standards to minorities.

    The Housing Boom and Bust is a non-fiction book written by Thomas Sowell about the United States housing bubble and following subprime mortgage crisis. The book was initially published on April 24, 2009 by Basic Books and reissued on February 23, 2010.

    Sowell, a Senior Fellow at the Hoover Institution, explores political and economic causes of the American housing crisis. For example, he links the Community Reinvestment Act to decreased lending standards that resulted in an increase of subprime mortgages, as the law forced banks to set up quotas of lending to minorities.[1] As a result, “lenders had to resort to ‘innovative or flexible’ standards.”[2] He also contrasts housing prices for modest middle-class homes in California and Texas and theorizes that California, with open space and various other zoning laws, had homes that were more expensive than those of similar size in Texas, which lacks such laws. Politically, Sowell targets the George W. Bush administration and Congress members of both major political parties for obstructing audits of Fannie Mae and Freddie Mac and enabling banks to make highly risky housing loans. Regarding housing prices, Reason magazine summarized his stance: “the immense local variability in housing prices and failed loans reveals that the government mistook a set of local problems for a national one.”[3]

    • Replies: @Alden
    A big factor was Clinton's AG Janet Reno's orders that banks give loans to unqualified non Whites or face enormous fines of several hundred thousand dollars for each unqualified minority turned down for a loan.
    , @MarkinLA
    Wall Street did not have to buy crap loans and most of the sub-prime loans were originated by unregulated mortgage companies that had nothing to do with the CRA. If nobody bought those garbage loans the mortgage originators would have so many bad loans on their books they would have had to stop lending or would have gone bankrupt years earlier.
  201. @Autochthon
    It'd be cool if someone (Mr. Derbeyshire?) with the time
    and mathematical aptitude wrote a book explaining this stuff for laymen; perhaps it could be entitled Fractional Reserve Banking & Other Lies Your Government Told You.

    Agreed

  202. We can’t understand because to understand would be to take Hyman Minsky’s work seriously, and to take Minsky seriously would mean that a lot of neoliberal economic nostrums would start to look like quack medicine–which would cause certain people with impeccable political connections to lose money.

  203. @Abe

    The character played by Steve Carell was pretty clearly Jewish.
     
    HBO is right now plugging its new Madoff biopic starring DeNiro. If there were a a consistent policy to "whitewash" the (((ethnicities))) of financial wrong-doers you'd think they'd have let this one die (Madoff who?), as DeNiro looks like Philip Roth's brother crossed with some angry rabbi in the promo pic I saw.

    De Niro’s Mother was Jewish but since he plays Italians most of his audience thinks of him as Italian.

    • Replies: @TomSchmidt
    https://en.m.wikipedia.org/wiki/Virginia_Admiral

    Virginia Holton Admiral or Virginia De Niro (February 4, 1915 – July 27, 2000) was an American painter and poet. ...

    Admiral was raised as a Presbyterian but later became an atheist during her adulthood. Her father had English, Irish, German, French, and Dutch ancestry, and her mother was of German descent.
    , @Travis
    you must be thinking of Sylvester Stallone.
    Stallone had a jewish mother, but he played the Italian Stallion in 5 of his Rocky films
  204. @Opinionator
    9/11 happened chiefly because their homeland is under Zionist invasion. The Arab resistance were explicit about that and had no reason to lie.

    But people in the United States are not allowed to talk about this in public.

    Come on, you didn’t type that with a straight face.

    9/11 perps “homeland” was mostly Saudi Arabia. No Zionist invasion there, even by the wildest stretches of the Unz commentariat.

    • Replies: @Opinionator
    The Arab homelands encompass more than Saudia Arabia. So do the Muslim
    homelands.
  205. @HBD Guy
    Thomas Sowell would agree: Relaxed lending standards to minorities.

    The Housing Boom and Bust is a non-fiction book written by Thomas Sowell about the United States housing bubble and following subprime mortgage crisis. The book was initially published on April 24, 2009 by Basic Books and reissued on February 23, 2010.

    Sowell, a Senior Fellow at the Hoover Institution, explores political and economic causes of the American housing crisis. For example, he links the Community Reinvestment Act to decreased lending standards that resulted in an increase of subprime mortgages, as the law forced banks to set up quotas of lending to minorities.[1] As a result, "lenders had to resort to 'innovative or flexible' standards."[2] He also contrasts housing prices for modest middle-class homes in California and Texas and theorizes that California, with open space and various other zoning laws, had homes that were more expensive than those of similar size in Texas, which lacks such laws. Politically, Sowell targets the George W. Bush administration and Congress members of both major political parties for obstructing audits of Fannie Mae and Freddie Mac and enabling banks to make highly risky housing loans. Regarding housing prices, Reason magazine summarized his stance: "the immense local variability in housing prices and failed loans reveals that the government mistook a set of local problems for a national one."[3]

    A big factor was Clinton’s AG Janet Reno’s orders that banks give loans to unqualified non Whites or face enormous fines of several hundred thousand dollars for each unqualified minority turned down for a loan.

    • Replies: @Art Deco
    Again, subprime and alt-A loans amounted to about 16% of outstanding residential mortgage debt, and the share in excess of the baseline was less than that. (And, again, you had bubbles in commercial real estate as well).
  206. @Opinionator
    The Carrell character was portrayed sympathetically.

    Most of the main Wall Street characters in that movie were portrayed sympathetically. The issue at hand was whether they were erroneously portrayed at WASPs, which they were clearly not.

  207. This tweet from 2015 has AIG, Goldman Sachs and that fat Scottish skunk Gordon Brown:

    AIG was bailed out by the Federal Reserve Bank so that AIG could keep Goldman Sachs from going under. Goldman Sachs and American International Group should have been allowed to go belly up.

    Brown sold much of Britain’s gold to bail out his banker buddies.

    • Replies: @Art Deco
    AIG was bailed out by the Federal Reserve Bank so that AIG could keep Goldman Sachs from going under.

    AIG had a long list of creditors.
  208. Why Don’t Economists Yet Understand the Housing Bubble/Bust?

    Because they have ignored Dr. Housing Bubble.

    Also:

    But it’s safer, careerwise, to remain puzzled, so they do.

    Exactly. In the News Biz, “If it bleeds, it leads” applies just as much to balance sheet ink as to heme.

    Why solve a problem that is so lucrative to monetarize?

    Also:

    Nobody wants to be the first racist shot down for stating the screaming obvious: that not all people are genetically or culturally fit to be home owners. Give ’em a house in the Countrywide “Fog A Mirror, Get A Mortgage” stakes, and they’ll run it into the ground. While the lender gets both Diversity Points and tax dollar bailouts. And the neighbors get in addition to the bailout donation suppressed property values, all sorts of daily problems ranging from the irritating to the life-threatening, and plenty of spankings for being functional and competent and keeping the weeds down and the roof up.

  209. In this vein… America’s Cities are Running out of Room!

    A shortage of homes for sale has bedeviled U.S. house hunters in recent years, so why don’t builders build more? One problem is that they’re running out of lots to build on—at least in the places that people want to live.

    Cities that were sprawling before the Great Recession have begun to sprawl again. Space-constrained cities, meanwhile, have run out of room to build. That reality has spurred developers to focus on center-city neighborhoods where high-density building is allowed—and new units command exceedingly high prices.

    https://www.bloomberg.com/news/articles/2017-05-22/america-s-cities-are-running-out-of-room

    But CTL F imm gets nothing!

  210. @Steve Sailer
    Not that many immigrants in New Mexico. The economy has seldom been good enough to attract many.

    “Not that many immigrants in New Mexico. The economy has seldom been good enough to attract many.”

    New Mexico is a desert state and that makes it a sand state. The terrain in New Mexico is just like that of Arizona and Nevada.

    • Replies: @Steve Sailer
    Arizona seems to have more underground water or something.
  211. @biz
    Come on, you didn't type that with a straight face.

    9/11 perps "homeland" was mostly Saudi Arabia. No Zionist invasion there, even by the wildest stretches of the Unz commentariat.

    The Arab homelands encompass more than Saudia Arabia. So do the Muslim
    homelands.

    • Replies: @biz
    Well it seems that today a British Pakistani Muslim has vented his legitimate anger at Zionism (tm) by blowing up a crowd full of British teenage girls with a nail bomb. Oh if only those perfidious Jooz were not occupying Pakistan...
  212. @Abe

    The character played by Steve Carell was pretty clearly Jewish.
     
    HBO is right now plugging its new Madoff biopic starring DeNiro. If there were a a consistent policy to "whitewash" the (((ethnicities))) of financial wrong-doers you'd think they'd have let this one die (Madoff who?), as DeNiro looks like Philip Roth's brother crossed with some angry rabbi in the promo pic I saw.

    “If there were a a consistent policy to “whitewash” the (((ethnicities))) of financial wrong-doers”

    Whitewashing Jews because their skin color is so dark compared to the Goys right? Robert De Niro should go black face or at the very minimum get a tan to play Bernie Madoff. A White person playing a Jew is the equivalent of Aziz Ansari playing Edgar Winter in a film about the rocker’s life.

    • Replies: @guest
    I think you may have noticed the above poster put "whitewash" in quotation marks, indicating he was using it in a figurative sense.
  213. So without coming across as an anti-Semite, is it fair to offer some blame on some (((bankers)))?

    • Replies: @Art Deco
    Over the period running from 2003 to 2008, the following institutions had the following chief executives:

    1. Fannie Mae (Franklin Raines, Daniel Mudd)
    2. Freddie Mac (Richard Syron)
    3. AIG (Maurice Greenberg, Martin Sullivan, Robert Willumsted)
    4. Citigroup (Charles Prince, Winfried Bischoff, Vikram Pandit)
    5. Wachovia (G.K. Thompson, Robert Steel)
    6. Lehman Bros (Richard Fuld)
    7. Merril, Lynch (Stanley O'Neal, John Thain)
    8. Bear, Stearns (James Cayne)
    9. Washington Mutual (Kerry Killinger)
    10. Countrywide (Angelo Mozilo)
    11. Royal Bank of Scotland Group (Fred Goodwin)
    12 Fortis (Maurice Lippens)

    Greenberg, Fuld, and Cayne actually are Jewish (as is Joseph Cassano, the head of the Financial Products Unit at AIG). Presumably they used their sorcerer's powers to induce the others to run their companies into the ground.
  214. @Jefferson
    "Not that many immigrants in New Mexico. The economy has seldom been good enough to attract many."

    New Mexico is a desert state and that makes it a sand state. The terrain in New Mexico is just like that of Arizona and Nevada.

    Arizona seems to have more underground water or something.

    • Replies: @Autochthon
    Arizona is irrigated farms and ranches, (ergo agribusiness),larger cities like Phoenix (a megalopolis with Chandler's enormous influence from the H1-B crazed technology crowd...) and Tuscon, and proximity to (batahit crazy leftwing) California. With all this comes much honey for invading flies.

    New Mexico is impoverished Indian reservations;government jobs at Kirkland and Los Alamos only available to citizens; smaller, less prestigous (and less extravagently funded) universities; less water (both underground and from rivers); and smaller cities like Taos and Santa Fe filled with the kind of hypocritical, rich douchebags who don't want to be anywhere near the alien peoples they insist everyone else endure. It's also priximity to (somewhat still sane but fading fast) Oklahoma and Texas.

