There is no doubt that the entire housing market was exploited to float the US economy and covered up a recession dating from 2000-2001 until the housing market could no longer be sustained resulting in a complete collapse of the financial markets and banking.
The housing market didn’t “snap back” rather two unprecedented tax payer stimulus packages totaling just shy of $2T were given to the banks to finance millions of foreclosure cases and allow the entire industry to consolidate. That $2T resulted in the longest bull market in history, as well as the biggest transfer/consolidation of wealth in history.
It was unprecedented until the “stimulus packages” during Covid which is probably closer to a total of $7-8T, so far, once the federal reserve leveraging is included. Once again the policy response during this crisis was designed to benefit corporations and the wealthy. One of my favorite things to highlight was that following the Fed receiving taxpayer funds to prop up the stock market Disney had their greatest single day stock gains in history all while every single theme park, hotel and cruise ship were indefinitely shutdown and every single movie production was indefinitely suspended.
The very same way people look back and excuse the banks for their culpability for the financial meltdown resulting in “the Great Recession”, and even more bizarrely argue to some extent that taxpayers should thank the banks for allowing the taxpayers to bail them out (ie finance their foreclosure cases and major bank acquisitions)…its clear the people have once again been conned by politicians and are stupid enough that we will be reading future articles about how 2020-20?? wasn’t a stock market bubble and wasn’t inflation and that the people will once again be thanking politicians and the federal reserve for robbing them.
> One of my favorite things to highlight was that following the Fed receiving taxpayer funds to prop up the stock market Disney had their greatest single day stock gains in history all while every single theme park, hotel and cruise ship were indefinitely shutdown and every single movie production was indefinitely suspended.
This only sounds meaningful when you take it out of context. Leading up to that it was quite clear the government had effectively mandated for Disney to stop doing business. One day a business, one day not. It was on a trajectory to zero.
It only had a good day after the government decided “maybe it will be less damaging to the economy to float all of the existing companies through this huge pause rather than let them all collapse and have everyone lose their retirement and their job simultaneously”.
The same for cruises, airlines, hotels, restaurants, museums, concert halls, doctors offices, etc. All sane businesses one day worthy of investment, the next day not.
There really aren’t parallels to what happened in 08 here. In 2008 it was a single sector imploding that happened to be the one with its tentacles wrapped around everything else. With Covid everything was failing because everything stopped.
> There really aren’t parallels to what happened in 08 here.
Well leading up to 2008 the banks were making record profits and had record high stock prices. However, they were under funded, over leveraged and couldn’t absorb their losses.
Similarly, in 2020 nearly all publicly traded companies were trading at all time highs, but in reality they were all significantly overvalued and the businesses themselves were all significantly over leveraged.
You are focused on the difference in the cause of the losses, rather than the historic valuations completely detached from business fundamentals (i.e. the bubbles), and the governmental responses to prop up bubbles. Taxpayer funds shouldn’t have gone to financing foreclosures and acquisitions for failing banks and they shouldn’t have gone to the Fed to propping up businesses record high stock prices.
> “maybe it will be less damaging to the economy to float all of the existing companies through this huge pause rather than let them all collapse and have everyone lose their retirement and their job simultaneously”.
The irony is you are using the very same political justification for the government response to the banks in 2008, and it only highlights my point how people will be all to happy to say thank you for allowing us to bailout your failing business and return it to record high stock prices.
One my pet peeves is that better ventilation legislation has been blocked and for that 7T you could probably upgrade every ventilation system in existence. According to a NYT article the average vent system is 4 on a scale to ten. In a pandemic you want something like an 8.
This would seriously hamper COVID / airborne viruses.
Why worry about ventilation and masking - particularly in schools - when one could spend that time looking at data showing who is actually at risk, and how to protect them.
Spoiler: for this pandemic at least, the risk group simply isn't healthy children. Or indeed healthy young adults. Or maybe even anyone healthy under say 45[0]
Our 8 year old had a PCR-confirmed Covid infection three weeks ago, as far as we know that's the first case in our immediate family. He's not vaccinated.
For him, it represented a four-hour headache. No fever, no sore throat, no cough. He's finally been allowed to go back to school this week.
What about the teachers and all other staff at the school? Or everyone those children will run into, like parents, siblings, grandparents, friends, etc.? Even if the majority of them are healthy and under 45, some won't be and would require hospital treatment. And that's a severely limiting factor on how much Covid a health system can bare - in many countries that was stretched to and beyond it's limits. Now thankfully the latest variants are much more benign so that's not really a serious risk, for now.
> What about the teachers and all other staff at the school? Even if the majority of them are healthy and under 45, some won't be and would require hospital treatment.
Isn't this why we developed vaccines? To reduce the risk of serious illness?
"Every year around 600,000 people die in the UK. The Imperial College team estimates that if the virus went completely unchallenged, around 80% of people would be infected and there would be around 510,000 deaths.
So, roughly speaking, we might say that getting COVID-19 is like packing a year’s worth of risk into a week or two. Which is why it’s important to spread out the infections to avoid the NHS being overwhelmed."[0]
Once we've vaccinated a large proportion of the at-risk groups, then the risk of overwhelming the hospitals drops. Then life can, and should, get back to normal.
