Editore"s Note
Tilting at Windmills

Email Newsletter icon, E-mail Newsletter icon, Email List icon, E-mail List icon Sign up for Free News & Updates

September 25, 2007
By: Kevin Drum

HOUSING BUBBLE WATCH....The housing meltdown continues apace:

The supply of unsold U.S. homes ballooned to an 18-year high in August as demand for existing homes fell to a five-year low, according to a report by the National Assn. of Realtors....Also today, a separate report indicated that home prices were falling at an increasing rate. The closely watched S&P/Case-Shiller home prices index, which tracks results in metropolitan areas and is considered a leading measure of U.S. single-family home prices, showed an annual decline of 4.5% for the 12 months ended in July, representing the biggest drop since 1991.

....Sales are expected to continue their descent, further weighing down prices...."August's sales do not reflect the full impact of the credit crunch, which hit financial markets in mid-month, since most sales were financed with loans approved weeks beforehand," said Patrick Newport, an economist with research firm Global Insight.

Alan Greenspan says there's nothing he could have done about the housing bubble. Monetary levers are too crude to do any good, and the least worst option is to let the bubble collapse on its own and then pick up the pieces afterward.

Maybe so. But that still doesn't explain why Greenspan cheered on the bubble back in 2004. Watch him squirm over that here.

Kevin Drum 2:58 PM Permalink | Trackbacks | Comments (58)

Bookmark and Share
 
Comments

The market works!

Sing it, Al!

Posted by: Gore/Edwards 08 on September 25, 2007 at 3:08 PM | PERMALINK

Alan Greenspan says there's nothing he could have done about the housing bubble. Monetary levers are too crude to do any good

Funny how that didn't stop Greenspan from -- nonpolitically, of course! -- using crude monetary levers (i.e. month after month of historically low interest rates) to disguise the fact that Bush's tax cut did squat for most Americans.

It's also interesting how the current Fed used that selfsame "crude monetary lever" to mitigate the effect of the housing / mortgage crisis -- since, after all, Bush's wonderful tax cuts are still in place; just not performin as advertised.

The past eight years calls for nothing less than the Republican Party to go the way of the Whigs.

Posted by: Gregory on September 25, 2007 at 3:10 PM | PERMALINK

9/11!! al Qaida!! 9/11!! Osama!! Ahhh!!!

Posted by: steve duncan on September 25, 2007 at 3:13 PM | PERMALINK

Give Greenspan a break. You have to admit he did a good job dealing with what he viewed as the real threat to the economy - the possibility that we might actually pay off the deficit! Boy, did he help stop that one in its tracks.

Posted by: fafner1 on September 25, 2007 at 3:20 PM | PERMALINK

I could detail how Greenspan is either incompetent or a shill, but why bother when economist Dean Baker does it so well.

Posted by: alex on September 25, 2007 at 3:20 PM | PERMALINK

And before you think this is just a correction for hyper-inflated houses, we're trying to sell a house we bought in Pittsburgh over 10 years ago. We paid $141, and are trying to sell it for $175. What is that -- like 1% appreciation a year? Hardly inflated. On the market for 9 months now. No comps have sold, either.

Posted by: Gore/Edwards 08 on September 25, 2007 at 3:20 PM | PERMALINK

PLEASE don't forget Greenspan encouraging people to take out ARMs instead of fixed-rate mortgages. That and his shilling for the tax cuts would earn him a trip to hell, if hell existed.

And what fafner said.

Posted by: Gore/Edwards 08 on September 25, 2007 at 3:25 PM | PERMALINK

Greenspan is so bad than even Peggy Noonan dissed him in her review of his biography.

Posted by: JeffII on September 25, 2007 at 3:29 PM | PERMALINK

The Evil Comedic Genius of Greenspan:
http://themessthatgreenspanmade.blogspot.com/2007/09/evil-comedic-genius.html

Posted by: osama_been_forgotten on September 25, 2007 at 3:35 PM | PERMALINK

PLEASE don't forget Greenspan encouraging people to take out ARMs instead of fixed-rate mortgages.

I liked Ali G's explanation of that one -- he said that he was only recommending ARMS to people who planned to own their home for less than 5 years (ie, before the interest jump).

