Was the housing bubble as ridiculous as we are led to believe?
I’m starting to think printing money and reducing interest rates to 0 just to stimulate the economy is actually much dumber than a housing bubble. At least in the housing bubble people had some modicum of interest in living in a home.
The current situation of limited investment vehicles for the average person with the only real options being dumping stuff into equities/crypto at mass scale seem unproductive.
I’m rethinking the moral hazard argument of literally bailing out the mortgages and giving people homes. What is all this liquidity getting us really?
The whole story of the housing bubble is complicated, but beyond the easy money and lowered lending standards was an enormous amount of what could fairly be described as outright fraud. I mean, the mortgage applications were fraudulent, the underwriting was fraudulent, the appraisals were fraudulent, the titles were frauds, the bonds were frauds, and so on all the way up and down the line.
In the most bubbly markets a lot of construction happened on spec, and deeds were traded among speculators who didn't really have any interest in actually living in the properties.
It was nuts.
Lower interest rates don’t reduce investment opportunities, they increase them. This is because as rates get lower, investments with smaller returns become profitable.
Treasury yields aren’t as much of an investment as they are free money given to the wealthy. With a government that can create its own currency, the moral hazard is giving rich capital holders money for doing nothing. They should be investing money in actual enterprises, instead of sitting on government bonds.
Mortgages were not bailed out. Banks were. People who were underwater lost their homes. The Fed provided the necessary money to banks to prevent an industry-wide banking collapse.
This is how I rationalize what I'm seeing.
10 years ago, we had the biggest recession anyone alive had seen. In general, that recession was due to "the housing crisis". The truth is more nuanced, but no one really looks deeper.
In April of 2020, we were on the verge of a recession. Everyone in charge - and I mean EVERYONE - remembered the Great Receasion of 2007/08/09 and that "the housing crisis" caused it. They ALSO knew that they would never live it down if "they" let a SECOND recession happen because of "housing" (whatever that means). They were OK with a recession for ANY reason - just NOT housing. Leaders all over the country accepted this: Democrats and Republicans in Congress worked quickly to pass a massive stimulus: Democrats didn't ask for too much, Republicans didn't cut too many corners. State Governors worked to approve unemployment. The CDC even prevented evictions.
They call it 'rent seeking', current owners are able to get a rent(or save paying one to someone else to live there), They do not want competition, so a huge sea of interdictory regulations about height, density, green space - you name it - they all exist to block new housing to keep out competition.
Putting it in social terms, what if 1 person could 'buy' the right to date one person. They could date that person, or rent that date privilege out day by day. Note - all these dates are innocent, I am using it as an example only.
So this guy is happy. the rent he gets lets him live well and not work at all. Then a sorority/fraternity house is built, and now there are 20 new people to date - his rent drops by 90% - what is he to do?
He calls the housing inspector, the bylaw inspector, the health inspector and bribes them to enact new laws - the house is torn down and no new houses can be built.
This is the Bay area.
Yes, it was.
In Metro Detroit suburbs (nice) you could buy houses that sold for $200,000 for $20,000. In Detroit proper, you could buy houses that were move in ready for $5,000. Those $5,000 houses are now back to $150,000 today. Those $20,000 are now $300,000 today. Someone I know bought a house that's now $1.5mil for $200k back then.
Why are your options limited? I’ve got more options than ever. They’re all lousy, same as ever. The housing bubble was the same nutty crap excited bankers do every time they get de-regulated. The liquidity is a palatable way to surrender reserve currency status.
I don't want to make false statement but "The Big Short" movie really helped me better understand what's going on in those days.
I know that maybe reading some book is better but i'm not in to market and economics and the movie was nice
"If it moves tax it. If it keeps moving regulate it. And if it stops moving subsidize it" --Ronald Reagan (b. 1911)