  215. @Art Deco
    Lowering standards shifted the demand curve and created the bubble,

    That is not a necessary condition to create an asset bubble and you had bubbles in Britain and in Spain without any Community Re-investment Act' and without our government-sponsored conduits and their incestuous association with the Democratic Party. That aside, the share of the population living in owner-occupied housing increased from about 65% to about 68%. Is it really all that plausible that that's going to generate a nine-year long inflation in real-estate prices which leaves prices 40% above long-term trends, an inflation manifest in the market for commercial and residential real-estate alike?

    That aside, the share of the population living in owner-occupied housing increased from about 65% to about 68%. Is it really all that plausible that that’s going to generate a nine-year long inflation in real-estate prices which leaves prices 40% above long-term trends, an inflation manifest in the market for commercial and residential real-estate alike?

    It’s a frequently observed phenomenon in economic history that small changes in demand or supply, if they occur on the frontiers, can induce large changes in price. For instance, oil prices in the 2008 time frame went to $150 based on ~1% changes in world demand and supply.

    • Replies: @MarkinLA
    The claim at the time was that there was a lot of speculation in the futures markets for oil and a lot of tankers were waiting offshore to create an imbalance in the market.
  216. @Beckow
    There was another macro contributing factor - mankind has moved from food scarcity to housing (usable living space) scarcity. What is scarce will experience bubbles and shortages, often in parallel, there is always speculation and manias. Scarcity is also not manageable.

    We used to have famines and the main political factor was the price of bread. That seems to be gone for now. Today most of the advanced world is dealing with housing as the core unresolved (and maybe unresolvable) issue. It has become the main cost (up to 50% for younger people), main asset, main investment. Housing drives migration since owners want more renters/buyers, it determines who is comfortable and who is poor. It is an obsession as it has never been before. Watch what is happening in the most 'advanced' parts of the world, from London and Silicon Valley, to Tokyo, Moscow and China, housing and asset prices are the core issue for most people. One's access to housing determines almost everything - it is more important than skills, education, status, jobs, etc...

    2007-8 was a harbinger of things to come. This is not about to get better. So find a comfortable spot on the bubble and take a ride. Scarcity cannot be managed.

    You hypersimplistically presume we all want ro live like the ants in Hong Kong, Shanghai, and New Delhi.

    This attitude (and its falseness; its untruth) accounts for much of the autogenecide of white people.

    We don’t live like that. We never much have and we never much will.

    We are of pastoral nomadic stock, not the sedentary agrarianism of collectivist, hyperdense China, India, Mespotamia….

    Do you live in a skyscraper surrounded by concrete and steel as far as your eyes can see? If not, why not? After all, it’s the solution to all problems for anyone needing a home….

    • Replies: @Anonymous
    Europe was historically more urbanized than China (I don't know about India or Mesopotamia):

    http://www.sabhlokcity.com/wp-content/uploads/2014/03/angus-madison-urbanisation2.png

    Europe's greater urbanization probably played some role in its economic rise from the late middle ages onwards.
  217. @Opinionator
    If the US population increases by 15 percent every decade, mostly driven by immigration, what do you think that does to housing prices?

    Depends on what happens to housing supply, where it happens to housing supply, where the immigrants move to in America, how emotions about housing run, etc… sure all other things being equal and increase in demand without an increase in supply increases prices. In the real world things are complex

    • Replies: @Opinionator

    In the real world things are complex.
     
    Sure, but given the data we already from the real world, simply throwing up our hands and saying "it's complicated" is probably unwarranted.

    Moreover, even if new housing construction were keeping up with demand, God ain't making more land.

  218. @Opinionator
    9/11 happened chiefly because their homeland is under Zionist invasion. The Arab resistance were explicit about that and had no reason to lie.

    But people in the United States are not allowed to talk about this in public.

    Actually the original stated reason was that infidels (us) were still in the holy lands of Saudi Arabia after the first gulf war and also we were perceived as propping up the Saudi regime

    • Replies: @Opinionator
    The original stated reasons--given shortly after the retaliation against the United States on 9/11--were justice in Palestine, usurpation/occupation of Saudi Arabia, and the killing sanctions against Iraq.

    The grievances cited beforehand were similar, and the Palestine issue was there from the beginning for the men who masterminded the strikes.

    The former is easily found in the public domain, was otherwise suppressed by the MSM, and supports my point. That you, presumably relatively well informed, could get it so wrong yet express such confidence in your convictions demonstrates how misled the American public has been.
  219. @anon
    MarkinLA

    https://www.newyorkfed.org/markets/maidenlane.html

    The AIG credit default swaps ended up making money for the treasury. They 'settled' the CDS's by buying the underlying securities at face value. This involved roughly a $20 billion loan to a conduit called Maiden Lane III. The underlying securities were then sold for enough to pay back the $20 billion and realize a cash profit of $7 billion.

    The problem that AIG had was that the counterparts demanded cash collateral based on estimates of market prices which turned out to be much lower than the price they were sold for a couple of years later.

    I don't want to appear to be picking on you, but this is an important point because Elizabeth Warren, etc. insist that the 'taxpayer' directly spent billions bailing out the banks. After TARP was fully settled, this group still insists that these were direct cash costs to the taxpayer and they refuse to acknowledge the actual cash on cash returns.
    ,
    The amount of effort that went into not noticing that TARP cash was returned is enormous and was largely successful. The fallback argument is that the government deserved a market level return on their 'investment'. I'm fine with saying that the taxpayer roughly broke even on a cash basis. This was never intended to be an investment it wouldn't have mattered if it made $1 billion or lost $1 billon (5%) -- and the excess $7 billion was just a fortunate windfall.

    The underlying logic of AIG is that they started with roughly $100 billion in capital, unlike the investment banks. This capital was very illiquid and the bailout allowed a relatively orderly liquidation over several years. The reason was to prevent contagion of the panic to AIG's counterparties. Of course I would be happy to see the counterparties executive officers face a firing squad, but once again, their failure would have caused further contagion and blown up more of the real economy.

    The underlying securities were then sold for enough to pay back the $20 billion and realize a cash profit of $7 billion.

    I guess if you wait long enough and catch another bubble that anything could look good on paper. The problem with that is you are looking with 20/20 hindsight. If this collapse had been the initiation of Great Depression II it would have never worked out and the present value is the only thing you can base anything on.

    Nobody lets the average guy who gets foreclosed upon collect a check from the bank 20 years later for what the price of the house is then do they? The average guy doesn’t have the FED pushing interest rates down to nothing explicitly for him as a stealth tax on the taxpayer to prop up that worthless real estate and make everything look good.

    • Replies: @anon

    Nobody lets the average guy who gets foreclosed upon collect a check from the bank 20 years later for what the price of the house is then do they?
     
    They didn't just 'give' that deal to AIG shareholders. When they agreed to the initial loan, they took 80% of the equity. A short time later, they took most of the rest, leaving the original shareholders roughly 5% of the equity. On July 1, 2009, AIG did a 1 - 20 reverse split, which leaves the original shareholder with about $3 now in market value for their shares.

    I suppose I remember this since I had small positions in AIG, FRE, and FNM. The common shareholders were wiped out, management was fired. I would like to forget it.

    One other detail. The counterparties to the CDO's had cash collateral from AIG. They held this collateral before the first negotiation regarding a settlement began. And between 1/2 and 1/3 of the cash collateral was held by non US banks.

    The 'deal' was that the counterparties kept the cash collateral which was at least half the face value of the securities and AIG payed them around $25 billion and got the 'toxic' assets. These were paying cash on a regular basis and it wasn't surprising that the Fed loan was repaid in full with interest.

    But the idea that the Fed could have crammed down a haircut to settle these in Sept 2008 on a cash basis is unrealistic. Primarily because the starting point would be the cash collateral the banks already held. Which turned out to be more than was needed to make the counterparties whole.

    Obviously I am overly sensitive to the virtually universal belief that 'AIG' as a business was 'made whole'. The owners/shareholders were effectively wiped out. And I don't have a problem with that. But getting wiped out and then endless whining by Elizabeth Warren around the narrative that the the company was 'bailed out'. It is more nuanced than that, and the NY Fed and Treasury made sure to propose terms and conditions that were severe.

    However, I just took my losses and tried to bail out myself, which wasn't that hard (fortunately). Unlike Ralph Nader who is trying to get a refund on his GSE stocks/bonds.
  220. @HBD Guy
    Thomas Sowell would agree: Relaxed lending standards to minorities.

    The Housing Boom and Bust is a non-fiction book written by Thomas Sowell about the United States housing bubble and following subprime mortgage crisis. The book was initially published on April 24, 2009 by Basic Books and reissued on February 23, 2010.

    Sowell, a Senior Fellow at the Hoover Institution, explores political and economic causes of the American housing crisis. For example, he links the Community Reinvestment Act to decreased lending standards that resulted in an increase of subprime mortgages, as the law forced banks to set up quotas of lending to minorities.[1] As a result, "lenders had to resort to 'innovative or flexible' standards."[2] He also contrasts housing prices for modest middle-class homes in California and Texas and theorizes that California, with open space and various other zoning laws, had homes that were more expensive than those of similar size in Texas, which lacks such laws. Politically, Sowell targets the George W. Bush administration and Congress members of both major political parties for obstructing audits of Fannie Mae and Freddie Mac and enabling banks to make highly risky housing loans. Regarding housing prices, Reason magazine summarized his stance: "the immense local variability in housing prices and failed loans reveals that the government mistook a set of local problems for a national one."[3]

    Wall Street did not have to buy crap loans and most of the sub-prime loans were originated by unregulated mortgage companies that had nothing to do with the CRA. If nobody bought those garbage loans the mortgage originators would have so many bad loans on their books they would have had to stop lending or would have gone bankrupt years earlier.

  221. @Art Deco
    And remember that AIG was in talks to pay off those swaps at 40 cents on the dollar when Bernanke stepped in and used the Fed to pay them off at 100 cents on the dollar.

    Talks with whom? Andrew Ross Sorkin offers an account of Robert Willumsted's initial contacts with the Board and the Federal Reserve Bank of New York. They were completely off Timothy Geithner's radar screen and Willumsted contacted them in a state of desperation.

    There were three components of the AIG rescue: Maiden Lane II, Maiden Lane III, and TARP. The first two are Federal Reserve subsidiaries. The third was run by the Treasury. The Fed and the Treasury eventually lost about $23 bn on the deal, IIRC.

    • Replies: @Art Deco
    Since when does Gawker have a business beat?
  222. @Charles Pewitt
    Mr. Hume says this: "Schiller used sophisticated data analysis to predict the 2000 stock market collapse and the 2009 housing market collapse. Seems like great achievements to me."

    I say that I'm dumber than a box of rocks and I knew the tech bubble in the late 1990s was a big fat bubble cooked up by cheap money from the Federal Reserve Bank. I also knew that the real estate bubble was simmering away until the tech bubble burst and then the Federal Reserve Bank cranked up the dial from low to high to keep things bubbling. The real estate bubble was deliberately created by the Fed to compensate for the wealth destruction caused by the collapse of the tech bubble.

    Double, double toil and trouble; Fire burn, and caldron bubble.

    The current asset bubbles in stocks, real estate and bonds will implode soon.

    I say that I’m dumber than a box of rocks and I knew the tech bubble in the late 1990s was a big fat bubble cooked up by cheap money from the Federal Reserve Bank.

    See John Taylor of Stanford: rules based monetary policy was the order of the day from 1985 to 2003. There was no ‘cheap money. ‘

  223. @Opinionator
    If the US population increases by 15 percent every decade, mostly driven by immigration, what do you think that does to housing prices?

    what do you think that does to housing prices?

    It does nothing if wages don’t go up and the bank requires a 20% down payment and that no more than 40% of your income go into housing costs (mortgage, insurance, and property tax) and any other debt obligations (such as a car or student loan) you have. If the bank won’t lend you money you can only afford a house if you are like those immigrants who are on welfare but working for cash under the table and save enough to buy it for cash (usually with more than one family).

  224. @Charles Pewitt
    This tweet from 2015 has AIG, Goldman Sachs and that fat Scottish skunk Gordon Brown:

    https://twitter.com/CharlesPewitt/status/552566594917126144

    AIG was bailed out by the Federal Reserve Bank so that AIG could keep Goldman Sachs from going under. Goldman Sachs and American International Group should have been allowed to go belly up.

    Brown sold much of Britain's gold to bail out his banker buddies.

    AIG was bailed out by the Federal Reserve Bank so that AIG could keep Goldman Sachs from going under.

    AIG had a long list of creditors.

    • Replies: @res

    AIG had a long list of creditors.

     

    Indeed, but as in most things some were more important than others. This WSJ article indicates the biggest two (Goldman Sachs and Deutsche Bank) accounted for about 1/4 of the $50B total: https://www.wsj.com/articles/SB123638394500958141
  225. @Alden
    A big factor was Clinton's AG Janet Reno's orders that banks give loans to unqualified non Whites or face enormous fines of several hundred thousand dollars for each unqualified minority turned down for a loan.

    Again, subprime and alt-A loans amounted to about 16% of outstanding residential mortgage debt, and the share in excess of the baseline was less than that. (And, again, you had bubbles in commercial real estate as well).

  226. @Cicatrizatic
    Yep. AIG was re-capitalized to save the investment banks counter-parties who had bought AIG's default swaps. Paulson admitted in 2014 that the TARP money was not enough to save the system. Without getting full payment from AIG on the swaps, investment banks like Goldman Sachs likely would have gone bankrupt.

    Chuck Grassley: “It’s as if the New York Fed used AIG as a front man to bail out banks all over the world.”

    Paulson admitted in 2014 that the TARP money was not enough to save the system. Without getting full payment from AIG on the swaps, investment banks like Goldman Sachs likely would have gone bankrupt.

    Again, the Maiden Lane deals were negotiated before TARP was enacted. I doubt you would see credit default swaps on Goldman’s balance sheet listed at their notional value. There’s some estoteric set of formulae about how derivatives are booked.

  227. @Art Deco
    That’s just the point. Excluding race and nationalities from economics is an error that needs to be remedied.


    It's not an error. What you're suggesting is irrelevant to the construction of economic theories or to testing economic theories.

    It isn’t irrelevant if different races have different tendencies as related to economic activity. If some races seem to be more frugal than others why wouldn’t that have an effect on their economies. What about industriousness or self-sacrifice for the common good? There are a whole host of tendencies that seem to define some people as opposed to others to assume these tendencies have no effect on the economy is something only an economist can believe.

    When testing economic theories over a long time you have the same issue as when looking at financial returns over a long time – a small difference in performance can mean a lot in terms of overall performance. That is unless you remove the quantitative aspects of the theory – something economists don’t want to do so they can continue to pretend they are real scientists.

    • Replies: @Art Deco
    It isn’t irrelevant if different races have different tendencies as related to economic activity.

    Yes, it's irrelevant. You're confusing economics with the subdepartments of sociology and anthropology concerned with economic life. The object of the former is behavior in the economic realm. The object of the latter is the observed social group as they engage in production and consumption. A scholarly publication in economics will commonly begin with, refer to, or develop a model which can be represented graphically or with calculus. An article in economic antrhopology will likely be text-only and one in economic sociology variable depending on whether or not statistical analysis is performed.

  228. @Johann Ricke

    That aside, the share of the population living in owner-occupied housing increased from about 65% to about 68%. Is it really all that plausible that that’s going to generate a nine-year long inflation in real-estate prices which leaves prices 40% above long-term trends, an inflation manifest in the market for commercial and residential real-estate alike?
     
    It's a frequently observed phenomenon in economic history that small changes in demand or supply, if they occur on the frontiers, can induce large changes in price. For instance, oil prices in the 2008 time frame went to $150 based on ~1% changes in world demand and supply.

    The claim at the time was that there was a lot of speculation in the futures markets for oil and a lot of tankers were waiting offshore to create an imbalance in the market.

  229. @Pat Boyle
    You might want to read "Time on the Cross" by Robert Fogel. He won the Nobel Prize in economics (yes I know it's not a 'real' Nobel) for his study of the economics of slavery.

    Pat, thanks for the reference. A relative of mine volunteers at a local museum dedicated to the memory of a prominent local family. They were abolitionist in thought and action, and one supported Lincoln over Seward as the moderate candidate regarding slavery.

    It’s at least imaginable to me the family was moved in part by an unspoken Puritan contempt for the southern Cavaliers importing as slaves a race that was alien to both, and, of course, remarkably different from the impoverished British and Continental slum-dwellers the Puritans imported. Just speculation.

  230. @Alfa158
    I don't know what you mean by all parts of society. I lived in the middle of where this bubble was occurring, and don't know a single, solitary, friend, relative, or co-worker who got involved with these unqualified loans and over-leveraged home equity loans. I know this is personal anecdotal data, but do you know anyone who got wrapped up in it? I would love to hear how many commenters knew anyone either.
    You are right about the last sentence though. Speaking the truth is often a particularly dangerous activity, which is why Steve and others like him are kept carefully bottled up in venues like this blog.

    My husband does taxes for a living and he had several clients who were acquiring homes with very little down and then renting them out. They all lost out.

    I have a buddy named Brad who had at least 10 homes at one point, flipping, renting, whatever. He lost it all in the crash.
    Another friend was telling me yesterday about buying a home in 2005. when he finally sold it he said “the bank lost about $300,000.” He didn’t elaborate.

    a former employee also lost her overpriced home in 2009. we told her the loan was too big but she was determined.

    We ourselves bought two investment homes in 2007. It took until 2016 for them to recover their lost value. we’ve had a much better return with the commercial property we bought near the bottom of the market.

    I know it sounds like I’m making this all up, but really the only people who benefited by all that real estate buying/selling/renting were the sales people.

    the investors were having fun bragging about all the homes they owned. And being a landlord makes you feel like a big shot for a little while. Then it all becomes a royal pain in the neck.

    • Replies: @The Last Real Calvinist
    Thanks for this comment, Realist.

    There are four ways for the non-wealthy to make real money on residential property:

    1) You buy big, build up your equity, then sell and live much smaller.

    2) You sell when you think the market is peaking, then rent until the market collapses, at which point you buy again for much less. This is what some Hong Kong people try to do.

    3) You are wealthy enough, and have enough self-control, to spend some of your disposable income on an investment property instead of buying a bigger one for your own use. You then have the excellent judgement needed both to sell that investment property at the 'right' time, and to restrain yourself from immediately buying another investment property because you feel you're 'missing out' if the market continues to rise. This is classic speculation.

    4) You become a member of the landlord class, and you buy a property or properties with the intent of establishing a regular monthly income. This is possible in many places, but hard in places with hot property markets. You also have to be willing to spend a lot of time and energy on being a landlord. It's not the life for everyone.

    In the midst of property bubbles, many people just assume some combination of #3 and #4 is going to work out for them when they buy an investment property. Sometimes it does -- but often it doesn't.

  231. @Erik L
    Actually the original stated reason was that infidels (us) were still in the holy lands of Saudi Arabia after the first gulf war and also we were perceived as propping up the Saudi regime

    The original stated reasons–given shortly after the retaliation against the United States on 9/11–were justice in Palestine, usurpation/occupation of Saudi Arabia, and the killing sanctions against Iraq.

    The grievances cited beforehand were similar, and the Palestine issue was there from the beginning for the men who masterminded the strikes.

    The former is easily found in the public domain, was otherwise suppressed by the MSM, and supports my point. That you, presumably relatively well informed, could get it so wrong yet express such confidence in your convictions demonstrates how misled the American public has been.

    • Replies: @Erik L
    That is not my recollection. I recall before they were complaining about us occupying arabia and shortly after they added the palestinian thing. I could be wrong but since you provide no link to this easily found public domain info I'll continue with my current memory
  232. @Erik L
    Depends on what happens to housing supply, where it happens to housing supply, where the immigrants move to in America, how emotions about housing run, etc... sure all other things being equal and increase in demand without an increase in supply increases prices. In the real world things are complex

    In the real world things are complex.

    Sure, but given the data we already from the real world, simply throwing up our hands and saying “it’s complicated” is probably unwarranted.

    Moreover, even if new housing construction were keeping up with demand, God ain’t making more land.

    • Replies: @Erik L
    I'm not throwing up my hands. I'm pointing out that you are offering as evidence supply and demand and BTW assume supply is fixed. And yeah my grandfather also used that god ain't making any more of it line but it never made any sense. There is plenty of space to build more housing in the US.
    , @guest
    "God ain't making more land"

    God ain't, maybe,* but we am. The Soviets, for instance, could subdivide every square inch of Russia, until you had 17,000 workers in every apartment. Then there are all those rainforests I kept hearing are disappearing. Plus, all those empty volcanoes going to waste.

    *Actually, He is.

  233. @Opinionator
    The original stated reasons--given shortly after the retaliation against the United States on 9/11--were justice in Palestine, usurpation/occupation of Saudi Arabia, and the killing sanctions against Iraq.

    The grievances cited beforehand were similar, and the Palestine issue was there from the beginning for the men who masterminded the strikes.

    The former is easily found in the public domain, was otherwise suppressed by the MSM, and supports my point. That you, presumably relatively well informed, could get it so wrong yet express such confidence in your convictions demonstrates how misled the American public has been.

    That is not my recollection. I recall before they were complaining about us occupying arabia and shortly after they added the palestinian thing. I could be wrong but since you provide no link to this easily found public domain info I’ll continue with my current memory

    • Replies: @Opinionator
    1996 Fatwa

    https://is.muni.cz/el/1423/jaro2010/MVZ203/OBL___AQ__Fatwa_1996.pdf

    1998 Fatwa

    https://is.muni.cz/el/1423/jaro2010/MVZ203/OBL___AQ__Fatwa_1998.pdf

    Bin Laden's "Letter to America" (Nov. 2002)

    https://www.theguardian.com/world/2002/nov/24/theobserver

    More

    https://fas.org/irp/world/para/ubl-fbis.pdf
  234. Vignette

    When I got a mortgage for my house in SoCal in 2002, I told the lender, “I expect to put down 10% or so.” My goal was to get 20% equity as soon as I could, to avoid paying PMI.

