Housing Bust

By Dan Jones
August 10, 2007

I was having a regular lunch with Michael Nystrom the other day and started mouthing off on my favorite economic analysis du jour. To wit: the collapse of the housing bubble in 2007 will be seen by history as the equivalent of the collapse of the stock bubble in 1929. He liked the analysis and asked me if he could write it up for BNB. I said, wait, this is my schtick – let me write it up. So here it is:

It all started, once upon a time, in the mid 1980’s, when a bunch of warning blips started popping up on my analytic radar screen. They were all about housing. These blips countered everything I thought I had learned about financial responsibility. In those days, I was still operating on those old stodgy assumptions that housing was part of one’s prudent economic planning – not where future income was to be made. During my early 70s passage into adulthood, the common wisdom was that housing paced normal inflation. No more, no less. Mortgage debt was a curse to be warded off. I remember when my parents went to mortgage burning parties. The banks did due diligence to make sure that your house mortgage was not more than two and a half times your income. But that was then. Anyone who took a second mortgage was probably in trouble. Quaint, wasn't it?

While he is an ass, he is most certainly an entertaining one: