patrick.net

The result of that was a general slump in activity. The wealth and financial security of much of the American middle class disappeared. So far about a quarter of the measured wealth of the American middle class has disappeared - about $15 trillion of $60 trillion.

Quibble: Valuation is not wealth. GOOG may have had a market cap of $176B at the bell today but not every stockholder can cash out that position. Housing is similar; just because one idiot bought a house over his means doesn't mean the whole block could have sold at that price level.

Anyboo. Bernanke was handed a flaming bag of dog poo in 2005 so let's leave him out of it for the time being.

http://research.stlouisfed.org/fred2/series/LOANS?cid=100

http://research.stlouisfed.org/fred2/series/REALLN?cid=100

I think the Bush administration was willing to pull any lever to avoid a repeat of Bush Sr's non-reelection. Greenspan was in on the scam, and once we were aboard the tiger there was no getting off.

I remember talking with friends in the summer of 2005 about how MBS were allowing banks to reload their lending capital but it wasn't until late 2006 that I had an inkling that so much lending was outright fraud (the Casey Serin story was the illuminator).

We were also in a new New Economy in the 2004-2006 period. The trade imbalance was reaching severe levels:

doubling from and already worrying $30B/mo in 2001 to $60B+ in 2006-2007.

But this deficit had a (short-term) virtuous side, as it was pumping actual wealth into the economy thanks to the rising productivity of Chinese factories. More goods in the global economy allowed more money to be created, which was doubled since China and OPEC were deferring cashing in these dollars and instead reinvesting in USG and GSE debt.

External debt was $6.5T in mid-2003, $10T in mid-2006, and $13.5T in late 2009.

The price declines so far have been well out of my pessimistic expectations of 2006. I think we have further to fall, but this is contingent on the removal of effective affordability measures. Japan has 3% fixed interest rates for 40+ years. Doing the same here would pump the currently $400K house to $600K in terms of monthly amortizing payments.

It seems a distinction without a practical difference.

Greenspan wanted to deregulate officially, but as a "super-secret Ayn Rand agent" he decided just going limp and blabbering on about how "sure we keep tabs on the banks" was sufficient to achieve same goal. This is no different than when a cop on the take looks the other way. He should have been fired at minimum, but was not as the oligarchy is never held responsible for any of their crimes.

Troy says

Quibble: Valuation is not wealth.

You are right. But if you invested real dollars in a 401k or house that dropped in value (money you may need now that you have lost your job or are ready to retire) then you have lost REAL wealth, not just value.

AdHominem says

But if you invested real dollars in a 401k or house that dropped in value (money you may need now that you have lost your job or are ready to retire) then you have lost REAL wealth, not just value.

Sure, but the article was saying the valuation decrease was lost wealth. One third of housing stock is not mortgaged, so these people did not lose any of own their wealth at all.

Also, as far as existing housing goes, the sector actually nets out to $0 in terms of wealth, since whatever an existing housing good somebody is selling, somebody else has to pony up the cash for.

So if all the existing housing went to $5T tomorrow, we wouldn't be a penny richer or poorer, collectively, since valuation is not wealth.

Troy says

So if all the existing housing went to $5T tomorrow, we wouldn’t be a penny richer or poorer, collectively, since valuation is not wealth.

"Collectively" we would not be richer. But the section of the article you quoted refers to the middle class, a particular segment of the population.