Anecdotally I am a 30 year old male who is usually only ill for about a day or 2 every year. I had COVID for a couple of days and then a week later after recovery a started getting this super-dry cough. This stayed with me for 2 months, first of which was so bad I could barely sleep until I got a codeine-based cough syrup.
On the other hand I was also considering what our politicians did to the society keeping them locked up in their rooms and not training their immune systems on a regular basis which usually happens with normal interaction.
> One of my favorite things to highlight was that following the Fed receiving taxpayer funds to prop up the stock market Disney had their greatest single day stock gains in history all while every single theme park, hotel and cruise ship were indefinitely shutdown and every single movie production was indefinitely suspended.
Probably because of their massively successful streaming service that was perfectly placed to pick up the slack. They also have one of the deepest content libraries around so production stoppage hurts them less than competitors like Amazon, Netflix, AppleTV.
To drive it home, Disney had record revenue in 4Q2021, driven by streaming and parks revenue [1]. Maybe it’s you who had it wrong?
> To drive it home, Disney had record revenue in 4Q2021, driven by streaming and parks revenue [1]. Maybe it’s you who had it wrong?
You are cherry picking an article from Q42021 that references park revenue, whereas I gave a very specific example of their record single day gains in company history which occurred while the parks were closed in 2020.
As to Disney+ streaming service it launched in 2020 but the Disney+ lost $2.8B in fiscal 2020, the same period of time it’s parks were closed and park losses total about $7B, and yet during this period it saw it’s record single day stock price gains in history. That record day was a direct result of the Fed and taxpayer money, not record theme park revenue (it was record losses) nor Disney+ which was a brand new division and recording its own multibillion dollar losses.
The article is proof that investors were correct. Stock prices are a present value of future earnings. In 2020, after the stock price had already tanked due to COVID and the bailout was announced, investors thought future earnings would increase. They bid up the stock price to acknowledge that belief.
At the time Disney+ was losing money, but the pandemic and the bailout were indicators that the steaming business would take off (it did). Their huge content backlog had them perfectly placed to manage a production shutdown. There’s also the 21st Century Fox acquisition that was Closed in 2019 and gave them more content.
If investors expected future earnings to grow more than current losses (which were already priced in by the market), then it isn’t wild for the stock to bounce. A year later, their earnings pretty much prove it.
We could also go into the calculations of why the value of recurring revenue (streaming subscribers) is much higher than the value of non-recurring revenue (park visits).
> If investors expected future earnings to grow more than current losses
Well of course Disney future theme park earnings were going to increase from zero. You aren’t considering the actual E/P ratio.
Pre-Covid Disney both stock price was a at all time high and their E/P ratio was at an all time high (about 22, where usually an 18 is considered over priced).
Those “investors” you suggest were the Fed using taxpayer money buy and prop up the stock price. With the Fed money Disney stock price once again reached a new all time high price and a P/E ratio over 90, meaning the Fed was bailing out shareholders at a historic high of $90+ to $1 earned, where an average publicly traded company should be closer to 13-14.
> Well of course Disney future theme park earnings were going to increase from zero. You aren’t considering the actual E/P ratio.
This isn't how investors think. If you know that future earnings are going to increase from zero due to outside circumstances (COVID, in this case), why would you base your analysis on past earnings? The past earnings don't matter, especially when you admit that they were heavily influenced by COVID.
$1 of recurring revenue from subscriptions (Disney+) is worth more than $1 spent at a Disney theme park. The recurring revenue costs less to service and is more predictable going forward. This is why businesses (like Adobe, Apple, Disney, etc.) have been working to shift revenue towards subscriptions over one-time purchases.
> Those “investors” you suggest were the Fed using taxpayer money buy and prop up the stock price. With the Fed money Disney stock price once again reached a new all time high price and a P/E ratio over 90, meaning the Fed was bailing out shareholders at a historic high of $90+ to $1 earned, where an average publicly traded company should be closer to 13-14.
It feels like you are working backwards to try and find the nefarious actions you are so positive about. The Fed deciding to bailout companies and consumers obviously helped businesses (especially consumer facing businesses, like Disney). The entire stock market exploded when it was announced.
The P/E ratio of the entire S&P 500 spiked from around 20-25x to 40-45x due to Fed and Congressional actions [1]. Average publicly traded companies do not trade at 13-14x P/E, and low interest rates for decades have made that a fact. That said, Disney isn't a traditional company because their investments and growth in streaming make them look more like a growth stock. Which is, again, reinforced by their record revenue numbers.
> The P/E ratio of the entire S&P 500 spiked from around 20-25x to 40-45x due to Fed and Congressional actions
Again Disney was double that at 90 after the FED began buying Disney stock/bonds using taxpayer funds and pumped it to an ATH.
> It feels like you are working backwards to try and find the nefarious actions you are so positive about.
It’s all public record, the stock was tanking, after the FED began to directly prop up Disney the stock price reached a new ATH in 2021 at which point executives/insiders, including the Chairman, began to sell sending the price downward from ATH and leaving the FED holding the bag. Despite your claims of Disney behind a growth stock the Chairman liquidated something like 50% of his holdings.
