The Housing Bubble

Both sides are in the pockets of the FIRE industries.

These crippled reform measures and political kabuki remind of a line from MacBeth:

” it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.”

Or is it that Wall Street thinks of the government as its business?

Good points, polly.

I might add that if you have anyone in your party who, shall we say, might be construed as being a bit off, you might want to be the first to go through security and tell the guards.

For example, my father and I visited DC a few months ago. Dad is almost as deaf as Beethoven, which means that, if you ask him a question, you may get a nonsensical answer. So, I went first through all the security lines and warned the guards to speak slowly and clearly and look him right in the face while doing so.

Then there was the Amtrak station. I was carrying my photo gear in one of those big, shoplifter-style bike messenger bags. So, I got singled out for search. Since my dad gets a bit anxious when he’s separated from me, his ambassador to the hearing world, I had to tell the guards to keep an eye on Dad.

In the long run this is in our favor. The longer housing starts stay low, the more the inventory (shadow or otherwise) gets worked off.

IMO that’s the one thing really working for us right now.

“…this is in our favor.”

Based on that graph, we are in 1982 or 1992, i.e. the tail end of previous two seriously bad recessions, but building off a much lower base — the lowest by far going back to 1959, the beginning of the historical record in that data.

Judging from the early-1980s and early-1990s experience, there are at least several more years of housing price declines to come over the next several years.

Judging from the early-1980s and early-1990s experience, there are at least several more years of housing price declines to come over the next several years.

In inflation-adjusted terms - yes.

In nominal terms, before this crash the last actual significant housing price declines were during the GD. Prices were flat though not really declining significantly in the early 1990’s (C/S index went from 76 to 74 from 1990 to 1993).

We shouldn’t forget that, e.g. when discussing housing as a possible inflation hedge.

I do think we have at least 1 and maybe 2 more years of nominal price declines. Beyond that anywhere from 5-10 years inflation-adjusted declines.

“I do think we have at least 1 and maybe 2 more years of nominal price declines. Beyond that anywhere from 5-10 years inflation-adjusted declines.”

Agreed. Meanwhile, I am keeping my inflation hedge powder dry.

“The houses are losing value in two ways - market prices are falling and there is ongoing deterioration.”

It is an amazing testament to the real world limits on the government’s ability to tame unruly markets that, despite an unprecedented level of interventions to support them, housing prices have nonetheless recently resumed their declines.

Ben-
Some serious international exposure to this fiasco is something of which, I suspect, the Fed and administration would be more fearful than us silly voters…
Megabank certainly doesn’t wish this dirty laundry to be aired publicly. Perhaps some crafty questions would cause a slip of the tongue with one of our august leaders. It would be a tragedy if that hit the international airwaves. ;o)

‘There is no force more potent in the modern world than stupidity fueled by greed.’- Edward Abbey
My friends, I submit Washington, D.C. as peoples’ exhibit ‘A’.

“…‘There is no force more potent in the modern world than stupidity fueled by greed.’- Edward Abbey
My friends, I submit Washington, D.C. as peoples’ exhibit ‘A’.”

lol,…not that it really matters, but Edward actually got it bassackwards:

GREED, …fueled by stupidity …Enron, people’s exhibit ‘B’

I agree with your post 100 percent. Megabank, Inc, with its wasteful crazy loan securitization sump pump backed by free TBTF insurance from Uncle Sam, is crowding out what could be a competitive private lending sector dominated by small, locally responsible lenders who know their customer base and follow prudential lending standards from thriving and returning sanity to our banking system.

Megabank, Inc’s crazy loan securitization scheme should have landed them in bankruptcy, rather than in the bailout trough.

Of course, I suppose the giant giveaway of America’s collective wealth to Megabank, Inc will fund a lot more campaign contributions than a competitive, decentralized locally-based lending sector could ever hope to generate.

“I never did buy into the end of the world scenario that Hank Paulson presented.”

He is a good actor. Perhaps he could talk to Ahnold about breaking into Hollywood.

So do I… just not at our expense.

Like the American retirees who move there because it’s way cheaper to live?

No, not at all like that.

I told my CA resident daughter to be sure she wound up owing state tax even if it means paying interest and a bit of penalty.