    The broker said, “Huh huh, what? Well, if you really want to…”

    This was Washington Mutual, which went out of business in 2008.

  235. @Opinionator

    In the real world things are complex.
     
    Sure, but given the data we already from the real world, simply throwing up our hands and saying "it's complicated" is probably unwarranted.

    Moreover, even if new housing construction were keeping up with demand, God ain't making more land.

    I’m not throwing up my hands. I’m pointing out that you are offering as evidence supply and demand and BTW assume supply is fixed. And yeah my grandfather also used that god ain’t making any more of it line but it never made any sense. There is plenty of space to build more housing in the US.

  236. @Art Deco
    AIG was bailed out by the Federal Reserve Bank so that AIG could keep Goldman Sachs from going under.

    AIG had a long list of creditors.

    AIG had a long list of creditors.

    Indeed, but as in most things some were more important than others. This WSJ article indicates the biggest two (Goldman Sachs and Deutsche Bank) accounted for about 1/4 of the $50B total: https://www.wsj.com/articles/SB123638394500958141

  237. @dearieme
    Tell Steve it should be 'averse' not "adverse".

    I should be antipathetic to do so, me dearie.

  238. I think it’s safe to say, Steve, that economists basically haven’t ever understood anything.

    • Replies: @Art Deco
    I think it’s safe to say, Steve, that economists basically haven’t ever understood anything.

    The statement is not 'safe'. It's absurd.
    , @MW
    This attitude is silly. We have this weird idea that economists are supposed to predict the future of society, and sure enough, lots of charlatans with backgrounds in "economics" go on television and talk about what kinds of houses Americans will be buying in ten years. You might as well ask an architect, or a demographer, or a realtor, or someone in the construction industry. They all just see a little piece of it, and the full chaotic picture is probably beyond the predictive power of mere mortals. If it were "demographers" on television making these silly predictions, you'd be complaining how demographers never understand anything.

    Real companies employ people with background in economics to do things like, set prices and estimate demand in the near future. If you think about business at all, you're practicing some kind of economics. It isn't all voodoo. Most of it, really, is just boring, meat-and-potatoes analysis.
  239. @Opinionator
    Guest is referring to the movie, not the book.

    Oh, sure.

    The book did in fact have the string “immigrant” in it in three places, but not in the way portrayed in the movie. So the movie’s ending was a political statement, not something they got from the book. I was confirming his observation, but unobviously.

    • Replies: @Opinionator
    Thanks. It is interesting that the director went out of his way (outside the book) to make a political statement.
  240. @Alden
    De Niro's Mother was Jewish but since he plays Italians most of his audience thinks of him as Italian.

    https://en.m.wikipedia.org/wiki/Virginia_Admiral

    Virginia Holton Admiral or Virginia De Niro (February 4, 1915 – July 27, 2000) was an American painter and poet. …

    Admiral was raised as a Presbyterian but later became an atheist during her adulthood. Her father had English, Irish, German, French, and Dutch ancestry, and her mother was of German descent.

  241. @Formerly CARealist
    My husband does taxes for a living and he had several clients who were acquiring homes with very little down and then renting them out. They all lost out.

    I have a buddy named Brad who had at least 10 homes at one point, flipping, renting, whatever. He lost it all in the crash.
    Another friend was telling me yesterday about buying a home in 2005. when he finally sold it he said "the bank lost about $300,000." He didn't elaborate.

    a former employee also lost her overpriced home in 2009. we told her the loan was too big but she was determined.

    We ourselves bought two investment homes in 2007. It took until 2016 for them to recover their lost value. we've had a much better return with the commercial property we bought near the bottom of the market.

    I know it sounds like I'm making this all up, but really the only people who benefited by all that real estate buying/selling/renting were the sales people.

    the investors were having fun bragging about all the homes they owned. And being a landlord makes you feel like a big shot for a little while. Then it all becomes a royal pain in the neck.

    Thanks for this comment, Realist.

    There are four ways for the non-wealthy to make real money on residential property:

    1) You buy big, build up your equity, then sell and live much smaller.

    2) You sell when you think the market is peaking, then rent until the market collapses, at which point you buy again for much less. This is what some Hong Kong people try to do.

    3) You are wealthy enough, and have enough self-control, to spend some of your disposable income on an investment property instead of buying a bigger one for your own use. You then have the excellent judgement needed both to sell that investment property at the ‘right’ time, and to restrain yourself from immediately buying another investment property because you feel you’re ‘missing out’ if the market continues to rise. This is classic speculation.

    4) You become a member of the landlord class, and you buy a property or properties with the intent of establishing a regular monthly income. This is possible in many places, but hard in places with hot property markets. You also have to be willing to spend a lot of time and energy on being a landlord. It’s not the life for everyone.

    In the midst of property bubbles, many people just assume some combination of #3 and #4 is going to work out for them when they buy an investment property. Sometimes it does — but often it doesn’t.

    • Replies: @Anonymous

    4) You become a member of the landlord class, and you buy a property or properties with the intent of establishing a regular monthly income. This is possible in many places, but hard in places with hot property markets. You also have to be willing to spend a lot of time and energy on being a landlord. It’s not the life for everyone.
     
    Not necessarily. One of my relatives got stuck renting a property he wanted to flip. He lived in a different state. He rented it out, the tenant mailed him a check monthly. He had a friend who lived in that city go check on the house once in a while. When you have a new home, you don't have to worry about much related to the house for at least 10 years. Landlording indeed isn't for everyone. If you're neurotic, or aren't that bright, landlording ain't for you.

    I know another guy, bought an old repo'd 4 unit at the bottom of the market crash for $249K. He owns a bunch of lower end properties, and only rents to Mexicans. He never advertises any of his properties for rent. He just tells the Mexican tenants he has an open unit coming, and they find a Mexican for him to rent it. He'll rent a small one bedroom to three Mexican families without batting an eye. He keeps his rents low, and packs 'em with Mexicans, and he's doing very well. I know one property he hasn't visited in two years. The Mexicans govern themselves, make repairs themselves, landscape the property themselves. This property, after 10 years, was just assessed at $790K.

    My point being, a lot of you commenters don't know the first thing of what you're talking about. A lot of people make a lot of money in real estate. Every which way. Just because they don't share with you how they do it, doesn't mean it's not happening. And just because those who do have some experience suck at it, doesn't mean real estate investment sucks. More likely, YOU suck.
  242. @Erik L
    That is not my recollection. I recall before they were complaining about us occupying arabia and shortly after they added the palestinian thing. I could be wrong but since you provide no link to this easily found public domain info I'll continue with my current memory
    • Replies: @Opinionator
    Whitewashed. From a NYT review of a book by the co-chairs of the 9/11 Commission on the work of the commission:

    Talking to the detainees was especially important because the commission was charged with explaining not only what happened, but also why it happened. In looking into the background of the hijackers, the staff found that religious orthodoxy was not a common denominator since some of the members “reportedly even consumed alcohol and abused drugs.” Others engaged in casual sex. Instead, hatred of American foreign policy in the Middle East seemed to be the key factor. Speaking to the F.B.I. agents who investigated the attacks, Hamilton asked: “You’ve looked [at] and examined the lives of these people as closely as anybody. . . . What have you found out about why these men did what they did? What motivated them to do it?”

    These questions fell to Supervisory Special Agent James Fitzgerald. “I believe they feel a sense of outrage against the United States,” he said. “They identify with the Palestinian problem, they identify with people who oppose repressive regimes and I believe they tend to focus their anger on the United States.” As if to reinforce the point, the commission discovered that the original plan for 9/11 envisioned an even larger attack. Khalid Shaikh Mohammed, the strategist of the 9/11 plot, “was going to fly the final plane, land it and make ‘a speech denouncing U.S. policies in the Middle East,’” Kean and Hamilton say, quoting a staff statement. And they continue: “Lee felt that there had to be an acknowledgment that a settlement of the Israeli-Palestinian conflict was vital to America’s long-term relationship with the Islamic world, and that the presence of American forces in the Middle East was a major motivating factor in Al Qaeda’s actions.”
     
    https://mobile.nytimes.com/2006/08/20/books/review/20Bamford.html
    , @Erik L
    I sit corrected.
  243. @TomSchmidt
    Oh, sure.

    The book did in fact have the string "immigrant" in it in three places, but not in the way portrayed in the movie. So the movie's ending was a political statement, not something they got from the book. I was confirming his observation, but unobviously.

    Thanks. It is interesting that the director went out of his way (outside the book) to make a political statement.

  244. Golly gee-willikins. You don’t think that maybe the housing bubble was caused by the huge exponential rise in Agency (i.e., Fannie/Freddie) debt to about 50% of GDP? See the Agency Debt page at my http://www.usgovernmentspending.com/agency-debt.

    Don’t forget that chart D.23f is in percent of GDP. So from 1945 to 2002 we had an exponential rise in agency debt not in mere nominal dollars but in percent of GDP.

  245. @Jefferson
    "If there were a a consistent policy to “whitewash” the (((ethnicities))) of financial wrong-doers"

    Whitewashing Jews because their skin color is so dark compared to the Goys right? Robert De Niro should go black face or at the very minimum get a tan to play Bernie Madoff. A White person playing a Jew is the equivalent of Aziz Ansari playing Edgar Winter in a film about the rocker's life.

    I think you may have noticed the above poster put “whitewash” in quotation marks, indicating he was using it in a figurative sense.

  246. @Opinionator

    In the real world things are complex.
     
    Sure, but given the data we already from the real world, simply throwing up our hands and saying "it's complicated" is probably unwarranted.

    Moreover, even if new housing construction were keeping up with demand, God ain't making more land.

    “God ain’t making more land”

    God ain’t, maybe,* but we am. The Soviets, for instance, could subdivide every square inch of Russia, until you had 17,000 workers in every apartment. Then there are all those rainforests I kept hearing are disappearing. Plus, all those empty volcanoes going to waste.

    *Actually, He is.

    • LOL: Opinionator
  247. @Opinionator
    1996 Fatwa

    https://is.muni.cz/el/1423/jaro2010/MVZ203/OBL___AQ__Fatwa_1996.pdf

    1998 Fatwa

    https://is.muni.cz/el/1423/jaro2010/MVZ203/OBL___AQ__Fatwa_1998.pdf

    Bin Laden's "Letter to America" (Nov. 2002)

    https://www.theguardian.com/world/2002/nov/24/theobserver

    More

    https://fas.org/irp/world/para/ubl-fbis.pdf

    Whitewashed. From a NYT review of a book by the co-chairs of the 9/11 Commission on the work of the commission:

    Talking to the detainees was especially important because the commission was charged with explaining not only what happened, but also why it happened. In looking into the background of the hijackers, the staff found that religious orthodoxy was not a common denominator since some of the members “reportedly even consumed alcohol and abused drugs.” Others engaged in casual sex. Instead, hatred of American foreign policy in the Middle East seemed to be the key factor. Speaking to the F.B.I. agents who investigated the attacks, Hamilton asked: “You’ve looked [at] and examined the lives of these people as closely as anybody. . . . What have you found out about why these men did what they did? What motivated them to do it?”

