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justme
2010 Jan 8, 1:25am
All rational economic agents will agree with the above. But unfortunately there is a whole lot of irrational ones out there.
(inside and cross-thread joke alert)
Â¥
2010 Jan 8, 6:00am
The central problem was the influx of four trillion in debt in four years gave us an artificially stimulated economy 2002-2006 and if one wasn't plugged into the outright fraud being allowed in the lending sector the economy's health 2004-2006 would look rather healthy if not robust.
When the Bush team took over in 2001, american households had $10T in liabilities. By 3Q08, this had DOUBLED to $20T. Americans borrowed more money during the Bush economy than they held going into it!
Not quite as bad as Iceland, Ireland, Greeece etc. but we've really screwed the pooch wrt misinvestment in land (hint: after ca. 1878 land has had a cost of production of $0) and poor capital formation, investing in CDOs instead of actual wealth-creating fixed capital, infrastructure, or human capital.
http://krugman.blogs.nytimes.com/2010/01/07/cre-ative-destruction/
Krugman: From my perspective, the CRE bubble is highly significant; it gives the lie both to those who blame Fannie/Freddie/Community Reinvestment for the housing bubble, and those who blame predatory lending. This was a broad-based bubble.
Not to mention the bubbles that just by coincidence happened at the same time in the UK, Ireland, Spain, Australia, and several other other countries.
You can also forget about repeal of capital gains taxes for residences, mortgage interest deduction, mortgages being non-recourse, and all the other explanation offered.
It was almost all due to modern banking practices, and the governments that gave the nod.
#housing