Should we simply cross our fingers and hope that corporations will someday live up to their promises that industry can and will self-police itself?

Why are there always only two options?

A. Government regulates industry
B. Industry regulates itself

I would propose a third:

C. Customers regulate the industry, by taking their business elsewhere

Unfortunately however C has been short-circuited by the TBTF methodology. Thus we are left with the lesser of the two other evils.

ET, you’re asking the wrong question. Come on, think it through. I’m not going to spoon feed you every time.

C. Customers regulate the industry, by taking their business elsewhere

Option C is implicit in option B — proponents of corporate self-regulation love to blather on about consumers and investors voting with their pocketbooks. And sometimes they do, reactively.

In reality, however, that mechanism doesn’t work well to prevent crises; it doesn’t work in oligarchic and/or TBTF market sectors; and it doesn’t work in sectors where potential profits seem to outweigh any pesky moral, ethical, or social concerns individuals may have. (This is business, after all.)

Come on, think it through. I’m not going to spoon feed you every time.

Laugh.

No, no, I shouldn’t have to spoon feed you after all these runs around the mulberry bush …

Maybe “preventing crises” isn’t all it’s cracked up to be.

E.g. the late 1700’s American Tories believed in crisis prevention as well. Sometimes a good crisis however is a necessary thing, to allow for greater long-term prosperity and freedom.

And maybe the act of “preventing crises” in the long run actually causes more and/or larger crises than it prevents; thus not only being a moral hazard but also counterproductive as well.

I present the housing bubble as exhibit A.

Maybe “preventing crises” isn’t all it’s cracked up to be.

I agree.

To clarify, what I meant was more along the lines of preventive medicine (such as prenatal care) vs. reactive medicine (such as chemotherapy). To use your example, most of the “prevention” in the housing bubble years was of the reactive variety — and much of it was certainly counter-productive (assuming the end goals are bubble deflation and affordable housing, that is).

In reality, however, that mechanism doesn’t work well to prevent crises;

NOTHING will prevent crisis. Be it regulation, criminal prosecution, or customer behavior.

The bottom line is that people will do what they do. There will be consequences. Some care about the consequences, some don’t.

That’s what pro-regulation folks don’t understand..you’re never going to PREVENT anything. There has to be pain for there to be any kind of disincentive to do the bad behavior….once an entity acts up, and people react and boycott/take business elsewhere and the company goes out of business, the other companies will see that it’s in their best interest…happens all the time for things that aren’t regulated.

Regulations and laws don’t stop bad behavior. If it did, our jails wouldn’t be full and we wouldn’t be in this mess.

D. Lynch mobs.

That’s what pro-regulation folks don’t understand..you’re never going to PREVENT anything

Totally absurd. Quick example from about a million others: Go to your local home depot and try to buy some lead-based paint and asbestos insulation. What? You can’t? Wow, I wonder why.

Because…. lead-based paint is a crisis?

My 8 years living in a house covered with lead-based paint says otherwise.

NOTHING will prevent crisis. Be it regulation, criminal prosecution, or customer behavior.

Uh … seriously?

To paraphrase Lehigh, you should think that through. You even contradict yourself on that point.

You may not like the manner in which a crisis (large or small, personal or national) is mitigated or thwarted, but many crises are assuredly preventable. We as citizens — and our proxies both in government and the private sector — make choices about allowable risk every day, whether the issue is traffic fatalities, smoking, CDOs, the role of central banks … or deepwater drilling in the Gulf of Mexico. Laws and regulations aren’t the only way to prevent crises; a market disincentive can do the same (after something bad has happened or almost happened, presumably).

Will crises still occur? Certainly. But nobody above was talking about some mythical end to disruptive events, just ways in which they may or may not be prevented.

And maybe the act of “preventing crises” in the long run actually causes more and/or larger crises than it prevents; thus not only being a moral hazard but also counterproductive as well.

Maybe, depends on the ‘long run’. If we had prevented GD1, would Hitler et al have risen to power and caused WW2? That might have been productive to avoid, no? But then, maybe we needed tens of millions of innocent people to die in order for us to learn our lesson. Maybe it prevented something worse- who knows?

Because…. lead-based paint is a crisis?

My 8 years living in a house covered with lead-based paint says otherwise.

