The Housing Bubble: Why We're Fucked.

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item posted 23:47:39: 10-03-07 by kyle.

To properly grok the Housing Bust of '07 you have to understand it as the continuation of the Dotcom Bust of '01: Then, nobody had any money because their tech stocks were suddenly worthless. That sucked, so Alan Greenspan and the Federal Reserve acted to solve the problem by loading 10,000 cargo jets full of money and dumping their payload over America—which is the bottom line of the four magic words "Historically Low Interest Rates." They mean, "Making it ridiculously easy for people who don't have any money to sign a piece of paper so they can get it."

Everyone said, "Sweet, Money's Back!" And this time, rather than blow it on something abstruse and ephemeral and incomprehensible like tech stocks, they ran out and bought big, solid, physical objects that everybody understands is a real thing and can stub their toe against. In fact, they bought the biggest, most solid things they could find, a.k.a. houses. So many people bought houses that pretty soon they were buying houses just to sell them. We became a nation where the trade deficit didn't matter because we were running a booming business flipping each other four-car-garage places to live. It was another flavor of 1998 all over again.

In other words, our top banker banked on the notion that people who were stupid and careless with their own money would be shrewd and canny with somebody else's.

Now here's the real bitch of the nut of it: You can't solve a crisis caused by Historically Low Interest Rates by lowering interest rates. The new Fed is trying mightily, but you hear all this stuff about how lenders are tightening their guidelines and extra-scrutinizing applicants? That just means their charging higher interest rates, Fed be damned; You can always get a loan in America if you're willing to pay the vigorish. Don't believe me? Go down to the nearest pawn shop and try to swing a 1225% APR payday loan. If you're reading this, by definition you have access to an internet connection; You'll qualify.

Cutting interest rates won't fix the mess this time. Will the financial wizards figure another way? Maybe. But I'm banking that if they do, it'll be an even cheaper shenanigan than bribing reality. Then we'll be in the Fill-In-The-_____ bust of 2013. Eventually we'll hit the Shenanigan Bust and times should get really interesting:

Knock, Knock.

Who's there?

Bwoooo-ock, Bwock!

It's the chickens.

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