So what did cause the housing bubble? The media are an bunch of idiots - biased idiots, at that - and so you have to ignore them. The Antiplanner has a different take, and you need to read the whole thing:
It was Progressive SWPL policies wot dun it. Like I said, RTWT, but how can artificially restricting the supply of Real Estate have any other effect than bidding up the price of land? Supply/demand, anyone? Only a Harvard Law Review president could be surprised that prices went up like a rocket.
As the Antiplanner noted in recent posts, a lot of factors contributed to the recent housing bubble and subsequent financial crisis. But only two factors were so crucial that, without them, the crisis would not have happened.
The two crucial factors were growth-management planning and inadequate ratings of financial risk. Growth-management planning–urban-growth boundaries, greenbelts, growth limits, and other policies aimed at controlling where or how fast regions grow–had three major effects on the economy.
For a while.
Why, in all the millions of column-inches of printer's ink spilled on this crisis, have we not read about incompetence at the SEC? Oh, I remember - all Bad Things happen because of evil Rethuglicans, and you should never let a crisis go to waste - especially when a bunch of Columbia J-School types can get some swell high paying jobs working as press aides for various Democratic congressional types. Or the SEC.
Most of the narratives of the financial crisis make it clear that, at many critical points in the growth of the housing bubble, the problems could have been avoided by more accurate ratings. Better ratings would have both reduced the size of the bubble (by forcing tighter credit and reducing speculation) and contained its effects on the rest of the economy (by keeping major banks and other financial institutions from being exposed to declining housing prices).
As the Antiplanner previously noted, the ratings agencies probably would have done a more responsible job if they were working for bond buyers rather than sellers. That was the case before the Securities and Exchange Commission effectively turned the agencies into a legal oligopoly. Introducing more competition into the ratings business is one way to avoid these problems in the future.
This is a must-read post, and I don't say that very often.
That is one of the best pieces I've read on this mess - thanks for pointing it out. This is the first look at the effect of urban planning on the whole affair that I've read.
ReplyDeleteIt has always been my contention that anything this big can not be done by the private sector or government alone. It has to be the worst of both sides.
Something Antiplanner does not touch on is the role of the previous bubble in creating this one. There were, after all, many people who got out of the tech bubble with lots and lots of money. The overall business cycle was slowing going into the beginning of the Bush presidency - stocks were down, yields were down, imaginary companies like the sock puppet pet company were gone - so people who had the money put it somewhere safe, and many believed real estate was as safe as you get. All of which is another way of saying that the Federal Reserve's policies keep blowing bubbles. And I'm absolutely not the first guy to say that!
I still, and will always, blame the realtors for jackin up the prices.
ReplyDelete@ aksandcupcakes: It wasn't the realtors as much as it was the bankers, who loaned money to people that they knew couldn't pay, knowing that the loan would be sold off to investors long before the first payment was due, thus removing all incentive for originators to make sure people could actually pay the loans back.
ReplyDeleteThe only real incentive that the banks had was to make more loans. This created an artificial increase in demand, and drove prices up.
Read the following and weep:
http://street-pharmacy.blogspot.com/2010/04/political-and-legal-roots-of.html