Nice straw man, did I say crisis? I was pointing out that regulations do prevent things, all the time.

Go to your local home depot and try to buy some lead-based paint and asbestos insulation. What? You can’t? Wow, I wonder why.

Yet lead still ends up in all kinds of products….regulations don’t stop that.

Yes, regulations make it less likely…

And to ET:

You may not like the manner in which a crisis (large or small, personal or national) is mitigated or thwarted, but many crises are assuredly preventable.

I’m not arguing that any given crisis isn’t preventable - pretty much everyone most certainly is. My point is that regulations won’t stop crises from happening. It may make certain ones less likely, but the existence of a regulation simply prescribes a punishment - it doesn’t actually STOP anything from happening.

A regulation establishes a consequence. It does not somehow make some behavior impossible.

Is that more clear?

I was pointing out that regulations do prevent things, all the time.

They don’t PREVENT them. They make people consider whether the action is worth it or not by establishing a consequence (see lead and other heavy metals in all kinds of products from China).

The same thing consumer/customer/potential employee behavior can do.

Regulations prevent the purchase of lead-based paint or asbestos insulation. The fact that some slips through from China merely shows we need better regulation of imported products, it in no way proves that ‘regulations never work’- unless you’re seeking perfection, which is a tough standard for anything to live up to.

Sometimes people run red lights. Does that mean red lights never work?

Sometimes people run red lights. Does that mean red lights never work?

You’re missing the point and attacking an argument I’m not making.

The “pro-regulation, anti-free market” folks point at something bad happening and saying “hey, this bad thing happened when there weren’t regulations..therefore, free market = bad and everything needs to be regulated”.

I’m pointing out that bad things happening aren’t a function of the free market. For the free market to work, bad things HAVE to happen - companies have to adopt bad policies so they get selected out of business. Others then learn by example.

The same is true with regulations. First, regulations generally don’t come about until something bad happens. Yet somehow pro-regulators feel that instituting a new regulation is the only effective way to deal with the issue after the fact, when market forces may well address it just as well if not better (no moral hazard is introduced).

Secondly, regulations only have an effect if they are enforced and someone feels the pain of running afoul of them. Market forces perform the same function.

The issue I’m addressing is many feel that when something bad happens, the only possible course of action is to institute new regulations or laws. My point is that in both cases it’s being reactive, and market forces can perform the same function as regulations would *IF* the government would let market forces actually run their course.

“….companies have to adopt bad policies, so they get selected out of business.”

The banksters adopted bad policies, but they are still in business. While lobbying to defeat/repeal the regs that would have outlawed their bad policies.

And by getting their own people into regulatory/enforcement leadership positions, where they can delay/veto any efforts to enforce the law.

The banksters adopted bad policies, but they are still in business. While lobbying to defeat/repeal the regs that would have outlawed their bad policies.

You’re smart enough to see that this is not due to a failure of market forces, but because of government intervention.

If the gov’t hadn’t stepped in, the banks that adopted bad policies would have lost money and gone out of business, or lost depositors who didn’t want to place their deposits at risk.

Instead, the gov’t stepped in and did the opposite of what the free market would have done - it selected FOR those banks that adopted bad policies by offering below-market loans or straight-up capital injections.

How does that support an argument against a free market?

The issue I’m addressing is many feel that when something bad happens, the only possible course of action is to institute new regulations or laws. My point is that in both cases it’s being reactive …

Who is this shadowy “many” you’re talking about?

Alpha and I both repeatedly mention preventive regulation, not reactive regulation. I drew that distinction hours ago. I’m in favor of fewer, simpler, and more effective regulations — but that doesn’t make me a fan of deregulation, which all too often allows corporate entities to run amok.

(Look up the etymology of “amok” or “amuck” for a little extra fun.)

I’m required, by regulation, to complete certain functions on the aircraft I work on. Most of these items are inspections of some sort, in which it is almost impossible to prove if I actually did it or not.

By free market reasoning, I should just pencil-whip them, because I don’t find anything wrong about 99.9% of the time. In fact, lets’ just go let some unlicensed (unregulated) guy from Jiffy-Lube do them, because he can undercut me on price.

Works for me. I could have avoided getting hydraulic fluid all over me last week, when the .1% came up, and I found a cracked hydraulic line in the #1 hydraulic system.

