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It is definitely subject for debate, but housing today looks very similar to the creation of the last housing bubble. Government sponsored risky loans are bigger than ever, and the markets have yet again embraced trading of risky mortgages. Market timing is obviously all but impossible to predict, but I don't think we can rely on housing to save the economy over the next five years.
Since the housing crisis loan underwriting standards have tightened significantly. How is the government sponsoring risky loans exactly? Is it not up to the banks to determine who is qualified to borrow? The government only provides leverage relief to allow banks to lend where appropriate. Plus, much of the current run up in price seems to have an international component and many purchases are being made with cash. I don't think the measures being taken are intended to allow housing to "save the economy", just not drag it down through unnecessary foreclosure and frozen credit markets.
BTW, the fact we are having this conversation, when 2 years ago all anyone could talk about was rising foreclosures is a good thing. You can't stop investors from buying property they believe is undervalued.
Yet, it makes sense to the smartest economists in the room. You know, the guys actually charged with the responsibility. As opposed to the armchair quarterbacks.
Yeah, like they've got a track record that says they're brilliant?
Not at all.
And what "responsibility" have these people been charged? And by whom?
So (as usual) you want to solve short term problems while completely ignoring any long term implications? I think it is immoral to create an economy that is unsustainable for decades simply to help a few people right now. ...
The FED has made it clear they are not ignoring long term consequences. Why they are monitoring economic indicators and talking of tapering and eventual return to a more normalized interest rate environment. I would also disagree that the steps being taken are only to help "a few people". I would go so far as to say nearly everyone in the USA benefits from unfrozen credit markets, improved unemployment rates, strong equity markets and less foreclosures. Whether we are creating an economy that is unsustainable for decades remains to be seen. The banking system, for example, has been strengthened with tougher capital and liquidity requirements. Federal regulators and lenders have toughened lending standards in the wake of the crisis, banning products like “liar loans” that did not require applicants to show proof of income. But bubbles do not require bizarre loans – they have occurred in countries that did not have the kinds of toxic mortgage products that triggered the U.S. crisis.
Economies are fragile things. And hopefully people will act swiftly in the face of another real estate bubble, coming off the heels of the last fiasco. I do share your concerns, because the real estate market has the potential to create another crisis, I just don't see it as a foregone conclusion.
Here is some interesting insight into why the real estate markets remain a worry:
"One particular asset bubble – housing – was at the core of the recent crisis. But look into the heart of just about any financial crisis and the same thing is apparent -- a burst real estate bubble, says Wharton real estate professor Susan M. Wachter. She ticks off a long list, including the U.S. savings and loan crisis of the 1980s and 1990s, the “lost decades” crisis in Japan, the “Asian contagion” of the late 1990s and a Mexican crisis around the same time. “There have been many others,” she says. "It’s not because people in real estate are particularly dumb; it’s because real estate is an incomplete market.... You can’t short-sale the real estate that you own or the securities that back it up.”
An investor who believes stocks will lose value can, of course, sell his or her shares. But in addition to avoiding a loss, he can make money on the price decline by selling borrowed shares in hopes of replacing them with ones bought for less. In addition to these short sales, investors can profit on declines with “put” options and other derivatives based on individual stocks, market sectors or the market as a whole.
These opportunities allow people with negative views on the stock market to play a strong role in setting prices, often putting a break on excessive enthusiasm. But because there is no comparable system in real estate – you can’t short-sale your home or buy a put option on it – pessimists can only retreat to the sidelines, leaving optimists to continue bidding prices higher, according to Wachter.
There have been some attempts in recent years to create securities that would permit profiting on a real estate decline, but none has so far been able to establish a sizeable, liquid market, she says, although she is hopeful that some current efforts will bear fruit.
Profit incentives, of course, also play a role in real estate bubbles. Lenders want to lend, and as long as real estate prices are rising, it looks like homes provide good collateral. But because the pessimists have little role, the optimists can continue driving prices up and arguing that property values are high enough to justify big loans, Wachter notes. In the recent crisis, lenders also engaged in a “race to the bottom,” making ever-riskier loans in their fight for market share. When real estate values started to fall, the house of cards collapsed."