Posted by: Disputo on September 25, 2007 at 3:43 PM | PERMALINK

Btw, According to the Disputo Economic Report, the housing balloon will continue deflating for at least another 20%. Local conditions may vary.

Posted by: Disputo on September 25, 2007 at 3:45 PM | PERMALINK

Of course the market works. Where do you get the idea that market forces don't push things in both directions? That's what keeps things on an even keel in the long run.

Of course I'm sure Democrats have policies to make sure housing prices never go down, mortgages are always low-priced and available to everyone, and nobody will ever lose money on any transaction.

You've been lusting for a big economic collapse for over six years now. Sorry, but it isn't going to materialize now, either.

The NAR press release is here, without the L. A. Times dramatics.

Notice the price figures given in the NAR release:

The national median existing-home price for all housing types was $224,500 in August, up 0.2 percent from August 2006 when the median was $224,000. The median is a typical market price where half of the homes sold for more and half sold for less.

...which is probably why the L. A. Times had to switch pricing indexes to a much narrower category to get the doom effect they were looking for.

Posted by: harry on September 25, 2007 at 3:51 PM | PERMALINK

All national economic numbers are of course a mean or average of thousands of local markets. Here in FLA a combination of (Repub) legislature screwing up insurance regulation and property tax reform has been at least as significant in our housing bust as the 'nat'l economy' or interest rates.

Think of NewOrleans and what their housing market must be like. Think of Michigan's 'rust belt'.
Relate the 'dot.com' collapse to the fact that foreclosures are over the moon in NoCalifornia.

The Bushies have royally screwed so many middle-class families in so many different ways that it's coming home to roost for all of us.

Posted by: JohnMcC on September 25, 2007 at 4:01 PM | PERMALINK

Of course the market works. Where do you get the idea that market forces don't push things in both directions? That's what keeps things on an even keel in the long run.

Gawd you're such a tool. Is anyone stating otherwise? In fact, we're pretty much all saying that what is happening now is the market correcting for distortions that Ali G set into motion for the expressed purpose of making GWB look good. Chickens coming home to roost and all that. But of course a tool like you see wingnut manipulations of the market as the market working like it should. No wonder even your mother hates you.

Posted by: Disputo on September 25, 2007 at 4:02 PM | PERMALINK

the maestro is being far too modest. and the arm resets have barely begun to reset. take a look:

http://calculatedrisk.blogspot.com/2007/08/arm-reset-charts.html

Posted by: linda on September 25, 2007 at 4:04 PM | PERMALINK

In fact, we're pretty much all saying that what is happening now is the market correcting for distortions that Ali G set into motion for the expressed purpose of making GWB look good.

Then what was the supposed political function of Greenspan and the stock bubble? To make Clinton look good? Go do some research.

Posted by: harry on September 25, 2007 at 4:11 PM | PERMALINK

Then what was the supposed political function of Greenspan and the stock bubble?

LMAO. So I clean your clock regarding your comments about the housing bubble, and now you want to change subjects to the inet bubble?

How about you go outside and play and let the adults talk amongst ourselves? You useless tool.

Posted by: Disputo on September 25, 2007 at 4:16 PM | PERMALINK

Wow, harry. You are at Al-level tool-ness now!

Posted by: Gore/Edwards 08 on September 25, 2007 at 4:18 PM | PERMALINK

I brought numbers to the table, and original sources. All you're bringing is noise and 12-year old name-calling.

Posted by: harry on September 25, 2007 at 4:21 PM | PERMALINK

The housing crisis is the Repukeliscum financial crisis of the Bush administration. There is ALWAYS a financial crisis during a Repukeliuscum administration, because they are so crappy at regulation. They don't bother to regulate, figgering that all the market correction can be done by bankruptcy and recession. That's the usual plan, and it is working just fine.

During Reagan admin, it was S&L. During the Bush I, it was the start of the dot-com bubble. Now, it is the housing crash. They should have been regulating the pricing and risk assessment of sub-prime housing bundles, but that would have cost too much to their scummy little bunch of thieves and cheats which comprises today's Repukeliscum Party.

Posted by: POed Lib on September 25, 2007 at 4:28 PM | PERMALINK

Harry appears to be yet another Repukeliscum moron here to be beat on.

How come you scummy repukeliscum are so stupid these days, Harry? Where did all the intelligent republicans go?

Posted by: POed Lib on September 25, 2007 at 4:29 PM | PERMALINK

Greenspan could have nixed ARMs, and could have suggested that lenders not get all frisky in the face of an easy money supply.

But naaah! Instead he sucked up to the Republicans by approving cuts to taxes for the wealthy and by cheering on ARMs. He has much to answer for.

Posted by: Scorpio on September 25, 2007 at 4:43 PM | PERMALINK

You've been lusting for a big economic collapse for over six years now. Sorry, but it isn't going to materialize now, either.

That's right, Harry. There's nothing we'd like to see more than an utter collapse of the economy, unless maybe it is a catastrophic loss of the Iraq War with lots of bloodshed and genocide. Those are the things we want.

There's a very simple explanation for such irrational behavior, though, isn't there Harry? We all have BDS. The world is so simple to explain when you are a wingnut.

Posted by: Pug on September 25, 2007 at 5:03 PM | PERMALINK

Lan Greenspan is a damned liar. He not only provided cheerleading for the housing bubble, he inexplicable encouraged buyers to look at variable-rate mortgages when interest rates were at historic lows. He kept the housing bubble afloat by providing cheap money during his entire stay of the Bush (mis)administration.

But those actions should surprise no one. Greemspan has made a career of selling out the middle class, starting with the social security payroll tax boondoggle in 1983. He's little more than a partisan hack.

Posted by: MeLoseBrain? on September 25, 2007 at 5:14 PM | PERMALINK

Greenspan is so bad than even Peggy Noonan dissed him in her review of his biography.

Well, of course! Ali G wasn't very nice to St. Dumbya, and, even worse, he praised President Clinton!

Posted by: MeLoseBrain? on September 25, 2007 at 5:23 PM | PERMALINK

During Reagan admin, it was S&L. During the Bush I, it was the start of the dot-com bubble. Now, it is the housing crash. They should have been regulating the pricing and risk assessment of sub-prime housing bundles, but that would have cost too much to their scummy little bunch of thieves and cheats which comprises today's Repukeliscum Party.
Posted by: POed Lib on September 25, 2007 at 4:28 PM | PERMALINK

Actually, the cause of the dotcom crash was the ONLY bill that Clinton vetoed, and the Republican congress overrode. The financial industry warned that this bill would create a tidal wave of corporate stock fraud (and it did) - and the Republicans rammed the deregulation down the markets' throat anyway. Because they couldn't stand a robust industry and economy thriving under a Democratic administration, and the bulk of the prosperity happening in one of the most Liberal regions of the country.

They had to do SOMETHING to sandbag it.

And when that wasn't enough, the Texas PetroMafia ran a scam that caused electrical power blackouts in California, by writing a bogus deregulation regime, ramming it through the state legislature, and gaming the system they created to screw rate payers out of $9 Billion in manipulated energy prices, while cutting a high-tech industry off from it's reliable electricity supply, just as the financial shennanigans of a pseudo dotcom (Enron -had nothing to do with dotcoms) assaulted the reputation of the entire NASDAQ.

Posted by: osama_been_forgotten on September 25, 2007 at 5:23 PM | PERMALINK

I've always believed that if someone buys a home who can't afford the payments, then he may face foreclosure. Hey, I'm more savvy than Greenspan! Think I'll write a textbook.

Posted by: Luther on September 25, 2007 at 5:30 PM | PERMALINK

Perhaps a change of national mindset is in order, and we should begin to also consider real estate and housing as a resource, rather than solely as a tradable commodity.

Posted by: Donald from Hawaii on September 25, 2007 at 5:34 PM | PERMALINK

Perhaps a change of national mindset is in order, and we should begin to also consider real estate and housing as a resource, rather than solely as a tradable commodity.

And the other shoe finally drops.

Posted by: harry on September 25, 2007 at 5:47 PM | PERMALINK

Alan Greenspan has been an agent of Wealth and Corporatocracy throughout his careeer.

Reforming Social Security in 82 , only to give it away in Tax Cuts

His constant bailouts including but not limited to the '87 crash , the S&L Scandal , and LTCM .

His reengineering of the unemployment rate , the inflation rate and the productivity rate were alll designed to shaft the middle class.

Anybody that thinks we have 2% inflation rate now stand up ! I have a New Orleans Chateau in the 9th Ward to sell you ...

.

Posted by: Michael McKinlay on September 25, 2007 at 5:49 PM | PERMALINK

Maybe the change in mindset needed is to realize that in a highly unequal society the land is owned by the tiny ultra rich elite, the middle class rent, and the poor squat.

Posted by: jefff on September 25, 2007 at 5:52 PM | PERMALINK

OBTW

The Fed's M3 money growth is at 14%

.

Posted by: Michael McKinlay on September 25, 2007 at 5:57 PM | PERMALINK

Actually, the cause of the dotcom crash was the ONLY bill that Clinton vetoed, and the Republican congress overrode.

Not strictly true--there was one other.

Incidentally, it might be educational for you to go back and see which Democrats currently holding important positions in the House and Senate also voted for the override on the Private Securities Litigation Reform Act.

Posted by: harry on September 25, 2007 at 6:00 PM | PERMALINK

PLEASE don't forget Greenspan encouraging people to take out ARMs instead of fixed-rate mortgages.
The cynical view is that he encouraged ARMs because they slightly improve (and with a delay) the power of the the Fed's monetary policy lever.

Posted by: Bill Arnold on September 25, 2007 at 6:05 PM | PERMALINK

Maybe the change in mindset needed is to realize that in a highly unequal society the land is owned by the tiny ultra rich elite, the middle class rent, and the poor squat.

You realize that none of those statements is true either, right? Home ownership is around 68 percent in the U.S. overall, and 52 percent in households with less than the median family income. They can't all be landlords.

Posted by: harry on September 25, 2007 at 6:07 PM | PERMALINK

A 4.5% drop in price is not a meltdown, but only a correction.

Posted by: ex-liberal on September 25, 2007 at 6:12 PM | PERMALINK

The mortgage brokers were pushing loans they knew were bad investments (can you say predatory lending?). They got financially unsophisticated homeowners(and sometimes people who should have known better) to buy in with completely ridiculous teaser rates and rate escalator clauses hidden in the fine print. The brokers got out from under the bad debt by quickly selling it to Wall Street, who quickly sliced and diced it into trusts and resold it. Billions in bad debt was being flipped, and millions of home owners put at financial risk. Like the west coast energy crises, the government sat by and let the whole disaster develop when relatively mild intervention early on could have stopped the whole thing.

Posted by: fafner1 on September 25, 2007 at 6:36 PM | PERMALINK

True fafner - and here's the rub - the whole thing is now being blamed on "complicated repackaging of debt" - oh, it was too confusing for those poor quantitative analysts, all those Math PhD's and their fractal differential equations, they couldn't properly assess the risk.

And the experienced bankers, who have been in this business for decades - they just sat aside and let the math gurus make the hard calls - is that it?

It's just a big complicated mess? Our financial instruments technology got ahead of our risk assessment technology?

Bullshit.

Scam artists just trying to rationalize how they're looting and pillaging the middle class and the taxpayers who are going to have to bail the banks out.

Posted by: osama_been_forgotten on September 25, 2007 at 6:51 PM | PERMALINK

Sigh.

You do realize that statements that are obviously not literally true at the moment are often not meant to be taken as literally true at the moment?

Not-quite-obviously-enough my point is that the eventual consequences of increasing inequality include changes in the patterns of home ownership.

Posted by: jefff on September 25, 2007 at 6:51 PM | PERMALINK
Alan Greenspan says there's nothing he could have done about the housing bubble. Monetary levers are too crude to do any good, and the least worst option is to let the bubble collapse on its own and then pick up the pieces afterward.

This is probably true strictly from a perspective of monetary policy, OTOH, I can't help but feel that one reason for the housing bubble during the period of stagnant wages it occurred in is precisely desperation for the (falsely perceived) security and return of property ownership fueled by the bad prospects for workers at the same time as the aggregate measures of the economy were, but for the brief 2001 recession, generally fairly strong.