Might not have worked for the flight crew and passengers, when all the #1 system hydraulic fluid dumped from the system……they do have a #2/emergency system, after all.

But hey, they can always take their business elsewhere, assuming they survived.

Isn’t that kind of the point though?

You could have just checked it off without really doing the inspection. If the line failed in mid-flight and the plane crashed, then no one would have been the wiser. The government regulations would have been met, in terms of getting the checklist signed off.

But instead you didn’t - you did the inspection properly.

So would you say you were bound by:
- A sense of ethical duty to your customer - to make sure the inspection actually was done right, in the interest of safety, or
- The knowledge that if your customer found out you were cutting corners on inspections, they’d fire you and take their business elsewhere, or (if your customer died) that other potential customers would never hire you, or
- The knowledge that if the government found out you were cutting corners that you’d be fined and/or get jail time?

P.S. I’m not trying to propose that all regulations - in particular safety and environmental regulations - are bad. I definitely think some are needed; especially in environmental where Caveat Emptor generally just doesn’t apply.

However I think that we go overboard on most regulations - particularly financial, in that the regulations themselves create a false sense of security that leads to bigger problems down the road.

As an analogy (perhaps more cute than useful - but I think apt nonetheless) - probably the best way to prevent automobile deaths is to put a big steel spike in the steering wheel, rather than an airbag.

By free market reasoning, I should just pencil-whip them, because I don’t find anything wrong about 99.9% of the time. In fact, lets’ just go let some unlicensed (unregulated) guy from Jiffy-Lube do them, because he can undercut me on price.

I’m reminded of that Devo song, “Whip It!”

So would you say you were bound by:
- A sense of ethical duty to your customer - to make sure the inspection actually was done right, in the interest of safety, or
- The knowledge that if your customer found out you were cutting corners on inspections, they’d fire you and take their business elsewhere, or (if your customer died) that other potential customers would never hire you, or
- The knowledge that if the government found out you were cutting corners that you’d be fined and/or get jail time?

Thanks, Packman..this is the point/distinction I am making. The first two options aren’t regulation-based, but rather “market forces”, yet drive one to the “correct” behavior.

You really, REALLY, don’t want to live in a world without rules and regulations.

“Self-policing” is an oxymoron.

“Market driven” regulation solutions are fantasy. Without government regulations, big business would literally kill you and take your money and enslave your survivors.

That is NOT hyperbole.

The hyperbole is you constantly believing that anyone who argues against excessive rules and regulations is proposing that we live in a world with no rules and regulations.

Polly,

Understood. Regulations are (or attempt to be) preventative, while
tort/criminal law is after the fact. But what if the regulations can never be enforced effectively? Do they wind up creating only a false illusion of safety at a high cost in money and freedom?

Think of speeding on a highway. It’s illegal, but probably 90% of drivers do it and very few are caught. Does the manpower even exist that would be needed to enforce speeding laws consistently? Now think of the hundreds of thousands of other regulations out there, and you have an idea of the problem.

In both cases, the best answer is to dismantle the government-created structures that caused the problem. Don’t let the government build roads where speeding laws can’t be enforced; don’t let it charter corporations with the power to build oil rigs that can explode and cause disasters.

What you are talking about is simply a different form of regulation. Although you are regulating the govenment, not the companies or drivers themselves, it comes out to the same thing.

To build a road where speeding can be perfectly enforced, you would have to set up some sort of tracking system so that satellites or some other technology would keep track of the speed of every car at all times and send out tickets automatically (no way to appeal). We don’t like government to be that intrusive in the US. The other option (used fairly often on residential streets in my area of MD) is to put huge mucking speed bumps on all the roads. Not so great on roads where you want to let people travel above 20 miles an hour.

As for the oil company? Well, if you want to forbid all drilling that could have a severe environmental impact, you can try, but I wouldn’t guess you will be very successful. That standard would get rid of most coal mining too. Or offshore all of it so that the disasters all happen off the coast of Nigeria, not the US.

Enforcement can’t be perfect, but it can be pretty darn good. I do it every day. It takes resources. Government resources and corporate resources. But that is the price you pay if you want to prevent some of the disasters rather than just have people pay for them afterwards. We were taught in law and econmics that if the cost of paying for a disaster multiplied by the likelihood that it would happen was less than the cost of avoiding the disaster, that you should just let the disaster happen. It never sat right with most of us in that classroom, epecially when the disaster involved people dying.