Yeah, like they've got a track record that says they're brilliant?
Not at all.
And what "responsibility" have these people been charged? And by whom?
We know what the government did, and we know what happened, but we don’t know what would have happened if the government had done something different. No one does. Ben Bernanke is clearly brilliant. Disagreeing with his approach and second guessing what might have been, does not change that. He was appointed by a US president to execute the FEDs mandate. That is his responsibility and that is by "whom".
We know what the government did, and we know what happened, but we don’t know what would have happened if the government had done something different. No one does. Ben Bernanke is clearly brilliant. Disagreeing with his approach and second guessing what might have been, does not change that. He was appointed by a US president to execute the FEDs mandate. That is his responsibility and that is by "whom".
LOL! Here I thought you were seriously discussing this stuff, and it turns out you're telling jokes.
LOL! Here I thought you were seriously discussing this stuff, and it turns out you're telling jokes.
Sorry.
You asked a question, I answered it. Now you deflect. I understand. You are trying to save face. It is not working. In fact, you are just dragging out your embarrassment.
What exactly are you bringing to the table in the way of facts? You certainly have not addressed anything I have posted. Please compare and contrast your credentials with the guy who taught himself calculus and received a 1590 out of 1600 on the SAT before graduating summa c u m laude from Harvard and then getting a Ph.D. from MIT. And then was appointed to the most significant economic role in history.
Simply believing the words of others who are politically motivated to criticize someone with real responsibility is not a credential. Letting your politics cloud your vision is not a reflection of intelligence either. No matter what you believe about the FEDs actions, it doesn't change the man's past accomplishments. And his detractors cannot prove they are correct in their criticisms. They simply spout "what ifs" and theories. Bernanke's life work will be judged by history. They will fade into obscurity.
So (as usual) you want to solve short term problems while completely ignoring any long term implications? I think it is immoral to create an economy that is unsustainable for decades simply to help a few people right now. You seem to have a very, very difficult time looking at the broader picture regarding economic implications.
As Keynes said, "in the long run, we're all dead." That's why dealing with the problem at hand is critical. If we have inflation in 10 years, we'll use economic tools that deal with inflation, then.
For the 500th time, printing does not equal inflation/devaluation.
It's interesting that people claim that something always happens in full view Of it not happening. In the current economic environment increasing the money stock hasn't resulted in inflation nor devaluation.
You asked a question, I answered it. Now you deflect. I understand. You are trying to save face. It is not working. In fact, you are just dragging out your embarrassment.
I'm sorry, calling Bernanke "brilliant" is simply a demonstration of willful blindness.
Quote:
What exactly are you bringing to the table in the way of facts? You certainly have not addressed anything I have posted. Please compare and contrast your credentials with the guy who taught himself calculus and received a 1590 out of 1600 on the SAT before graduating summa c u m laude from Harvard and then getting a Ph.D. from MIT. And then was appointed to the most significant economic role in history.
The "appeal to authority" fallacy is appealing to certain kinds of people. That appeal is lost on me, for I have seen far too many "authorities" whose actions betrayed they may have been "brilliant" but had the judgement of a hyperactive chihuahua. If Bernanke was anything but a stoolie, he'd be screaming at the top of his lungs about how astoundingly stupid everyone's behaving.
Quote:
Simply believing the words of others who are politically motivated to criticize someone with real responsibility is not a credential. Letting your politics cloud your vision is not a reflection of intelligence either. No matter what you believe about the FEDs actions, it doesn't change the man's past accomplishments. And his detractors cannot prove they are correct in their criticisms. They simply spout "what ifs" and theories. Bernanke's life work will be judged by history. They will fade into obscurity.
Simply believing what politicians do is good, or that they are behaving responsibly... Cannot in any way be defended as "sensible".
We've seen the money printing behavior before. It's the oldest game in the book and it's always just as destructive. You can't defy reality, no matter how brilliant you think you are.
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