Anyway I’m not here to debate the merits of the Disney stock price. The FED shouldn’t be getting taxpayer funds much less buying Disney stock/bonds, it’s corporate welfare, and when the stock price is propped up to an ATH with taxpayer funds and the Chairman and other executives sell out it’s a golden parachute. Like I said people look back on 2008 and think taxpayers should thank the banks, and similarly people (presumably like you) will think taxpayers should thank companies like Disney that were bailed out by taxpayers.
> There is no doubt that the entire housing market was exploited to float the US economy and covered up a recession dating from 2000-2001
This is false. There is no doubt that, while there was a short recession in early-mid 2001, there was a general economic expansion, not a recession, after that; to the extent that housing market was exploited to paper over something, it was the unusually top-loaded distribution of the benefits of that expansion, where the bottom 3 income quintiles and the fourth quintile was basically flat, with the gains concentrated in a fair small segment at the top, which it covered by (non-sustainably) paying for continued debt-fueled lifestyle improvements for groups that weren't seeing real income gains.
> there was a general economic expansion… with the gains concentrated in a fair small segment at the top, which it covered by (non-sustainably) paying for continued debt-fueled lifestyle improvements for groups that weren't seeing real income gains.
That’s one long sentence.
The thing is it’s impossible to decouple any economic expansion from 2000-2008 from the trillions of dollars that flooded into the economy during that period as a direct result of the artificial housing prices and newly available debt.
I agree with you though to the extent that any actual wealth that was generated was concentrated to the top, it always is. There hasn’t been real income gains for the working class in about 50 years, but the explosion in household and consumer debt in that time is incontrovertible from about $300B in 1970 to $11.5T in 2010.
To some extent we actually have the counterfactual to the US, i.e. not bailing out the banks broadly in Europe. There recovery was slower, banks did do less funding of "real economies" in the aftermath, the bailouts did come with net costs overall and the banks are still not so competitive.
All hail us rich savers, our savings must be subsidized at all costs. The fact that there is barely anything to invest in, the fact that any further investment would make us a loss, all of that must be ignored because human time can obviously be owned and if the people that this time represents dare to do something as foolish as age while they wait for us to employ them, they are clearly stealing from us the value of our money! Aging is a sin. Starvation is a sin. Homelessness is a sin. So we let the government indirectly borrow money from us, to pay for welfare, to keep these people alive so they stop stealing the value of our money from us by dying. How dare they die!
The fact that this debt isn't paid by us but rather by the working class, is how we get away with this scheme. After all, those who work for a living, those who spend almost all of their money, unable to save it for the sake of subjugating society, spending it just to live their life, using it as the medium of exchange so many postulate it to be, do not have any significant savings to speak of and would not significantly benefit from any reward that is proportional to how much they own.
I must remind everyone that the Greece financial crisis was actually a bank bailout program for German banks. After all, savings are the holy cow of the rich. If you take something away that didn't exist, in proportion to how much the real world lost, you are a communist.
If you can't touch the savings and the savings keep growing, the economy must grow in lock step with the savings. Endless growth is just a subsidy to endless savers since you can't tell them to stop.
Adding that although 'the Fed receiving taxpayer funds to prop up the stock market' happened, the USD as the world reserve currency allowed the Fed to create digital dollars ('money printer goes brrr' in wall street parlance) until eventually there are so many dollars in circulation we get inflation ...and here we are...one of the reasons the US now has a weaponized dollar and China and Russia are now openly challenging the reserve currency...
There are endless articles elsewhere questioning whether there really is any gold in Fort Knox etc because gold reserves are the king in the geopolitical chess games
Your replies are getting further and further away from your original definitive statement that Russia has the most gold reserves on the planet. It's all a bit strange.
Now that we're down to claims about the US lying about its gold reserves I'm afraid I have to check out.
Thanks for correcting me, I was wrong about the Statista chart I posted. My point was a broader one about the war for who would control future world reserve currencies, which appears to be between the US, China and Russia right now with Russia making a bit of a hail Mary pass
https://www.suissegold.eu/en/posts/russias-massive-gold-accu...
I find it amusing when people automatically think that an increase in the money supply must result in inflation.
There is this inherent contradiction that people are angry that the money supply grows because they save, while themselves demanding high interest rates like 5% to let their money compound over time.
If you limit the money supply and demand high interest, that interest must circulate from lender back to the borrower. The money supply is $100. I lend out $100 and demand $105 back. The borrower pays me the full $100 back. Where does he get the $5 to pay interest? The easy answer is that I spend $5 of the money he paid to me. He then has $5 and pays off the entire loan.
What if I lend out the $5 to him instead? The money supply rose by $5. Letting money compound over time by reinvesting/lending the interest will let the money supply grow exponentially and in principle there is nothing wrong with that, if I, the lender, eventually spend off all the interest income I earned because then the whole thing settles and all debt including interest is gone.
Now, there is a problem here. Why doesn't that spending phase set in? Why does the money supply keep growing until the system collapses? Because of an artificial interest rate floor of 0% on cash. The saver has the option of refusing to lend out his money or spend it and wait until an inevitable recession sets.
During deflation, the value of money goes up. This is terrible for debt contracts. If you rented a Prius 2010 knowing you have to return Prius in the same condition but instead you return a 2020 Prius you would expect the rental company to compensate you for returning the car in an even better condition.