“Think of speeding on a highway. It’s illegal, but probably 90% of drivers do it and very few are caught. Does the manpower even exist that would be needed to enforce speeding laws consistently? Now think of the hundreds of thousands of other regulations out there, and you have an idea of the problem.”

1. Speed limits do indeed lower speeds save lives and save oil, just because many people speed does not mean speed limits are not effective. You don’t need 100% enforcement. Drivers hedge their bet, many drive 5mph over few drive 30mph over. Corporations do the same thing.

.

1. Speed limits do indeed lower speeds save lives and save oil, just because many people speed does not mean speed limits are not effective.

Just because people go a certain speed that’s close to the posted limit doesn’t mean they do so because a limit is posted.

I can’t prove your statement wrong, but you really can’t make such a statement without knowing how fast drivers would go on that road if there was no limit, after a period of normalization where there might be accidents, etc, to establish a reasonable equilibrium.

It’s very possible that people would drive 60 regardless of a 55mph speed limit vs a 70mph one. There certainly are people who drive under the limit because they are comfortable at that speed, and those that drive over because they are comfortable at that higher speed.

I love the “you can’t regulate it, so why bother?” mindset. Especially those that say that “the free market will self regulate, because people will take their business elsewhere”

I’ve personally seen that this doesn’t work. Businesses/individuals screwing people with impunity, going out of business on Friday, then hanging a new shingle and continuing business as usual under a new name or in a new location on Monday.

Somalia = Deregulation Advocate’s Wet Dream

I love the “you can’t regulate it, so why bother?” mindset

If you’re referring to me, you’re mis-characterizing my position.

BTW, deregulation doesn’t mean “NO RULE OF LAW”. One can have the rule of law with less regulation….so no, Somlia would not be a free-marketers wet dream, IMO

Whatever regulations you have, for them to be effective, you need:

-The majority of the people being regulated to “buy-in”

-Adequate enforcement.

-Appropriate penalties for violators, in proportion to the harm violations cause.

The banksters operated in a “none-of-the-above” environment. When a disaster happens, because of a lack of buying-in/enforcement/penalties, I just don’t see how “less regulation” is the answer.

OTOH, the other extreme is when the enforcement and penalties become a government “revenue-generator”

I say “screw it”. Let’s just turn everything into a free-for-all, and let all the cheaters/crooks/corner cutters have at it, so nobody trusts anybody else, and what’s left of our economy grinds to a halt.

just because many people speed does not mean speed limits are not effective

I would not consider 35,000 annual highway deaths to be an indicator of effective regulation.

To X-GS: Yes, businesses screw people. Governments screw people much worse and NEVER go out of business (unless there’s a revolution).

And sorry, the Somalia card has been tried here many times before. Somalia was under a repressive Communist-style dictatorship for 22 years and is one of the most regulated places on earth.

Somalia…. is one of the most regulated places on earth.

Yo, dude, pass it this way! That must be some good stuff.

How about the requirement that theaters have fire alarms and fire exits? Is that a preventive regulation? Has that proven effective? Did all theaters have them before they were required, out of the goodness of their hearts and because it made good business sense?

Did all theaters have them before they were required, out of the goodness of their hearts and because it made good business sense?

Likely not, but I bet after a few publicized mass-deaths (which likely prompted the regulations), fewer patrons would go to the theaters which didn’t have them, and instead those that did would advertise that fact.

You act like the only thing that could possibly cause the theater to add such things are regulations - that there’s no possible other incentive.

If you get food poisoning at a restaurant, do you choose not to go there in the future, and instead visit one of their competitors? They’re both regulated the same, so that’s not the deciding factor…instead, you’re capable of making decisions in your best interest based on your personal experience - and that of those you trust - which in turn drives the offending restaurant out of business. True, it won’t stop them from poisoning you - but the regulations already failed in that regard - but it will act as a force of selection in the market.

Theaters often burned down, killing many, in the good old days.

If a theater advertises that it has fire alarms and exits- how would you know if they were telling the truth?

