MBA: Mortgage Applications Decrease in Weekly Survey
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Friday, July 20, 2007
Great Paper on the Housing Market's Problems
Mike Larson -- who writes on the blog Interest Rate Roundup -- has written a paper titled How Federal Regulators, Lenders, and Wall Street Created America’s Housing Crisis Nine Proposals for a Long-Term Recovery. While the title is less than exciting (when will economists learn to get great titles to their papers?), the paper is very good and I highly recommend it.
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4 comments:
It is a great paper. Thank you for bringing it to my attention. It raised two questions in my mind which perhaps you might comment on:
Like so many other commentators about the housing subject, it more generally implies that the economy can be arbitrarily and capriciously controlled by one person – the chairman of the FED. E.g. “In the early 2000s, the Fed drove real interest rates into negative territory, erasing the real returns on a wide variety of savings instruments relied upon for income by millions of Americans and encouraging them to shift resources to real estate speculation. At the same time, it drove down the real cost of borrowing and encouraged imprudent risk-taking.”
Secondly, and far more importantly: What is the motivation of the FED or the chairman to create such conditions? Cue Bono? (For whose benefit)
Wasn't "Greenspan's Conundrum" about the inability of the Fed to move long term rates (which are what move Mortgage rates)? The Fed certainly has been blamed for being overly accomodative and growing the money supply too quickly, but a big part of the easy money in mortgages has been liquidity flooded out of the Treasury market due to foreign Central banks parking money there (whether that money flowed from the Fed to consumer to China or Saudi and thence back to the treasury market is another question I suppose).
If it is the case that “a big part of the easy money in mortgages has been liquidity flooded out of the Treasury market due to foreign Central banks parking money there”, then the current ‘drying up’ of mortgage money would imply that those Central banks are no longer parking there money at Treasury. Also, your point about “Greenspan’s Conundrum is cogent.
It seems that for all the discussion and “analysis” of “bubbles” (tech, mortgage, etc), there is little knowledge of the ‘cause’. For example, the premier blog on the housing bubble is ‘Calculated Risk’. Yet, there is virtually no discussion on the cause of the phenomena at the level of the Fed and Treasury where the whole thing ultimately emanates from and again Cue Bono.
I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Joyce
www.webtraffictrigger.com
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