While monetary policy is far too blunt to address that kind of distributional effect, fiscal policy, and specifically tax policy, could address it very easily by redistributing tax burden from the worker to the currently-favored capitalist. That would have reduce the impetus to heavily leveraged purchases, and it would still, implemented now, cushion the blow on those most at risk of devastation from the collapse.

Monetary policy isn't just a small part of economic policy.

Posted by: cmdicely on September 25, 2007 at 7:35 PM | PERMALINK

Two points: housing prices in my area (Boston) doubled since approximately 2000. A drop of 5%, 10% or even 15% is a correction, not a meltdown, especially when median and average incomes stagnated over the same time period.

While some house buyers made foolish decisions, many were caught between the also-skyrocketing rents and the availability of iffy mortgages. When rent costs 1K+/month, a mortgage + condo fee at about the same level becomes very attractive. Everyone hoped to re-fi at better rates, but the mortgagers pulled that rug out from under homeowners' feet at the first opportunity.

Posted by: Rugosa on September 25, 2007 at 8:15 PM | PERMALINK

"Alan Greenspan says there's nothing he could have done about the housing bubble."

Greenspan is delusional and all he is doing is trying to clean up his image for prosperity. He is very much to blame for what is going on now in the housing market. He was very enthusiastic about the sub prime lending spree and saw no danger in it.

Sorry Alan, rewriting history doesn't work. We have the proof in black and white and on film.


Posted by: Kate Henry on September 25, 2007 at 8:22 PM | PERMALINK

Fannie Mae and Freddy Mac {GSEs) were created by Congress. Greenspan did criticize them back in 2005 and said they were taking advantage of government subsidy for increased profits and noted the GSEs could cause problems for the financial market when there portfolios became too large.

Its the OFHEO and Congress that control Fannie and Freddie, not so much Greenspan, they way I see it.

Posted by: Ya Know... on September 25, 2007 at 9:05 PM | PERMALINK

"Greenspan is so bad than even Peggy Noonan dissed him in her review of his biography."
Posted by: JeffII on September 25, 2007
-----

I wonder if Peggy Noonan is having second thoughts about having become a Republican.

Maybe after the primary, after Edwards wins the nomination, she would consider writing a speech or two. She writes beautifully if the topic lends itself.

Posted by: MarkH on September 25, 2007 at 9:09 PM | PERMALINK

In other words, I blame the fiscally inept rubber stamp congress of greed and their (R) cohorts, if Greenspan is one of them then so be it.

Posted by: Ya Know... on September 25, 2007 at 9:13 PM | PERMALINK

Alan Greenspan sez, “there is NOTHING that can be done about unconscious lending practices”

But really, in all fits into Bushies dismissal anti-price caps talk. Charge whatever the market will bear. And when the market doesn’t bear it???? We can chalk it up to lifes a bitch.

Apparently price-gouging laws are ever bit as stupid as the Habeas Corpus law.

At least laws are stupid in Bush world. And Greenspan believes that “regulations” are some kind of stupid liberal society hoax. That Enron' fiasco was a natural occuring event. The more you know about Greenspan, the more you must suspect that he was the biggest phony that ever lived.

Posted by: Me_ again on September 25, 2007 at 10:16 PM | PERMALINK

"During Reagan admin, it was S&L. During the Bush I, it was the start of the dot-com bubble. Now, it is the housing crash. They should have been regulating the pricing and risk assessment of sub-prime housing bundles, but that would have cost too much to their scummy little bunch of thieves and cheats which comprises today's Repukeliscum Party.
Posted by: POed Lib"

You forgot a really big one on Bush's plate. ENRON!

Posted by: Kate Henry on September 25, 2007 at 10:33 PM | PERMALINK

In any market there are winners and losers.

The winners in this case are people who have been yearning for the American Dream of home ownership, but have been unable to afford it until now.

The losers are fat-cat liberals who had the "misfortune" (lack of forsight) to buy their homes at inflated prices, and see their value return to realistic levels.

There is a God, and She is just.