    These questions fell to Supervisory Special Agent James Fitzgerald. “I believe they feel a sense of outrage against the United States,” he said. “They identify with the Palestinian problem, they identify with people who oppose repressive regimes and I believe they tend to focus their anger on the United States.” As if to reinforce the point, the commission discovered that the original plan for 9/11 envisioned an even larger attack. Khalid Shaikh Mohammed, the strategist of the 9/11 plot, “was going to fly the final plane, land it and make ‘a speech denouncing U.S. policies in the Middle East,’” Kean and Hamilton say, quoting a staff statement. And they continue: “Lee felt that there had to be an acknowledgment that a settlement of the Israeli-Palestinian conflict was vital to America’s long-term relationship with the Islamic world, and that the presence of American forces in the Middle East was a major motivating factor in Al Qaeda’s actions.”

    https://mobile.nytimes.com/2006/08/20/books/review/20Bamford.html

  248. anon • Disclaimer says:
    @MarkinLA
    The underlying securities were then sold for enough to pay back the $20 billion and realize a cash profit of $7 billion.

    I guess if you wait long enough and catch another bubble that anything could look good on paper. The problem with that is you are looking with 20/20 hindsight. If this collapse had been the initiation of Great Depression II it would have never worked out and the present value is the only thing you can base anything on.

    Nobody lets the average guy who gets foreclosed upon collect a check from the bank 20 years later for what the price of the house is then do they? The average guy doesn't have the FED pushing interest rates down to nothing explicitly for him as a stealth tax on the taxpayer to prop up that worthless real estate and make everything look good.

    Nobody lets the average guy who gets foreclosed upon collect a check from the bank 20 years later for what the price of the house is then do they?

    They didn’t just ‘give’ that deal to AIG shareholders. When they agreed to the initial loan, they took 80% of the equity. A short time later, they took most of the rest, leaving the original shareholders roughly 5% of the equity. On July 1, 2009, AIG did a 1 – 20 reverse split, which leaves the original shareholder with about $3 now in market value for their shares.

    I suppose I remember this since I had small positions in AIG, FRE, and FNM. The common shareholders were wiped out, management was fired. I would like to forget it.

    One other detail. The counterparties to the CDO’s had cash collateral from AIG. They held this collateral before the first negotiation regarding a settlement began. And between 1/2 and 1/3 of the cash collateral was held by non US banks.

    The ‘deal’ was that the counterparties kept the cash collateral which was at least half the face value of the securities and AIG payed them around $25 billion and got the ‘toxic’ assets. These were paying cash on a regular basis and it wasn’t surprising that the Fed loan was repaid in full with interest.

    But the idea that the Fed could have crammed down a haircut to settle these in Sept 2008 on a cash basis is unrealistic. Primarily because the starting point would be the cash collateral the banks already held. Which turned out to be more than was needed to make the counterparties whole.

    Obviously I am overly sensitive to the virtually universal belief that ‘AIG’ as a business was ‘made whole’. The owners/shareholders were effectively wiped out. And I don’t have a problem with that. But getting wiped out and then endless whining by Elizabeth Warren around the narrative that the the company was ‘bailed out’. It is more nuanced than that, and the NY Fed and Treasury made sure to propose terms and conditions that were severe.

    However, I just took my losses and tried to bail out myself, which wasn’t that hard (fortunately). Unlike Ralph Nader who is trying to get a refund on his GSE stocks/bonds.

    • Replies: @MarkinLA
    Who cares about the AIG shareholders? They should have been wiped out and so should have the people AIG owed money to just like when any company with no money or valuable assets goes into chapter 11 (or 7) and there is virtually nothing left to divvy up - that was the crime making the counterparties whole.


    Which turned out to be more than was needed to make the counterparties whole.


    This doesn't make any sense since if they already had more money than they were owed or paid for those securities, why should they get more?
  249. Anonymous • Disclaimer says:
    @Alfa158
    I don't know what you mean by all parts of society. I lived in the middle of where this bubble was occurring, and don't know a single, solitary, friend, relative, or co-worker who got involved with these unqualified loans and over-leveraged home equity loans. I know this is personal anecdotal data, but do you know anyone who got wrapped up in it? I would love to hear how many commenters knew anyone either.
    You are right about the last sentence though. Speaking the truth is often a particularly dangerous activity, which is why Steve and others like him are kept carefully bottled up in venues like this blog.

    I don’t know what you mean by all parts of society. I lived in the middle of where this bubble was occurring, and don’t know a single, solitary, friend, relative, or co-worker who got involved with these unqualified loans and over-leveraged home equity loans. I know this is personal anecdotal data, but do you know anyone who got wrapped up in it? I would love to hear how many commenters knew anyone either.

    One of my relatives bought 5 different properties in Oregon. Built a home on every one. One right after another. He only made $15 an hour at his job as a ski lift operator. Lied his ass off on every loan but the original. He actually put 20% down on that one. By the time he let on how he was doing it, he was “buying” his fourth property. We told him he was behaving irrationally, and to stop doing it. He ignored us, and proceeded to buy a fifth property, just before all hell broke loose. He was in the middle of construction when the bottom fell out. He tried renting them, but he was a mess at that. Then he just handed them all back to the banks, instead of renting them out and making time, like an idiot. The first property, he still owns, rents it out, and now lives in a mobile home. He’s 68 years old. This guy is also a devout, church-attending Christian. He’ll bend your ear about Jesus anytime.

    Another relative bought property in the same area to build a home to flip. The bottom fell out before it was ready for sale. Because this relative had deep pockets, he just held onto it, rented it out for a decade, the sold it for an eventual 170K profit on a $160K investment. Didn’t go the way he would have liked, but he wasn’t sweating it. His outlook on it was that that money would have been sitting in the bank anyway, so it worked out all right.

    The difference is the latter paid for the house in full from the get-go, and had the bank account necessary to strategize a graceful, and profitable exit. The former was a bullshitter, tried to play a big shot, waited too long, and got hosed.

    My guess is that once the banks allow lower than a 20% down payment, the dumbshits crawl out of the woodwork, and wreck the whole show. Kind of like when the airlines got broken up, and ticket prices went down significantly. Before, flying was a very pleasant experience. Now, it’s a shitshow. The stupid, and the lowbrow ruin it for everybody.

    Btw, Bank of America is currently lobbying hard to legalize buying a house with only 10% down, again. They said they believe the benefits outweigh the risks. Bank of America is Satan. Always has been, always will be.

    • Replies: @Art Deco
    My guess is that once the banks allow lower than a 20% down payment, the dumbshits crawl out of the woodwork, and wreck the whole show. Kind of like when the airlines got broken up, and ticket prices went down significantly. Before, flying was a very pleasant experience. Now, it’s a shitshow. The stupid, and the lowbrow ruin it for everybody.

    In your imagination only. In 1977, you'd have had more legroom and the security check was less elaborate. That's it. People kvetched about the food and about baggage-handling and about missed connections and about overbooking.

    The airlines were not 'broken up'. There was a great deal of market entry when the cartel supervising civil aviation was dissolved in 1978.

    Passenger-miles per year flown as we speak are 5x what they were in 1975. Sorry it bothers you that the deplorables can now afford a plane ticket.

  250. Anonymous • Disclaimer says:
    @The Last Real Calvinist
    Thanks for this comment, Realist.

    There are four ways for the non-wealthy to make real money on residential property:

    1) You buy big, build up your equity, then sell and live much smaller.

    2) You sell when you think the market is peaking, then rent until the market collapses, at which point you buy again for much less. This is what some Hong Kong people try to do.

    3) You are wealthy enough, and have enough self-control, to spend some of your disposable income on an investment property instead of buying a bigger one for your own use. You then have the excellent judgement needed both to sell that investment property at the 'right' time, and to restrain yourself from immediately buying another investment property because you feel you're 'missing out' if the market continues to rise. This is classic speculation.

    4) You become a member of the landlord class, and you buy a property or properties with the intent of establishing a regular monthly income. This is possible in many places, but hard in places with hot property markets. You also have to be willing to spend a lot of time and energy on being a landlord. It's not the life for everyone.

    In the midst of property bubbles, many people just assume some combination of #3 and #4 is going to work out for them when they buy an investment property. Sometimes it does -- but often it doesn't.

    4) You become a member of the landlord class, and you buy a property or properties with the intent of establishing a regular monthly income. This is possible in many places, but hard in places with hot property markets. You also have to be willing to spend a lot of time and energy on being a landlord. It’s not the life for everyone.

    Not necessarily. One of my relatives got stuck renting a property he wanted to flip. He lived in a different state. He rented it out, the tenant mailed him a check monthly. He had a friend who lived in that city go check on the house once in a while. When you have a new home, you don’t have to worry about much related to the house for at least 10 years. Landlording indeed isn’t for everyone. If you’re neurotic, or aren’t that bright, landlording ain’t for you.

    I know another guy, bought an old repo’d 4 unit at the bottom of the market crash for $249K. He owns a bunch of lower end properties, and only rents to Mexicans. He never advertises any of his properties for rent. He just tells the Mexican tenants he has an open unit coming, and they find a Mexican for him to rent it. He’ll rent a small one bedroom to three Mexican families without batting an eye. He keeps his rents low, and packs ’em with Mexicans, and he’s doing very well. I know one property he hasn’t visited in two years. The Mexicans govern themselves, make repairs themselves, landscape the property themselves. This property, after 10 years, was just assessed at $790K.

    My point being, a lot of you commenters don’t know the first thing of what you’re talking about. A lot of people make a lot of money in real estate. Every which way. Just because they don’t share with you how they do it, doesn’t mean it’s not happening. And just because those who do have some experience suck at it, doesn’t mean real estate investment sucks. More likely, YOU suck.

    • Replies: @The Last Real Calvinist
    I don't think anyone here is saying you can't make money -- sometimes big money -- in real estate.

    I've got a friend who was tipped off by a real estate agent acquaintance about a housing estate here in Hong Kong that had very early redevelopment rumors floating around it. He jumped on it, and bought a cheap flat on a bad floor in that estate. Sure enough, the redevelopment deal did come through, he got bought out by the developer at an exorbitant price, and he cleared a truly handsome sum. This is just the sort of deal that gets done all the time, and you're right that those involved benefited by keeping the details quiet until the ball was rolling.

    But this friend also had to wait for over a decade before the money appeared in his bank account. During that time, he rented out the flat at points, had the typical problems with tenants, and didn't make much as he waited year after year to find out if he was going to make a killing -- which he finally did.

    Was it worth it? Sure, if, like my friend, you've got disposable income, the patience to wait for the property to appreciate/get bought out/whatever, the time and energy to handle tenant stuff, or someone to look after the property for you (at a reasonable rate).

    There are some people who have the temperament, wealth, and wherewithal to make money from property -- and to weather the losses when it goes wrong -- but lots of people who think they've got those qualities in fact don't. They might do better thinking about other options when investing their money, and this might make property bubbles, which cause plenty of suffering, less likely, or at least less severe.