If I kill many by food poisoning, can’t I just change my restaurant’s name? Or rely on the fact that I’m in a tourist town, and the next batch of dopes won’t know any better?

In this day of international corporations, do you really think reputations mean that much? Who knows who owns what?

If I kill many by food poisoning, can’t I just change my restaurant’s name? Or rely on the fact that I’m in a tourist town, and the next batch of dopes won’t know any better?

In this day of international corporations, do you really think reputations mean that much? Who knows who owns what?

And regulations are exempt from these limitations…how?

One can just as easily fold the corporation and re-incorporate anew…all violations go away, no?

So what is the point you are making…?

(btw, being a consumer who cares about not dying in a theater fire, I could verify that there are fire exits when I visit the theater, and leave and never go back if the claim was false).

Do you check that the fire alarms work and exits are real when you go into a theater now? (And how exactly would you check the alarm? And how do you check them in a very large, crowded arena?) Or do you rely on the fact that someone (a ‘regulator’) has checked them?

Restaurant inspectors (regulators) check to make sure that restaurants are reasonably clean and handling food properly. It doesn’t matter who owns them-that’s the beauty of it.

Both of your examples- having to always check that fire exits and alarms actually exist and are functioning, learning by illness where not to eat, to me argue in favor of regulation. I think you’re lost in your philosophy, and not thinking what a miserable, dangerous, and unpleasant reality it would make.

LehighValleyGuy wrote:

And sorry, the Somalia card has been tried here many times before. Somalia was under a repressive Communist-style dictatorship for 22 years and is one of the most regulated places on earth.

Mogadishu is regulated? In what way? Cheat a warlord and you’ll probably get killed; if one wants your daughter, he’ll probably have her. That’s not regulation - that’s law of the jungle, might makes right.

Do we really need to define what regulation is? Are going to discuss what the meaning of “is” is?

Without regulation, for example, industry could fully externalize its costs. Factories could dump effluent in public places without restraint.

Citizens wouldn’t buy their widgets from the factory? What about if they had no choices? What happens if the factory had a monopoly on widgets?

There was a gas station in central Maryland that poisoned the ground water with the highly toxic MTBE gasoline additive. The people living around the station were rather unhappy but if the gas station just lowered its prices, folks from farther away could have made a wise economic choice and continued to buy from them.

Regulation would stop the factory from dumping effluent in public places, and stops monopolies, just as two examples.

In theory, with frictionless access to all markets and perfect information for consumers, the self-regulation scene would merely work imperfectly (think two wolves and one sheep considering what to have for dinner). In reality, it just works very badly, and we have real-world examples of it in front of us left and right.

Disastrics? Failology?

Doomismatics?

Ok, let me try,
Dumbassstronics

Roidy

“CanInBomb- are you in favor of drilling off San Diego?”

NIMBY!

I have no issues drilling off the coast of GA.
If we drill in shallow water, accidents might happen. But the fix would not take months. The fact only robots can get to those depths is the reason for this cluster.

I’m sure the residents of coastal Georgia will appreciate your generosity with their beaches.

I suspect (I’m no expert, are you?), that the fact that shallow water spills are easier to fix may be offset by the fact that they are occurring very close to shore. What’s worse- 100,000 barrels 200 miles offshore, or 1,000 barrels 2 miles offshore? It probably depends on wind and current, but I bet they both could be devastating to a specific area.

My understanding is that oil rigs always throw off some tar. It’s a dirty business. I think even without an actual ’spill’, you’d find an unpleasant increase in tar balls at your beach.

OK fine. Then lets’ drill in ANWR where nobody will see any tar balls. Oh, but we can’t do that either because a caribou might get upset.

Or let’s allow oil to be extracted from shale in Colorado. No, that’s off limits too.

Doesn’t matter where the oil is, the enviros will always find a reason to nyet to drilling.

Why I believe that was my snide joke.

So, not sure what stick you are going to hit me with.

How about this one: You sound like a liberal! (Gabba gabba, we accept you, one of us, one of us…)

Me, too. I’ve been out since Dow 14k. If I’d have known then what I know now, of course, I’d have gotten back in 14 months ago and gotten back out at 11k, but I thought we’d test that 6xxx bottom again. I still think we will, but holy cow did they ever succeed in creating a bounce.