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‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

fullstackeconomics.com

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Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#91

Post by Cipater »

olivermarks wrote: post #90
Cipater wrote: post #89

Earlier quoted context omitted.

Not only does Russia not have the biggest gold reserves on the planet, they are 5th after the US, Germany, Italy and France. The US has just about 4 times more gold reserves than Russia and more than double that of Germany in 2nd.

https://www.statista.com/chart/26940/russian-central-bank-fo...

Did you link the wrong article?

Nowhere does it say that Russia has the largest gold reserves on the planet.

Meanwhile:

https://www.statista.com/statistics/267998/countries-with-th...

https://en.wikipedia.org/wiki/Gold_reserve

https://tradingeconomics.com/country-list/gold-reserves

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#92

Post by imtringued »

JumpCrisscross wrote: post #79
throwawaycities wrote: post #38

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…

This is a broad diatribe against monetary base expansion. The counterfactual for which, post crisis, we have in Europe. (And Depression-era America.)

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 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.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#93

Post by imtringued »

parkingrift wrote: post #86
DoingIsLearning wrote: post #40

Earlier quoted context omitted.

> 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…

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.

> At what point do you think individual adults should be responsible for their own decisions?

The problem is that those lenders weren't responsible, tax payers and defrauded home buyers were cleaning up their mess.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#94

Post by refurb »

vl wrote: post #19
eurasiantiger wrote: post #15

Earlier quoted context omitted.

Money laundering explains Vegas and New York.

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.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#95

Post by MrMan »

nabla9 wrote: post #57
greatpostman wrote: post #16

Earlier quoted context omitted.

Paul krugman has been wrong on almost everything

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.

he is clearly right more often and about more things than most people, I dont understand the hate

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#96

Post by throwawaycities »

JumpCrisscross wrote: post #79
throwawaycities wrote: post #38

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…

This is a broad diatribe against monetary base expansion. The counterfactual for which, post crisis, we have in Europe. (And Depression-era America.)

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.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#97

Post by MrMan »

DoingIsLearning wrote: post #40
t_mann wrote: post #21

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,..…

> 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…

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.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#98

Post by hackerfromthefu »

TedShiller wrote: post #31
greatpostman wrote: post #16

Earlier quoted context omitted.

Paul krugman has been wrong on almost everything

The most important thing Paul Krugman has proven is that even geniuses can be consistently wrong.

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.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#99

Post by chrisjc »

DoingIsLearning wrote: post #40
t_mann wrote: post #21

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,..…

> 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…

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.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#100

Post by olivermarks »

Cipater wrote: post #91
olivermarks wrote: post #90

Earlier quoted context omitted.

https://www.statista.com/chart/26940/russian-central-bank-fo...

Did you link the wrong article? Nowhere does it say that Russia has the largest gold reserves on the planet. Meanwhile: https://www.statista.com/statistics/267998/countries-with-th... https://en.wikipedia.org/wiki/Gold_reserve https://tradingeconomics.com/country-list/gold-reserves

https://edition.cnn.com/2022/03/11/business/russia-economy-s... My understanding is that Russia's gold reserves are pretty tangible where the west has some pretty mysterious gold reserves.

I'm a US/UK citizen, I'm not arguing a pro Russia position here just talking realpolitik and geo politics.

Here's a Russian position which arguably gives away that gold and currency control is central to their positions http://thesaker.is/natos-internal-gold-war/

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

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