    , @Formerly CARealist
    I know plenty of people in real estate, including myself, at various levels, and I do indeed suck, as do all human beings. Your landlord packing in the Mexicans sounds like a liability bomb waiting to go off. We also know landlords from India and Russia who ignore their tenants and collect numerous small rents. They have no evident regard for human beings.

    flipping homes is fun, but the gov't takes much of your profit if you don't re-invest it. You only get to keep the profit if it's your primary residence. The folks selling the homes, the RE sales people get their commission coming and going. Like a gold rush, the ones who make the money are the out-fitters. The contractors do okay too, as flimsy homeowners and renters will continually trash homes.

    Conclusion? go into sales or remodeling or loans. Wife: sales. Husband: remodeling. Another good combo is Wife: Sales. Husband: Loans. We've seen both and they rake it in.
  251. @Anonymous

    4) You become a member of the landlord class, and you buy a property or properties with the intent of establishing a regular monthly income. This is possible in many places, but hard in places with hot property markets. You also have to be willing to spend a lot of time and energy on being a landlord. It’s not the life for everyone.
     
    Not necessarily. One of my relatives got stuck renting a property he wanted to flip. He lived in a different state. He rented it out, the tenant mailed him a check monthly. He had a friend who lived in that city go check on the house once in a while. When you have a new home, you don't have to worry about much related to the house for at least 10 years. Landlording indeed isn't for everyone. If you're neurotic, or aren't that bright, landlording ain't for you.

    I know another guy, bought an old repo'd 4 unit at the bottom of the market crash for $249K. He owns a bunch of lower end properties, and only rents to Mexicans. He never advertises any of his properties for rent. He just tells the Mexican tenants he has an open unit coming, and they find a Mexican for him to rent it. He'll rent a small one bedroom to three Mexican families without batting an eye. He keeps his rents low, and packs 'em with Mexicans, and he's doing very well. I know one property he hasn't visited in two years. The Mexicans govern themselves, make repairs themselves, landscape the property themselves. This property, after 10 years, was just assessed at $790K.

    My point being, a lot of you commenters don't know the first thing of what you're talking about. A lot of people make a lot of money in real estate. Every which way. Just because they don't share with you how they do it, doesn't mean it's not happening. And just because those who do have some experience suck at it, doesn't mean real estate investment sucks. More likely, YOU suck.

    I don’t think anyone here is saying you can’t make money — sometimes big money — in real estate.

    I’ve got a friend who was tipped off by a real estate agent acquaintance about a housing estate here in Hong Kong that had very early redevelopment rumors floating around it. He jumped on it, and bought a cheap flat on a bad floor in that estate. Sure enough, the redevelopment deal did come through, he got bought out by the developer at an exorbitant price, and he cleared a truly handsome sum. This is just the sort of deal that gets done all the time, and you’re right that those involved benefited by keeping the details quiet until the ball was rolling.

    But this friend also had to wait for over a decade before the money appeared in his bank account. During that time, he rented out the flat at points, had the typical problems with tenants, and didn’t make much as he waited year after year to find out if he was going to make a killing — which he finally did.

    Was it worth it? Sure, if, like my friend, you’ve got disposable income, the patience to wait for the property to appreciate/get bought out/whatever, the time and energy to handle tenant stuff, or someone to look after the property for you (at a reasonable rate).

    There are some people who have the temperament, wealth, and wherewithal to make money from property — and to weather the losses when it goes wrong — but lots of people who think they’ve got those qualities in fact don’t. They might do better thinking about other options when investing their money, and this might make property bubbles, which cause plenty of suffering, less likely, or at least less severe.

  252. OT: FL Today, 05/22/17 – At least 22 dead in explosion at Ariana Grande concert in U.K.; terror suspected

    http://www.floridatoday.com/story/news/2017/05/22/reports-explosions-ariana-grande-concert-uk/102028686/

    A deadly explosion at an Ariana Grande concert is believed to be the work of an apparent suicide bomber, police said early Tuesday morning , killing at least 22 people…

  253. @Opinionator
    The Arab homelands encompass more than Saudia Arabia. So do the Muslim
    homelands.

    Well it seems that today a British Pakistani Muslim has vented his legitimate anger at Zionism ™ by blowing up a crowd full of British teenage girls with a nail bomb. Oh if only those perfidious Jooz were not occupying Pakistan…

    • Replies: @Opinionator
    See Balfour Declaration
  254. @MarkinLA
    http://gawker.com/5391174/aig-only-wanted-to-give-goldman-sachs-40-60-cents-on-the-dollar-then-geithner-stepped-in

    Sorry I thought it was Bernanke.

    Since when does Gawker have a business beat?

  255. @Anonymous

    I don’t know what you mean by all parts of society. I lived in the middle of where this bubble was occurring, and don’t know a single, solitary, friend, relative, or co-worker who got involved with these unqualified loans and over-leveraged home equity loans. I know this is personal anecdotal data, but do you know anyone who got wrapped up in it? I would love to hear how many commenters knew anyone either.
     
    One of my relatives bought 5 different properties in Oregon. Built a home on every one. One right after another. He only made $15 an hour at his job as a ski lift operator. Lied his ass off on every loan but the original. He actually put 20% down on that one. By the time he let on how he was doing it, he was "buying" his fourth property. We told him he was behaving irrationally, and to stop doing it. He ignored us, and proceeded to buy a fifth property, just before all hell broke loose. He was in the middle of construction when the bottom fell out. He tried renting them, but he was a mess at that. Then he just handed them all back to the banks, instead of renting them out and making time, like an idiot. The first property, he still owns, rents it out, and now lives in a mobile home. He's 68 years old. This guy is also a devout, church-attending Christian. He'll bend your ear about Jesus anytime.

    Another relative bought property in the same area to build a home to flip. The bottom fell out before it was ready for sale. Because this relative had deep pockets, he just held onto it, rented it out for a decade, the sold it for an eventual 170K profit on a $160K investment. Didn't go the way he would have liked, but he wasn't sweating it. His outlook on it was that that money would have been sitting in the bank anyway, so it worked out all right.

    The difference is the latter paid for the house in full from the get-go, and had the bank account necessary to strategize a graceful, and profitable exit. The former was a bullshitter, tried to play a big shot, waited too long, and got hosed.

    My guess is that once the banks allow lower than a 20% down payment, the dumbshits crawl out of the woodwork, and wreck the whole show. Kind of like when the airlines got broken up, and ticket prices went down significantly. Before, flying was a very pleasant experience. Now, it's a shitshow. The stupid, and the lowbrow ruin it for everybody.

    Btw, Bank of America is currently lobbying hard to legalize buying a house with only 10% down, again. They said they believe the benefits outweigh the risks. Bank of America is Satan. Always has been, always will be.

    My guess is that once the banks allow lower than a 20% down payment, the dumbshits crawl out of the woodwork, and wreck the whole show. Kind of like when the airlines got broken up, and ticket prices went down significantly. Before, flying was a very pleasant experience. Now, it’s a shitshow. The stupid, and the lowbrow ruin it for everybody.

    In your imagination only. In 1977, you’d have had more legroom and the security check was less elaborate. That’s it. People kvetched about the food and about baggage-handling and about missed connections and about overbooking.

    The airlines were not ‘broken up’. There was a great deal of market entry when the cartel supervising civil aviation was dissolved in 1978.

    Passenger-miles per year flown as we speak are 5x what they were in 1975. Sorry it bothers you that the deplorables can now afford a plane ticket.

  256. @Scott Locklin
    I think it's safe to say, Steve, that economists basically haven't ever understood anything.

    I think it’s safe to say, Steve, that economists basically haven’t ever understood anything.

    The statement is not ‘safe’. It’s absurd.

  257. @MarkinLA
    It isn't irrelevant if different races have different tendencies as related to economic activity. If some races seem to be more frugal than others why wouldn't that have an effect on their economies. What about industriousness or self-sacrifice for the common good? There are a whole host of tendencies that seem to define some people as opposed to others to assume these tendencies have no effect on the economy is something only an economist can believe.

    When testing economic theories over a long time you have the same issue as when looking at financial returns over a long time - a small difference in performance can mean a lot in terms of overall performance. That is unless you remove the quantitative aspects of the theory - something economists don't want to do so they can continue to pretend they are real scientists.

    It isn’t irrelevant if different races have different tendencies as related to economic activity.

    Yes, it’s irrelevant. You’re confusing economics with the subdepartments of sociology and anthropology concerned with economic life. The object of the former is behavior in the economic realm. The object of the latter is the observed social group as they engage in production and consumption. A scholarly publication in economics will commonly begin with, refer to, or develop a model which can be represented graphically or with calculus. An article in economic antrhopology will likely be text-only and one in economic sociology variable depending on whether or not statistical analysis is performed.

    • Replies: @res

    The object of the former is behavior in the economic realm.
     
    Right. Where racial (and other) differences become important is when they affect this behavior. This area IMHO isn't well studied enough to draw well justified analytic conclusions (a big reason economists won't touch it, besides the obvious crimethink aspect).

    An obviously relevant example is differing ideas about the time value of money. TVM is important to realistic models of consuming and investing behavior. Clear anecdotal evidence about racial differences here, but I am unaware of any studies that attempt to quantify it. Not sure how delayed gratification experiments such as the one discussed here relate: https://robertlindsay.wordpress.com/2014/05/14/blacks-whites-and-delayed-gratification-the-evidence/

    An interesting question is: is anyone successfully exploiting these differences on a large scale? Possible example: investment in Africa.

    P.S. Don't confuse "irrelevant" with "insufficiently understood." Though an argument can be made for "usually unimportant in practice" (and good modeling is all about knowing when to ignore things like that).

    P.P.S. How do you feel about the recent attempts to move from "homo economicus" to behavioral economics? That seems like a similar discussion.
    , @MarkinLA
    A scholarly publication in economics will commonly begin with, refer to, or develop a model which can be represented graphically or with calculus.

    Well no wonder so many Nobel Prize winners in economics eventually end up with egg on their faces like Black-Scholes and Milton Friedman when their ideas are proven by the real world to be garbage.
  258. @Dr. X
    During the campaign, Trump said "We're sitting on a big, fat, bubble."

    He was right. Obama re-inflated the stock market and housing bubbles -- and took credit for "saving" the economy. But since the election we've heard nothing about this. The bubble seems to be another of Trump's forgotten campaign themes now that he's in office.

    If it's even possible for him to address this issue Trump had better get after it. If the Obama bubble bursts on his watch, the Democrats are going to blame Trump for it the way FDR blamed Hoover for the Depression. And they'll probably get enormous electoral victories as a result.

    I think this should worry Trump far more than any ginned-up, fake impeachment talk.

    Trump is also taking credit for the recent bull market run up of the stock market since the election. It will take a lot of blind economic optimism to avert another correction we are past due for.

  259. @Opinionator
    9/11 happened chiefly because their homeland is under Zionist invasion. The Arab resistance were explicit about that and had no reason to lie.

    But people in the United States are not allowed to talk about this in public.

    9/11 happened chiefly because their homeland is under Zionist invasion. The Arab resistance were explicit about that and had no reason to lie.