Posted by: Al on September 25, 2007 at 11:14 PM | PERMALINK

Greenspan cheered on the bubble because Greenspan was confronted with both progressives and conservatives who beleived the indefinite infinite of government programs was possible.

When idiots on both sides are spouting nonsense, the best course is to let them fuck themselves.

Posted by: Matt on September 25, 2007 at 11:28 PM | PERMALINK

Hmmmm. The biggest drop since 1991. Wasn't Bush the president in '91? Just goes to show you....Republicans can't manage markets. They can only spew rhetoric about them.

Posted by: jcricket on September 26, 2007 at 12:36 AM | PERMALINK

Greenspan is a vain toady. If he hadn't been a toady, he wouldn't have gotten into power. If we weren't vain, he wouldn't be trying to defend the indefensible: his record.

Alan, here's a loogie in your eye. Take out an ARM. Broker a Social Security Tax swindle.Back the breeders of debt with cant and foolishness. GFY. DIT.

Posted by: Jeffrey Davis on September 26, 2007 at 12:05 PM | PERMALINK

"Hiding behind the mantel of free market capitalism, Greenspan did more than any other public or private official in the past 20 years to turn the US economy from the most economically strong, independent, and credit-worthy in the world to one of the most economically fragile, dependent, and indebted." - Eric Janszen
' Letter to Federal Reserve Chairman Ben S. Bernanke'


"The risks of a systemic crisis are rising: Liquidity injections and lender-of-last-resort bailout of insolvent borrowers -- however necessary and unavoidable during a liquidity panic -- will not work; they will only postpone and exacerbate the eventual and unavoidable insolvencies." - Nouriel Roubini

"No country in the history of the world has ever allowed its industrial base to be so ruthlessly decimated (offshoring, outsourcing, factory closures) just to feed the insatiable avarice of its criminal elites." - Mike Whitney

Posted by: MsNThrope on September 26, 2007 at 12:08 PM | PERMALINK

Want to be a Central Banker? Want a 'put' named after ya? Trigger a run on the currency?

Go here: http://www.snb.ch/en/ifor/research/id/research_mopos

That's the Swiss National Bank site and they have a Windows (expletive) only simulation.

Hat tip to the Sudden Debt blog - http://suddendebt.blogspot.com/

Posted by: MsNThrope on September 26, 2007 at 3:33 PM | PERMALINK

The NAR press release is here, without the L. A. Times dramatics.

Hah! The NAR. Google up Dan Learah. Those clowns are not to be trusted.

Posted by: Joshua on September 26, 2007 at 4:17 PM | PERMALINK

Former Green Beret identifies the symptoms of Blackwater Fever.

Posted by: lambert strether on September 26, 2007 at 4:18 PM | PERMALINK

I find it hilarious that no one here realises the implications of what is happening and instead point fingers and call each other names.

BOTH the Dem/Repub are to blame - this crisis was in the making BEFORE Bush came into office (but he did nothing to stop it and instead is exacerbating it). It was not directly Clinton's fault either (but he did nothing to stop it).

And WAKE UP, housing is the TIP of the fucking iceberg.

Housing MEWs fueled a large part of consumption, which is 70% of GDP.

That is now gone - all that is left is debt.

Think about it.

Posted by: lalaland on September 27, 2007 at 2:31 AM | PERMALINK

Hello everyone. Your site is very good. Thank you for the opportunity to sign your guest book. Help me! Need information about: Free stock trading. I found only this - day trading of stock. Not warren buffett, one of the most wild cash, focuses not have the best crash to buy, but he ends to carry a capitalization that turns for him, stock trading. Stock trading, sooter featured down in 1993, and mcguinness found unknown high agent. Thank :cool: Neena from Zealand.

Posted by: Neena on March 12, 2010 at 8:32 PM | PERMALINK

012131.. Great! :)

Posted by: www.washingtonmonthly.com on April 5, 2011 at 1:50 PM | PERMALINK
Post a comment









Remember personal info?










 

 

Read Jonathan Rowe remembrance and articles
Email Newsletter icon, E-mail Newsletter icon, Email List icon, E-mail List icon Sign up for Free News & Updates

Advertise in WM



buy from Amazon and
support the Monthly