With debt it doesn't work that way, since you can just hold cash with 0% interest. Imagine if the car dealer had a <current_year> Prius that automatically upgrades to the latest year. You are expected to pay interest on top and bring a 2022 Prius because the dealership could just let the Prius sit in a garage and go up in value.
This is because of the inherent contradiction of being able to own a store of value. A store of value can only ever be a contract between two parties. The mythical self upgrading Prius doesn't exist in the real world. Someone has to promise to manufacture the 2020 Prius in exchange for you giving him the 2010 Prius. Deflation on a fixed debt contract is the equivalent of demanding a 2022 Prius when a 2020 Prius was agreed upon. The borrower never promised a 2022 Prius so it is only natural that he ends up defaulting through no fault of his own.
Your example is a good example of the Motte and Bailey fallacy. Yes, if he uses that $100 to create something worth more than $5, he wins, you wins, the community wins. That's the motte. But the vast majority of loans are not that type. The vast majority of loans are fighting over zero-sum resources. Think buying land. That's the bailey.
When the money supply increases in that way, while it does not immediately create inflation, as the new money will be stored in investments and those investments rising in value are not considered inflation, as soon as the down-turn occurs, that money, being liquid, becomes inflation.
So when you create money through artificially low interest rates that goes to rent-seeking, you are creating inevitable inflation in the future.
> I find it amusing when people automatically think that an increase in the money supply must result in inflation.
Because that is what happens with other countries. The only reason US gets a free pass is because the dollar is a global currency which is sought by everyone.
> There is this inherent contradiction that people are angry that the money supply grows because they save, while themselves demanding high interest rates like 5% to let their money compound over time.
When's the last time a high yield savings account made 5%? Or even matched inflation?
People are angry that they are punished by thr fed for trying to save money for a rainy day.
> People are angry that they are punished by thr fed for trying to save money for a rainy day
Rainy day funds should approximately track inflation. There are plenty of assets that have been good havens over the past decade. It’s odd to expect real gains on a rainy day fund.
Criticizing people for being thankful that their government used taxpayer funds to save failed private businesses and worse prop up bubbles is not a broad diatribe against monetary base expansion.
Though generally I don’t think it’s for a private entity such as the Federal Reserve to be given taxpayer money and have the power to increase the money supply, it makes a private bank a de facto 4th branch of government with powers to coin money reserved by the Constitution to the Government by the people for the people.
"Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.
In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.
But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions -- hence "zoned" -- makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles."
Just ignore the first sentence in the article and the prognosis on a bubble popping messily....
Erdmann adds to the thesis in a very valuable way by pointing out that people move out Zoned zone to Phoenix and other US metros.
Just pity the countries that effectively don't have a Flatland, like Australia, the UK and NZ.
This theory doesn’t work for one of the biggest bubbles of 2007, which was Las Vegas. It has nothing but surrounding land to build on.
They built like crazy and still had massive price inflation followed by a bubble popping, prices dropped almost 50% and vast swathes of empty houses remained for years and prices only recovered to the peak in the last year or two.
Erdmann adds to the thesis in a very valuable way by pointing out that people move out Zoned zone to Phoenix and other US metros.
Sorry, I missed out some more of this.
Erdmann divides US cities into Closed Access Cities (CACs), contagion cities (CCs) and Open Access Cities (OACs). The CACs were New York, Boston, the Bay Area and Los Angeles where building housing has become very difficult and where the prices are shooting up. The contagian cities were places that people who moved out of the closed access cities went to. These include Phoenix and Florida. The Open Access Cities were places like Houston, Atlanta and Dallas where sufficient housing for population increases was being built. Erdmann describes the CACs as having a chronic undersupply that has caused many people to move into the CCs. The OACs saw some ride and an increase in homebuilding but didn’t see nearly the drop in prices as the other types of cities.
Shut Out suggests that a reaction to the rise in housing prices that was occuring in CACs led to policy that brought up interest rates and caused prices in the CCs to drop which then led to a loss in confidence and a drop in housing prices across the board. Erdmann says that excess credit wasn’t the primary driver and points to the fact that the increase in US house prices was well underway before the bad loans came in.
Interesting but to claim excess credit wasn’t the primary driver seems to ignore that credit was clearly in excess in it couldn’t be repaid, even when prices correctly slightly. That’s pretty much a definition of credit becoming available in “excess”.
And the categorization seems "after the fact". I mean if you look at prices and then lump cities into categories, you're not really predicting anything.
>..Las Vegas. It has nothing but surrounding land to build on.
Not to focus on one single point of your post, but Vegas is in fact nearing the point of having developed the easy area in the surrounding flatland of its valley, and is now beginning to abut the surrounding mountains (and federally owned land). Vast tracts of surrounding uninhabited land does not necessarily mean it is easily developed and habitable.
That's not totally inexplicable. It takes time to do the construction so in the meantime the price goes up.
In a normal market the investors would predict the price coming back down when the construction catches up so it would only go up a little bit, since most prospective buyers would e.g. rent until they could pay less for one of the new units. More to the point, the bank would predict that and not give you a loan that size.
