A bubble, bursting

Some commentators have said that there really was not much of a housing bubble, because buying a house is a major decision in an individual’s life, and the responsible homeowner would not walk away.

We’re back down to 2000 levels of homeownershp.

Not that the bubble has burst yet.

us_home_ownership_rate

More info available at  Calculated Risk.

8 thoughts on “A bubble, bursting”

  1. tdaxp: awhile back you alleged i had some sort of weird cognitive link with timmy g, and were able to ascribe to him certain motives about his thinking that no other person would or could. (or something like that, i’m doing this from memory).

    anyway, i’d like to direct you to NYT’s interesting article on timmy g…

    http://www.nytimes.com/2009/04/27/business/27geithner.html?_r=1&hp

    specifically this passage:

    “Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation’s economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked.”

    “Timothy F. Geithner, who as president of the New York Federal Reserve Bank oversaw many of the nation’s most powerful financial institutions, stunned the group with the audacity of his answer. He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary.”

    Stunned indeed… the times article goes on to say:

    ““People thought, ‘Wow, that’s kind of out there,’ ” said John C. Dugan, the comptroller of the currency, who heard about the idea afterward. Mr. Geithner says, “I don’t remember a serious discussion on that proposal then.”

    Well there you have it.

    Timmy G proposed in JUNE OF 2008 the first step in the Swedish solution. Guarantee all the debt.

    Step two of the swedish solution, after guaranteeing, sweep out the bad debt, take over the banking system, triage the banks that can live, and kill of the banks that can’t.

    What if the Feds had done as Timmy G asked in JUNE OF 2008? Would you still be calling for nationalization? Or would you say that this is all socialism?

  2. Fed X.,

    Thank you for your comment.

    I am not sure that I get it.

    You found a quote from June 2008 in which Tim Geithner supports the Treasury transfering wealth to private financial institutions.

    From this you conclude that Geithner is in favor of natoinalization.

    I don’t get it.

    Geithner has been consistent that financial institutions should not be exposed to risk, should not suffer losses, that bad bets should be covered from the Treasury, and that the Treasury should guarantee the profits of shareholders. This quote establishing nothing different.

  3. i think taken out of context, and out of the particular industry language, you’re right. the quote establishes nothing different.

    but in context, and in the particular industry jargon, when a fed president says: “we guarantee all the debts” that is a way out there thing to say, which you don’t say unless your endgame is nationalization of the industry.

    i could be wrong of course. timmy g could be crazy, or just joking, but i get the ever sinking suspicion that he’s known what the end game on this will be all along.

  4. Fed X,

    but in context, and in the particular industry jargon, when a fed president says: “we guarantee all the debts” that is a way out there thing to say, which you don’t say unless your endgame is nationalization of the industry.

    I hope you are right, and that this is not wishful thinking.

    I remember being similarly optimistic that SecDef Rumsfeld had to know what he was doing.

    As with the Pentagon under Rumsfeld, we live in uncertainty. Are the apparently incompetent actions coming from the top a sign of

    (a) capture by private parties
    (b) a brilliant and secret plan
    (c) incompetence

    ?

  5. please don’t get me wrong, i do not wish the treasury would nationalize the banking system. i think its a bad thing to happen. but necessary things are often also painful ones. i think timmy g might be more of a radical than you suspect, and the quote (if true – mind you) bears out at least a cavalier streak in him.

  6. Fed X.,

    Again, the quote calls for nationalizing losses. This is what we have been doing for months.

    Geithner is radical. I agree with you on that. It is striking to see a quasi-regulatory body so publicly and expensively experience capture by the companies it helps regulate.

    Hopefully Geithner will provide something more than the lemon socialism he has been peddling up until now.

  7. there is an old saying:

    there is no negligence in the air.

    if the economy turns to shit, and all trades result in a loss, no actions you undertake can be viewed as positive, because all inputs yield a negative result.

    lets just assume for a moment that from Sept. to about February, that was the true state of our economy. it was raining turd blossoms.

    i would hesitate, under that assumption, to find anyone really “culpable” or wrong headed. my main concern would be are they trying to get us turned towards a positive direction? and is it working?

    i would not really know the answer the first question, since I can’t get inside their heads. i would only have evidence in front of me to see whether our course is changing and whether it is changing for good or ill.

    it appears to me that dr. roubini laid out a case that things are getting better, though not nearly as better as some might want to think. if you believe that assessment coming from one of the most bearish people around right now, then it seems to me you have to agree that some of the moves have been good and have yielded positive outcomes.

    the question of nationalizing losses and privatizing gains, was addressed, ad nauseum, by me on this very blog when hank paulson came out with the bush administration TARP plan.

    it will create great political will to reprivative losses. it will require even more political will to natiionalize the gains.

    i think the obama administration will prefer a nationalization of the gains to a reprivitization of the losses. but this is a very tricky proposition which cannot be rushed into willy nilly. resolution of any someone like Citi will be extraordinarily complicated and have wide ranging repercussions. there is no room for a slip here, or a cut too deep there.

    my view is they have done all things they can do without spending exceptional amounts of political capital. now they have to decide what chips they want cashed and where.

    GM and Citi look like rather depressed pieces on the monopoly board don’t they?

  8. Fed. X,

    Thank you for your comment

    lets just assume for a moment that from Sept. to about February, that was the true state of our economy

    This strikes me to be as fair as assuming that from May to Sept 2007, that was the true state of our economy.

    i would hesitate, under that assumption, to find anyone really “culpable” or wrong headed. my main concern would be are they trying to get us turned towards a positive direction? and is it working?

    An ends-justify-the-means approach may be interesting.

    I can imagine an analogous situation in a sinking ship: by the end of the evacuation, some of the women had been raped, the male passengers had been mugged, and the captain can mysteriously retire to Fiji. But an analysis such as that one you wish to use would hail the captain as heroes, as some of the passengers lived.

    i think the obama administration will prefer a nationalization of the gains to a reprivitization of the losses. but this is a very tricky proposition which cannot be rushed into willy nilly.

    Obviously true, but meaningless.

    Rushing into things willy-nilly is rarely a good idea. Indeed, it is not an idea at all, but a rhetorical slight of hand.

    my view is they have done all things they can do without spending exceptional amounts of political capital. now they have to decide what chips they want cashed and where.

    As this view is presented without convincing evidence, I have to let it go, other than to believe you when you say that you believe it.

    GM and Citi look like rather depressed pieces on the monopoly board don’t they?

    Knowing the answer to this question requires me to know the strength of the personal relationship that Obama and Geithner have to their respective clients, here. Thus, GM and Citi are as profitable in this environment as (say) People’s Lumber Mill #4 would be in a command-and-control economy: the whole thing is an accounting fiction that refects the political power of certain actors.

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