    Osama bin Laden’s family is from Yemen originally, part of which was a set of British protectorates and most of which has never been a dependency of any European power. The family has been in Saudi Arabia for generations. Neither the Hijaz nor the Nejd was ever a dependency of any European power. He squatted in Afghanistan for 3 decades, a country which has never been a dependency of any foreign power.

    A portion of the Levant which had an Arab population of about 700,000 in 1947 now has a Jewish majority (along with a swatch of desert that in 1947 had a 5-digit population of Bedouin). None of the crew responsible for the 9/11 caper have a grievance with regard to this and incinerating 3,000 office workers in New York would be a bizarre way to address it even if they did.

    As for the ‘occupation’ of Saudi Arabia, there were between 1990 and 2002 a mean of 6,200 American troops there, which might be enough to secure a city with 800,000 residents, not a territorial state with 19 million residents. It’s doubtful they were much noticed by Saudi residents: north of 20% of those residing in Saudi Arabia are expatriates. This has been so for decades.

    • Replies: @Opinionator
    From the NYT review of a book by the 9/11 Commission Co-chairs:

    Talking to the detainees was especially important because the commission was charged with explaining not only what happened, but also why it happened. In looking into the background of the hijackers, the staff found that religious orthodoxy was not a common denominator since some of the members “reportedly even consumed alcohol and abused drugs.” Others engaged in casual sex. Instead, hatred of American foreign policy in the Middle East seemed to be the key factor. Speaking to the F.B.I. agents who investigated the attacks, Hamilton asked: “You’ve looked [at] and examined the lives of these people as closely as anybody. . . . What have you found out about why these men did what they did? What motivated them to do it?”

    These questions fell to Supervisory Special Agent James Fitzgerald. “I believe they feel a sense of outrage against the United States,” he said. “They identify with the Palestinian problem, they identify with people who oppose repressive regimes and I believe they tend to focus their anger on the United States.” As if to reinforce the point, the commission discovered that the original plan for 9/11 envisioned an even larger attack. Khalid Shaikh Mohammed, the strategist of the 9/11 plot, “was going to fly the final plane, land it and make ‘a speech denouncing U.S. policies in the Middle East,’” Kean and Hamilton say, quoting a staff statement. And they continue: “Lee felt that there had to be an acknowledgment that a settlement of the Israeli-Palestinian conflict was vital to America’s long-term relationship with the Islamic world, and that the presence of American forces in the Middle East was a major motivating factor in Al Qaeda’s actions.”

    https://mobile.nytimes.com/2006/08/20/books/review/20Bamford.html
     
  260. MW says:
    @Scott Locklin
    I think it's safe to say, Steve, that economists basically haven't ever understood anything.

    This attitude is silly. We have this weird idea that economists are supposed to predict the future of society, and sure enough, lots of charlatans with backgrounds in “economics” go on television and talk about what kinds of houses Americans will be buying in ten years. You might as well ask an architect, or a demographer, or a realtor, or someone in the construction industry. They all just see a little piece of it, and the full chaotic picture is probably beyond the predictive power of mere mortals. If it were “demographers” on television making these silly predictions, you’d be complaining how demographers never understand anything.

    Real companies employ people with background in economics to do things like, set prices and estimate demand in the near future. If you think about business at all, you’re practicing some kind of economics. It isn’t all voodoo. Most of it, really, is just boring, meat-and-potatoes analysis.

  261. Shiller does not just defer to the sacred cow, he’s part of the open borders clergy.

    “Next revolution will seek to overthrow privileges of nationhood”
    https://www.theguardian.com/business/2016/sep/19/the-looming-anti-national-revolution

    Mass immigration into places where there was obvious, widespread opposition to allowing the level of development necessary to keep the additional demand from driving up prices was already in evidence before the mass removal of underwriting standards vastly expanded the demand. For most people, if you can’t get a loan, you’re not part of the housing purchase demand market. The government, the financial and social justice warrior elites demonstrate willful blindness to market forces when they ignore the real problem of supply and instead promote demand-increasing policies of all kinds.

    There’s nothing surprising about people exploiting the windfall opportunities created by policies sure to drive demand and prices by way of speculating in that market. The flipping boom was a consequence bad policies that preceded it.

  262. @Steve Sailer
    Arizona seems to have more underground water or something.

    Arizona is irrigated farms and ranches, (ergo agribusiness),larger cities like Phoenix (a megalopolis with Chandler’s enormous influence from the H1-B crazed technology crowd…) and Tuscon, and proximity to (batahit crazy leftwing) California. With all this comes much honey for invading flies.

    New Mexico is impoverished Indian reservations;government jobs at Kirkland and Los Alamos only available to citizens; smaller, less prestigous (and less extravagently funded) universities; less water (both underground and from rivers); and smaller cities like Taos and Santa Fe filled with the kind of hypocritical, rich douchebags who don’t want to be anywhere near the alien peoples they insist everyone else endure. It’s also priximity to (somewhat still sane but fading fast) Oklahoma and Texas.

  263. Far more important than immigration was that lenders did not have skin in the game. The ability of mortgage lenders to make a loan and then completely transfer it to someone else through syndication seems to me the root of the problem.

    The magnitude of the crash was exacerbated by the derivatives house of cards built on top of the bad loans.

    Plain old economic regulation can prevent both these problems. I don’t know Shiller’s history on regulation, but it usually is bad for the career of most economists to urge strong regulation.

    Focusing here on immigration here seems like a red herring. There are many better reasons to reduce immigration (including non-bubble housing appreciation that impedes affordable family formation).

    • Replies: @Art Deco
    The ability of mortgage lenders to make a loan and then completely transfer it to someone else through syndication seems to me the root of the problem.

    Not my trade, to be sure. If I'm not mistaken, prior to about 2003, the GSEs had some underwriting standards which limited what banks could off-load. Also, properties of the borrower would affect what you could sell the promissory note for (provided that crucial data were not concealed).

    Arnold Kling maintained at the time that portfolio lending is economically efficient and that the secondary mortgage market was 'a stew of rent-seeking and regulatory arbitrage'. Per Kling, a perverse understanding of risk implemented by bank examiners makes it advantageous for a bank to sell loans and buy mortgage-backed securities when it's not advantageous from a business perspective. Kling has contended that if you make regulations more sensible, the secondary mortgage market would disappear. Not sure how authoritative Kling is on this subject. (I think he's a general macroeconomist, not a specialist in finance).

  264. No Document loans pushed out by the millions busted the economy and the industry in the DC region 1997-2007. Why? Fees, collected for originating these loans, easy-write standards and of course Freddie and Fanny standing by with an open checkbook at settlement all combined to incentivize the brokers. People with no hope of making the mortgage were handed the keys without even a call to the employer. The best part was, they got the house and up-front cash out, too. Fun! At the other end, as quickly as possible they packaged these up as securities and sold them overseas. The rest is history and needs no further explanation. Simple stuff this, who needs consensus?

  265. @Art Deco
    9/11 happened chiefly because their homeland is under Zionist invasion. The Arab resistance were explicit about that and had no reason to lie.

    Osama bin Laden's family is from Yemen originally, part of which was a set of British protectorates and most of which has never been a dependency of any European power. The family has been in Saudi Arabia for generations. Neither the Hijaz nor the Nejd was ever a dependency of any European power. He squatted in Afghanistan for 3 decades, a country which has never been a dependency of any foreign power.

    A portion of the Levant which had an Arab population of about 700,000 in 1947 now has a Jewish majority (along with a swatch of desert that in 1947 had a 5-digit population of Bedouin). None of the crew responsible for the 9/11 caper have a grievance with regard to this and incinerating 3,000 office workers in New York would be a bizarre way to address it even if they did.

    As for the 'occupation' of Saudi Arabia, there were between 1990 and 2002 a mean of 6,200 American troops there, which might be enough to secure a city with 800,000 residents, not a territorial state with 19 million residents. It's doubtful they were much noticed by Saudi residents: north of 20% of those residing in Saudi Arabia are expatriates. This has been so for decades.

    From the NYT review of a book by the 9/11 Commission Co-chairs:

    Talking to the detainees was especially important because the commission was charged with explaining not only what happened, but also why it happened. In looking into the background of the hijackers, the staff found that religious orthodoxy was not a common denominator since some of the members “reportedly even consumed alcohol and abused drugs.” Others engaged in casual sex. Instead, hatred of American foreign policy in the Middle East seemed to be the key factor. Speaking to the F.B.I. agents who investigated the attacks, Hamilton asked: “You’ve looked [at] and examined the lives of these people as closely as anybody. . . . What have you found out about why these men did what they did? What motivated them to do it?”

    These questions fell to Supervisory Special Agent James Fitzgerald. “I believe they feel a sense of outrage against the United States,” he said. “They identify with the Palestinian problem, they identify with people who oppose repressive regimes and I believe they tend to focus their anger on the United States.” As if to reinforce the point, the commission discovered that the original plan for 9/11 envisioned an even larger attack. Khalid Shaikh Mohammed, the strategist of the 9/11 plot, “was going to fly the final plane, land it and make ‘a speech denouncing U.S. policies in the Middle East,’” Kean and Hamilton say, quoting a staff statement. And they continue: “Lee felt that there had to be an acknowledgment that a settlement of the Israeli-Palestinian conflict was vital to America’s long-term relationship with the Islamic world, and that the presence of American forces in the Middle East was a major motivating factor in Al Qaeda’s actions.”

    https://mobile.nytimes.com/2006/08/20/books/review/20Bamford.html

    • Replies: @Art Deco
    Your point is what? People with bizarre and malicious motives are justified if you delineate their 'thoughts' at greater length?
  266. @Opinionator
    But isn’t it striking that after almost a decade: “There is still no consensus on why the last housing boom and bust happened”? It was the biggest news story since 9/11

    After more than 15 years we still don't understand why 9/11 happened. And our inability to understand is due to much the same pressures Steve cites with respect to the housing bubble--it's safer, career-wise, to remain puzzled about the motivations of the Arab resistance fighters, or to ascribe their actions to "Islamic radicalism."

    Its also good to completely ignore the Israeli “movers” dancing and high-fiving atop Doric Towers celebrating and videotaping when the *first* plane hit. And all the Israeli art students living next door to the hijackers. Because Mossad not only having foreknowledge but a possible planning and custodial role in the attacks is a bridge too far, even for people who dare call out the Saudis directly.

    • Replies: @Art Deco
    Who is retailing this daft fantasy?
  267. Lots of looney leftist policies are ways to artificially prop up corporate business.

    Immigration? More consumers to max out credit.
    Bailouts? Lemon socialism for when they don’t pay their credit bills.
    Wealth Redistribution? Take wealth from stale pale males who will just save it and give it to vibrant peoples who will spend it.

    The boomer conservative crowd loves to decry the socialism of the left as bad for business, but its really not. Today’s “liberal socialism” isn’t anti-economy, it is mostly about shifting wealth to the high time preference underclass who will quickly spend it on the next Air Jordan or corn syrup branded product.

    • Replies: @Art Deco
    Today’s “liberal socialism” isn’t anti-economy, it is mostly about shifting wealth to the high time preference underclass who will quickly spend it on the next Air Jordan or corn syrup branded product.

    People who might be reasonably described as 'underclass' are about 4% to 6% of the population and they receive less official indulgence than they did 40 years ago. (The TANF rolls today have a census 1/3 of what AFDC rolls had in 1995). Disability rolls are better populated (and there are legitimate complaints about these programs), but the beneficiaries are not equivalent to the old AFDC rolls. (The median age of a person awarded Social Security Disability is 49 years and they have a mean of 0.2 dependents). No, they don't have handsome incomes (much less 'wealth').
  268. Fresh out of college I had a buddy who grabbed a job at a Subprime loan company in Tribeca. He was making money hand over fist, bragging that we was selling loans like candy. He said “these people will never be able to pay the loans off though”.

    “So why does your company give you such huge commission for giving loans people won’t pay?” I asked him

    He didn’t know the answer. Neither did I. A few years later, we both figured it out.

  269. Read “Reckless Endangerment” by Greta Morganstein. It was written within a couple of years of the price collapse and didn’t seem to miss much.

  270. @Anonymous

    4) You become a member of the landlord class, and you buy a property or properties with the intent of establishing a regular monthly income. This is possible in many places, but hard in places with hot property markets. You also have to be willing to spend a lot of time and energy on being a landlord. It’s not the life for everyone.
     
    Not necessarily. One of my relatives got stuck renting a property he wanted to flip. He lived in a different state. He rented it out, the tenant mailed him a check monthly. He had a friend who lived in that city go check on the house once in a while. When you have a new home, you don't have to worry about much related to the house for at least 10 years. Landlording indeed isn't for everyone. If you're neurotic, or aren't that bright, landlording ain't for you.

    I know another guy, bought an old repo'd 4 unit at the bottom of the market crash for $249K. He owns a bunch of lower end properties, and only rents to Mexicans. He never advertises any of his properties for rent. He just tells the Mexican tenants he has an open unit coming, and they find a Mexican for him to rent it. He'll rent a small one bedroom to three Mexican families without batting an eye. He keeps his rents low, and packs 'em with Mexicans, and he's doing very well. I know one property he hasn't visited in two years. The Mexicans govern themselves, make repairs themselves, landscape the property themselves. This property, after 10 years, was just assessed at $790K.

    My point being, a lot of you commenters don't know the first thing of what you're talking about. A lot of people make a lot of money in real estate. Every which way. Just because they don't share with you how they do it, doesn't mean it's not happening. And just because those who do have some experience suck at it, doesn't mean real estate investment sucks. More likely, YOU suck.

    I know plenty of people in real estate, including myself, at various levels, and I do indeed suck, as do all human beings. Your landlord packing in the Mexicans sounds like a liability bomb waiting to go off. We also know landlords from India and Russia who ignore their tenants and collect numerous small rents. They have no evident regard for human beings.

    flipping homes is fun, but the gov’t takes much of your profit if you don’t re-invest it. You only get to keep the profit if it’s your primary residence. The folks selling the homes, the RE sales people get their commission coming and going. Like a gold rush, the ones who make the money are the out-fitters. The contractors do okay too, as flimsy homeowners and renters will continually trash homes.

    Conclusion? go into sales or remodeling or loans. Wife: sales. Husband: remodeling. Another good combo is Wife: Sales. Husband: Loans. We’ve seen both and they rake it in.

  271. DWB says: • Website

    Saw this story today; the people who are “running the country” either have no clue about cause and effect, or worse, they understand, but intentionally hide the truth.

    https://www.bloomberg.com/news/articles/2017-05-22/america-s-cities-are-running-out-of-room

    Yes – cities are desirable places to live, but the land to build on is a finite resource. Hence, in the most desirable places (San Francisco, Seattle, Manhattan), only “the rich” can afford to live there, and thus “the poor” are purged.

    I applied the Sailer Method (i.e., Ctrl-F, enter “immi”).

    The only hit was the word “gimmick.”

    • Replies: @Art Deco
    Once more with feeling. The country's entire non-agricultural population could be housed at ordinary suburban densities (2,300 per sq. mile) in a land area of 136,000 sq miles, or about 4% of the total land area of the country. In an area like California, it's trickier because there's a great deal of mountain and desert. You could still fit the entire non-agricultural population at such densities in an area equal to about 35% of the territory therein which is neither mountain nor desert. You have spot congestion, but in general American cities have ample room to expand.


    While we're at it, about 15% of the population of the Bay Area urban complex resides in San Francisco. Some non-wealthy people must be in the mix there.

    , @res

    The only hit was the word “gimmick.”
     
    LOL. So perfect.
  272. @biz
    Well it seems that today a British Pakistani Muslim has vented his legitimate anger at Zionism (tm) by blowing up a crowd full of British teenage girls with a nail bomb. Oh if only those perfidious Jooz were not occupying Pakistan...

    See Balfour Declaration

  273. @Alden
    De Niro's Mother was Jewish but since he plays Italians most of his audience thinks of him as Italian.

    you must be thinking of Sylvester Stallone.
    Stallone had a jewish mother, but he played the Italian Stallion in 5 of his Rocky films

  274. @IndieRafael
    Far more important than immigration was that lenders did not have skin in the game. The ability of mortgage lenders to make a loan and then completely transfer it to someone else through syndication seems to me the root of the problem.

    The magnitude of the crash was exacerbated by the derivatives house of cards built on top of the bad loans.

    Plain old economic regulation can prevent both these problems. I don't know Shiller's history on regulation, but it usually is bad for the career of most economists to urge strong regulation.

    Focusing here on immigration here seems like a red herring. There are many better reasons to reduce immigration (including non-bubble housing appreciation that impedes affordable family formation).

    The ability of mortgage lenders to make a loan and then completely transfer it to someone else through syndication seems to me the root of the problem.

    Not my trade, to be sure. If I’m not mistaken, prior to about 2003, the GSEs had some underwriting standards which limited what banks could off-load. Also, properties of the borrower would affect what you could sell the promissory note for (provided that crucial data were not concealed).

    Arnold Kling maintained at the time that portfolio lending is economically efficient and that the secondary mortgage market was ‘a stew of rent-seeking and regulatory arbitrage’. Per Kling, a perverse understanding of risk implemented by bank examiners makes it advantageous for a bank to sell loans and buy mortgage-backed securities when it’s not advantageous from a business perspective. Kling has contended that if you make regulations more sensible, the secondary mortgage market would disappear. Not sure how authoritative Kling is on this subject. (I think he’s a general macroeconomist, not a specialist in finance).

  275. @DWB
    Saw this story today; the people who are "running the country" either have no clue about cause and effect, or worse, they understand, but intentionally hide the truth.

    https://www.bloomberg.com/news/articles/2017-05-22/america-s-cities-are-running-out-of-room

    Yes - cities are desirable places to live, but the land to build on is a finite resource. Hence, in the most desirable places (San Francisco, Seattle, Manhattan), only "the rich" can afford to live there, and thus "the poor" are purged.

    I applied the Sailer Method (i.e., Ctrl-F, enter "immi").

    The only hit was the word "gimmick."

    Once more with feeling. The country’s entire non-agricultural population could be housed at ordinary suburban densities (2,300 per sq. mile) in a land area of 136,000 sq miles, or about 4% of the total land area of the country. In an area like California, it’s trickier because there’s a great deal of mountain and desert. You could still fit the entire non-agricultural population at such densities in an area equal to about 35% of the territory therein which is neither mountain nor desert. You have spot congestion, but in general American cities have ample room to expand.

    While we’re at it, about 15% of the population of the Bay Area urban complex resides in San Francisco. Some non-wealthy people must be in the mix there.

    • Replies: @DWB
    @Art Deco

    I've seen the data before, and I understand your point. It's wrong for practical reasons, of course.

    I think it was PJ O'Rourke, but I may be mis-remembering, but the point was raised some years ago that the entire world's population could fit in the US alone, with a density more or less equal to the city of Fremont, California.

    Fremont, of course, is a Bay area bedroom community on the east side of the SF Bay, and is just about the most relentlessly suburban city you could imagine. It's population is about a quarter of a million, or 2400 persons per mile/square.

    The problem with your (and his) analysis is one of distribution. The problem is that many people want to live in San Francisco, or close to it. Relatively few want to live in Tracy or Modesto. Who wants to commute 90 minutes each way (3 hours per day) to get to work, and live in a place where it's 110 in the summer time?

    Read a book a while back that made the point that "the mean colour of a rainbow is white."

    Well, this is what your (and O'Rourke IIRC) argument reduces to.

    Currently, our city has about 800,000 people. It's less than 50 miles square. And much of that land is hilly and/or "green space," so there is just not any more room, really.

    Unless we want to build Blade Runner style housing.

    To your point, I am not lamenting that the city is becoming a sort of hipster Disneyland for wealthy tech dweebs. I'm a home-owner, so the higher the prices go, the better for me. It's the SJW who on the one hand screech about how "no one is illegal", but immediately complain about how tech money is pushing out those who "make San Francisco what it is."

    They fail doubly because they do not see that

    a) The argument that decouples housing crises from immigration - and virtually 100 per cent of California's net population growth over the past 25 years is due to immigration - is almost agressively stupid.

    b) They presume that the "tech bros" whom they believe are ruining the city are all frat brothers from Illinois, when a huge number are themselves immigrants.
  276. res says:
    @Art Deco
    It isn’t irrelevant if different races have different tendencies as related to economic activity.

    Yes, it's irrelevant. You're confusing economics with the subdepartments of sociology and anthropology concerned with economic life. The object of the former is behavior in the economic realm. The object of the latter is the observed social group as they engage in production and consumption. A scholarly publication in economics will commonly begin with, refer to, or develop a model which can be represented graphically or with calculus. An article in economic antrhopology will likely be text-only and one in economic sociology variable depending on whether or not statistical analysis is performed.

    The object of the former is behavior in the economic realm.

    Right. Where racial (and other) differences become important is when they affect this behavior. This area IMHO isn’t well studied enough to draw well justified analytic conclusions (a big reason economists won’t touch it, besides the obvious crimethink aspect).

    An obviously relevant example is differing ideas about the time value of money. TVM is important to realistic models of consuming and investing behavior. Clear anecdotal evidence about racial differences here, but I am unaware of any studies that attempt to quantify it. Not sure how delayed gratification experiments such as the one discussed here relate: https://robertlindsay.wordpress.com/2014/05/14/blacks-whites-and-delayed-gratification-the-evidence/

    An interesting question is: is anyone successfully exploiting these differences on a large scale? Possible example: investment in Africa.

    P.S. Don’t confuse “irrelevant” with “insufficiently understood.” Though an argument can be made for “usually unimportant in practice” (and good modeling is all about knowing when to ignore things like that).

    P.P.S. How do you feel about the recent attempts to move from “homo economicus” to behavioral economics? That seems like a similar discussion.

    • Replies: @Art Deco
    You are continually confounded by the distinction between studying economic behavior and studying social groups whose behavior includes economic activity. You're just not asking the questions economists ask. Economists are not anthropologists.
  277. @DWB
    Saw this story today; the people who are "running the country" either have no clue about cause and effect, or worse, they understand, but intentionally hide the truth.

    https:/