Pre-2007, banks weren't doing that. They were giving loans to everybody regardless of creditworthiness or risk because they were buying credit default swaps which create moral hazard. So unsavvy borrowers overbid on existing properties about to revert to their construction cost and you got a bubble in a place you normally wouldn't.
But how exactly can you launder money through buying a house? If you buy, essentially you declare you have the money, thus question can be asked where you got it from.
When I bought recently, I wasn't asked the source of my downpayment as long as I could show I had the funds going back at least 3 months. I presume they do some sense check against income sources (i.e. if you have $300k down payment, but only make $30k/yr and you're 25, they'll ask where it came from), but otherwise if it was "seasoned" (you could show you had such funds over some time period), they didn't dig further.
Now that's much more scrutiny than lenders were showing back in 2007. Back then, if you had cash in a bank account, all good.
In terms of laundering, it's basically passing money through enough legitimate transactions as to conceal the source. So let's say you have $1M in money from illegal activities. If you can get it into a foreign bank account, you could transfer it to the US, buy a house, sell 2 years later. If anyone asked where the money came from you've got a few years history of legitimate investments.
That is an interesting bit from the lined article:
"One of the biggest issues that the report cites is the use of geographic targeting orders as the U.S.’s primary tool to identify potential money laundering events. GTOs impose reporting requirements on real estate purchases, but only in narrowly targeted scenarios — large cash purchases by legal entities in specific geographic areas."
I reckon flipping houses and renovating is one way - Buy an older house. Spend dodgy money into some serious renovations. Sell house for <original price> + <cost of renovation>. Money washed.
It’s typically done at the construction stage, with high-rise buildings and other assets more valuable than a family home. Banks or other lenders are typically involved. Here’s one example.
I imagine you can pay some extra in cash to get the property while the official price is lower, but still realistic. You are then getting an asset that you would otherwise not get, using cash in part.
> some of our devs have already moved up the coast...
How do they do this and stay connected? I remember seeing a guy that did this in a van while subscribing to multiple wireless providers. But as far as I am aware Australia still doesn't have the best coverage, service and technology. Moreover, if you're going out more remote locations, I'm sure your connection options start to dwindle.
I'm sure Starlink (maybe oneweb too?) and the WFH movement is going to change this equation quite drastically.
Three cities (presumably Sydney/Melbourne/Brisbane) is a weird way to describe Australia's population distribution. Perth is basically the same size as Brisbane. "We still only really live in two/four/five cities" all would be more accurate.
In Cal it's an infrastructure issue - how to get roads and utilities (sewer, water, gas, electric) to relatively remote areas, how that is organized (incorporated/unincorporated areas) before even thinking about building structures
Flatland is a state of mind where the state government try not to interfere too much and people in general have a less nimby attitude, Australia is the opposite of it.
I'm not an admirer of many of the theoretical positions he takes, but he writes well and often in these kinds of posts he draws attention to considerations that not enough mainstream economists are paying attention to.
He's more often worth citing than other of the standard talking heads of economics like Greg Mankiw.
Yes this is a fascinating insight to the world - it's too complex for accurate prediction, you have to instead do preparation and adapt as events occur.
This is one of those things people just say like a tourette.
Only study that attempted to quantify pundit accuracy (I know about) found out that Krugman was the most accurate public pundit.
source: Hefferman, S., Klondar, E., & Tummarello, K. 2011. Are talking heads blowing hot air? An analysis of the accuracy of forecasts in the political media.
From what I've seen, the hate is mostly because the things he says contradict the trickle-down bullshit right-wing and libertarian types tend to be steeped in.
To be fair, it's still a yearly prize, for economics, awarded by the same Nobel Foundation that awards the other prizes, under the same rules as the other prizes. The laureates are announced at the same time as the other laureates, the awards are presented in the same manner as the others and everyone shows up to the same Nobel Prize Awards Ceremony.
And if we really want to go full pedant, the award isn't called anything in English at all, the real name is the "Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne"
'Sveriges Riksbank Prize in Memory of Alfred Nobel' is more or less a literal translation of the Swedish name, minus the part about 'in economic science' and whether or not you feel like translating the name of the Swedish royal bank.
Anyway, even the Nobel Foundation explicitly says it isn't a Nobel Prize:
> Not a Nobel Prize
> The prize in economic sciences is not a Nobel Prize.
It is an interesting detail, but I guess taht most most people will still refer to it colloquially as Nobel prize.
I think that point about the nature of the price doesn't diminish the point that was being made. As much as it is a call to authority, weight of opinion of someone rewarded with that price is bigger than random voice on the internet.
That being said I think this thread starting with unsubstantiated criticism of Paul Krugman ideas/opinions is not constructive and rather useless.
This is in the same category as correcting people who say “this data.”
Yes, you’re technically correct. But also, you missed the point and are being self-defeatingly pedantic. The economics prize is valued for all the reasons the Nobel prizes are; they carry similar prestige and are thus used interchangeably.
Oi think yew are mistakun boh. Narfuck dont have noe flatlands, oonlee the fens, en thas moostly linconshire boh.
Noel Coward and his fucking quips.
However, the fens is a sinking bog, so not great for building on, especially as its in the middle of fucking nowhere and 180 degrees of depressive grey most of the time.
In the Zoned Zone parents paying for their children's education in house prices was one reason for price increases (prices in areas with good public schools skyrocketed).
Interesting view and great data crunching. But I am amazed how one can write a long article purportedly about the causes of the 07/08 crisis without ever mentioning credit quality. By my impression, the prevailing view is that the crisis was caused by poor credit quality of some home buyers (I remember the term NINJA borrowers - no income, no job or assets). This was masked away in complex financial products (CDOs,...) that made it hard for buyers like banks to assess individual borrower quality and instead had them rely on (flawed) valuation models by rating agencies. The high ratings for these products allowed the market for them to balloon from a niche to a gigantic size that made it systemically important. When the first cracks started showing, worries about borrowers' credit quality turned into worries about banks' credit quality, leading to bank-run-like situations in the money markets, and ultimately the failure of banks like Lehman Brothers and others.
The article seems to start from a misleading claim, one that misses a crucial part of the picture, and that is much easier to refute than the full story. The data is still super interesting to see.
> caused by poor credit quality of some home buyers
Small detail but the wording here implies a causation, that it was the home buyers who were the makers of the crisis.
Whereas we now have ample evidence that it was the real estate companies and mortgage lenders who when faced with free money, became predatorial of people who had no capacity or understanding of the financials of becoming a home owner.
We can always argue that these were adults who have taken their decisions but again many of these people were promised pie in the sky and they believed it.
I don't disagree and think you're absolutely right for pointing this out, but I wouldn't claim (not that you did) that the bucket of those that were ill equipped to understand the financial responsibilities of owning a home is composed mostly of individuals with poor credit score that were taken advantage of by predatory actors.
Of course there were many (if not most) individuals that were unfortunately taken advantage of in this manner. But anecdotally and for what it's worth, all of the people I know impacted by the crisis were educated, financially savvy and secure individuals.
For them it wasn't a matter of owning a house or being homeless, no reason to lie on a mortgage application just to have a roof over their heads. They had good incomes and credit history. They could be approved without having to inflate applications or go with the ARM-heavy options. Instead they chose the interest-only, deluxe option.
I recall having conversations with many of these individuals about how they could afford these amazing places (along with the new convertible BMW) and how they tried to convince me that the interest-only option combined with increasing equity and the historical trend of property prices, yada... was a wise financial decision. How property is an investment, and they plan to eventually use their equity to buy more property. So on and so on. I can't remember all of the details bc it didn't really seem to make sense and sounded way too risky and optimistic.
What I do remember is being completely crushed hearing and seeing all of this and knowing I was priced out of the market unless I took on a similarly risky position. I accepted the idea that I would never be able to afford a house.
I was even more upset when I saw the way that most of these individuals were "bailed out". Sure they lost their homes, but at least they weren't financially ruined.
They have since improved their credit-worthiness and seemingly made better financial decisions, but my point is financially healthy individuals who knew better contributed to this crisis as well. They knew that the income they put on the application was inflated. They knew that the interest rates could change in the future and only paying interest was risky. They knew that a smaller, less expensive house was good enough. They knew that also buying that luxury car was exposing them even more.
Yes, you're right, we should be careful with the wording here. I would also blame the system, where Physics PhDs were paid to put enough math in the product presentations to convince traders that the AAA ratings (for products with substantially higher returns than usual for such ratings) were justified. Of course, the resulting transactions earned all sides huge individual cash bonuses (large enough to allow them to achieve financial independence if they could keep the scheme rolling for just a few years, regardless of whether their employers would go bust), which may arguably have contributed to their willingness to turn a blind eye to common sense.
poisoning securitized assets with people who are bad credit risks definitely happened. no need to ascribe individual blame to the borrowers, the mortgage originators are licensed professionals.
At what point do you think individual adults should be responsible for their own decisions?
“No capacity or understanding of the financials” makes it sound like these fully grown functioning adults had a learning disability. These people had access to the internet, books, libraries, financial services, and more. If these people were ignorant of the true costs it was willful ignorance.
Defrauded home buyers? Come now. It isn't as if lenders were submitting fraudulent paperwork with fake rates and then sticking homebuyers with the "real" rate after the fact. Home buyers were willingly signing documents with plain English terms, and this was happening in the information age.
Mortgages work differently in the fastest-rising areas of the US than most anywhere else, in that a borrower can have no equity or negative equity in the home… and just hand back the keys.
In the UK this involves a complex and lengthy bankruptcy proceeding. Honestly I think the US way is objectively better, but it massively changes the outcomes of how long someone will stay in a home that’s become a bad investment.
The article is also looking at the wrong numbers for rents. How much rents have risen is far less relevant than how many rent starts there are over mortgage starts. The first statistic tells you how much people are having to pay to live, the second tells you if there’s really a shortage of homes or not.
Some countries have implemented additional taxes on non-primary homes since the crash, but to my knowledge they’re not particularly punitive. I think this tax really is the solution (e.g. 5% value of the home in landlord tax per year).
Over here in the UK this period is described as "the credit crunch"
The folk memory describes the cause as banks loaning money to people who patently couldn't afford it, mixing those loans up with mortgages that had passed sensible credit checks. They then homogenised shit mix loans as high quality bonds.
All was fine, until the foreclosing happened (repossessions), suddenly the bond repayments weren't as good, and pop, everyone started questioning how good their investments were.
sure it was triggered by the american housing market, but it wasn't really a bubble, it was large scale fraud, combined by hubris and a ratings system that was/is corrupt of crushingly incompetent
> And yet not very many people think we’re in the middle of a second housing bubble.
Really? It seems pretty obvious to me that we're in the middle of a huge bubble. The problem is the bubble may not pop for decades because propping up the bubble is government policy at every level from federal to state to local. And if they ever stop, tons of people will be totally screwed. Never mind that even more people are getting screwed by the bubble...
An economic bubble, by definition, is a scenario where asset prices are significantly divorced from underlying fundamentals. It is not possible to have a thirty year bubble. A thirty year "bubble" means the fundamentals were wrong and we were never actually in a bubble.
You don't think it's possible for underlying fundamentals to be defied for 30 years, huh? Depends how you define fundamentals I guess. If your definition of fundamentals is "something that lasts 30 years or more" then you'd be tautologically correct.
This analysis seems to be attacking a strawman "the economic recession caused housing to drop, not the other way around". I mean there were multiple, interconnected factors including lax lending standards, anticipation of ever increasing housing prices, overbuilding in some locations. It's pretty clear none of them were responsible on their own.
And the fact that they use Canada as an example of a country "that never saw a housing crash" is kind of funny considering Canada median national housing prices is almost double that of the US now.
I would agree that the US is likely not in a bubble now, but Canada sure as hell is.
Canada's housing market is inflated but not a bubble - the fundamentals of supply and demand are still firmly in place in Canada's largest cities (ie population growth is FAR exceeding infrastructure).
Canada's housing market will see a roll back in pricing (lets say at an extreeme 20-30%) however that really is only pushing pricing back 1-2 years max (possibly not even that).
Prior to the 2008 crash, the US' "fundamentals of supply and demand" were still firmly in place as well. It's just that demand was massively juiced by easy money and an expectation that "housing only goes up" (speculation).
Clearly not all of Canada is in a bubble (Toronto, but even more, Vancouver, has always been expensive), but when a house in Brampton, Ontario (50 km from downtown Toronto, 45 to 75 minute commute with traffic) goes from $890,000 to $2.2M in 20 months, that's speculation.
When in Barrie, Ontario (2hr commute, 120 km away) you'd be hard pressed to find a home for under $1M, that makes zero sense.
And when small town BC (<20,000 population) has houses worth $1M but no industry or well paying jobs, that's a bubble.
Those numbers are more inflated than the peak 2007 bubble in the US, despite lower incomes in Canada. Houses in Las Vegas were bubblicious when they hit $500-$600k, let alone $2M.
And unlike the US, many mortgages are recourse mortgages - you don't just walk away, you're on the hook for the full mortgage if after selling, the proceeds doesn't cover the debt. Plus Canadians can't lock in interest rates (and monthly payments as well) for 30 years like Americans - so less ability to just "ride it out until prices come back".
Canadians have much more risk exposure when home prices drop than Americans.
See in the case of Brampton (and to a lesser extent Barrie) they are actually considered essentially suburbs of Toronto. Someone commuting from Brampton is a regular everyday occurrence that no one would bat an eyelid at here, Barrie is less common but still happens all the time (it's a 90 minute commute via train).
The places where people are really going to take a hit in Canada is in places like the Maritimes or smaller cities much further away from the major metros that people fled to during the pandemic and WFH being the fad. Tons of folks sold their Toronto / Vancouver homes and bought homes in these area's for essentially cash and are mortgage free but they drove the prices way up and anyone native to those places who bought a house and had to use a mortgage are going to be in a world of hurt when those prices fall back down hard over the next 2-5 years.
I don't think we broadly disagree, and sure Brampton is a Toronto commuter 'burb, but a 2.5x increase in housing prices in 20 months is based on sound economics at all. $1M houses? Sure. $2.5M? Even the bay area isn't that much and the jobs pay way more.
It's probably more than one thing. I agree with with the points on supply, plus the fact that cities can only grow so much before transportation becomes impossible, and then there is a huge premium to be near the center (watch the traffic in the streets in old movies or documentary from the 1970s compared to now in cities like Paris or London).
But I think another big factor is that we are measuring inflation wrong. I think the various QE had the same effect than any other money printing in history, to drive prices up. But I think the way it was introduced (directly in the financial system, rather than paying people with it), meant that the inflation was localised into financial assets, and to the cost of anyone benefiting from higher financial assets (VC, asset and hedge fund managers, etc). So stock prices skyrocketed, as prime real estate prices, college tuitions, expensive restaurants, etc. But that's not captured by the various CPI indices.
Then came covid, with its new, massive rounds of QE. But this time the money printing was distributed to ordinary citizens through various furlough schemes, financed by deficits, pretty much directly financed by the central bank. And oh surprise, about a year later we see inflation jumping up massively.
So it may be that these inflation adjusted real estate prices charts aren't adjusted as they should.
It would probably be more accurate to call it a subprime mortgage bubble.
Those were the assets that were significantly over-priced. Or one could argue that in '07 they were correctly priced given the questionable assumption that home values would only increase.
Home values themselves were high but definitely not in bubble territory. It was the derivatives that amplified those high home values. Specifically mortgages that couldn't be paid unless home values continued to increase. That kind of asset is very bubbly, an asset that only has value under a certain transient conditions, and the rating agencies marked them as relatively safe.
But it was guaranteed to pop, because of the fundamental unsoundness of it.
Like aeternum said, it was only viable as long as prices kept increasing. Any kind of shock to the system would cause a wave of defaults.
And because of the bundling and spreading out of the CDOs based on these unsound mortgages, it essentially infected the entire system, meaning that that wave of defaults wouldn't just affect the real estate lending sector.
So, sure, in an imaginary world where house prices could monotonically increase forever, we could choose not to call this a bubble. But it really is just that: imaginary.
Yeah, and people still keep moving to the Phoenix metro area. The housing market is now closed for median income families as a result of the constant growth and the housing inventory here being dried up.
I want to emphasize that: if you're a median household income, middle class family moving to Phoenix, you can no longer afford homes here. There's zero inventory. ARMLS listings will produce nothing.
That's not an exaggeration. After breaking down the cost of a mortgage, insurance, property tax, cost of food based on USDA Cost of Food reports, median car payments, bills and utilities, and additional monthly expenditures, there's no way the math works out.
Phoenix is now Los Angeles. Look somewhere else. Phoenicians are.
That chart of vacancies is an oversimplification. It's too smoothed. For example the vacancies should have a breakdown into per-month bands. Rentals of not-direct 'apartment' style units should be counted in some other category of profiteering.
Each https://en.wikipedia.org/wiki/Metropolitan_statistical_area in the US should have a graph per major downtown, for suburbs within a given rush hour commute distance (1 hour, 2 hour, 3 hour) and then each state for outlying areas (anything outside of another graph).
Something funny about bubbles. I’ve heard it said that housing prices in 2005 were outrageous, so much that they could only possibly be justified if the population somehow banded together to stop most new housing from being built. Likewise I’ve also heard something about the dotcom bubble- that the valuations of tech firms in 2001 were outrageous. That the multiples given could only ever be sustained if American consumer tech came to dominate the world…
People protested to stop twenty-eight units from being built next to a train station on a commercial lot. The zoning board had a 3-2 vote, with three in favor of the development against two who opposed it. However, the law is such that a 3-2 vote is not enough to approve it, so the owner was prevented from building more housing.
Multiple levels of government prevent housing from being created and this issue clearly cascades throughout the entire country.
5 story building next to train station... And I realistically would expect at least 7-9 here. Maybe force them to build underground parking making it more expensive, but still, that is sort of area you should aim to densify in future.
In Europe we have had no housing bubble because mortgage rates are higher by a few %, and no investment mortgages are available for retail 'investors'. You are lucky to even get one on a stable salary. There are zero possibilities for investors to buy up and hoard houses unless they do so in cash.
From the perspective of just wanting to buy a house in the same place my parents bought one, I don’t really care what we call it.
The reason I’m able to actually buy one now is because my salary rose faster than the housing prices, but the prices in that location have still risen by about 800% in the past 30 years.
A Wall Street insider high up at a major USA bank once told me that 2008 was a media created phenomenon. There was no mortgage crises, leverage for sure, but nobody went to jail. Why did no one go to jail? Nothing was done wrong. It was a panic sparked by the media.
To greatly oversimplify the issues, there was plenty of wrong done it just wasn’t illegal. Don’t confuse good decision making nor morality with legality.
There are PLENTY of sources documenting the the faulty assumptions and collective delusion that led to the 2008 mortgage crisis happen. Blaming the media for the panic without acknowledging the very real and very large underlying issues sound like post hoc self justification.
Without judging whether it's true or not, it makes sense for a wall street insider to blame it on someone else, doesn't it? Everybody wants to be the good guy in the story, even wall street people.
The housing market didn’t “snap back” rather two unprecedented tax payer stimulus packages totaling just shy of $2T were given to the banks to finance millions of foreclosure cases and allow the entire industry to consolidate. That $2T resulted in the longest bull market in history, as well as the biggest transfer/consolidation of wealth in history.
It was unprecedented until the “stimulus packages” during Covid which is probably closer to a total of $7-8T, so far, once the federal reserve leveraging is included. Once again the policy response during this crisis was designed to benefit corporations and the wealthy. One of my favorite things to highlight was that following the Fed receiving taxpayer funds to prop up the stock market Disney had their greatest single day stock gains in history all while every single theme park, hotel and cruise ship were indefinitely shutdown and every single movie production was indefinitely suspended.
The very same way people look back and excuse the banks for their culpability for the financial meltdown resulting in “the Great Recession”, and even more bizarrely argue to some extent that taxpayers should thank the banks for allowing the taxpayers to bail them out (ie finance their foreclosure cases and major bank acquisitions)…its clear the people have once again been conned by politicians and are stupid enough that we will be reading future articles about how 2020-20?? wasn’t a stock market bubble and wasn’t inflation and that the people will once again be thanking politicians and the federal reserve for robbing them.