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  • The New Ultra Bubble Thread

    Not sure if anyone else has noticed, but there's been a bit of blame mongering lately about the housing bubble. See, the housing market is all the fault of deregulation; after the Glass-Steagall Act was repealed in 1999, harmful speculation was inevitable in the mortgage debt markets, flooding brokers with cash with which they could give cheap loans to undeserving individuals.

    Or, depending on your preferences, Fannie Mae and Freddie Mac were ordered by Democratic Congressmen to increase lending across the board, pumping up available credit and by extension housing prices.

    Of course, there's a little problem with both of these explanations: The housing bubble is not an American phenomenon. From India to Iraq to Ireland - and pretty much everywhere in between - we've got housing bubbles across the board. Any explanation of "the" housing bubble should probably not USA specific.
    A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

    "$250,000 a year won't get me to Central Park West."

  • #2
    Re: The New Ultra Bubble Thread

    tulips
    Iím not racists, I have republican friends. Radio show host.
    - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
    - "A foolish consistency is the hobgoblin of little minds" - Emerson
    - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
    - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
    - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
    - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

    Comment


    • #3
      Re: The New Ultra Bubble Thread

      Could it be that all of these countries could have been making the same bad policy choices, perhaps following the lead of the US as being the "expert" in these things?
      Dude, seriously, WHAT handkerchief?

      snooggums' density principal: "The more dense a population, the more dense a population."

      Iliana: "You're a great friend but if we're ever chased by zombies I'm tripping you."

      Comment


      • #4
        Re: The New Ultra Bubble Thread

        It's possible, Scratch. Pattern seems to fit tulips pretty well though.
        A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

        "$250,000 a year won't get me to Central Park West."

        Comment


        • #5
          Re: The New Ultra Bubble Thread

          I don't know if I missed something, but it looks like the tulip phenomena was limited to Holland, ie. a single market. The question here is how multiple independent housing markets, each with its own mortgage regulatory system, all ballooned together.
          Dude, seriously, WHAT handkerchief?

          snooggums' density principal: "The more dense a population, the more dense a population."

          Iliana: "You're a great friend but if we're ever chased by zombies I'm tripping you."

          Comment


          • #6
            Re: The New Ultra Bubble Thread

            The flow of information amongst disperse locations today is sufficiently free such that a mass mania originating in, say the UK or US could conceivably spread to and across continents.

            The fact that there was no "housing index" for housing skeptics to short may have further exacerbated the bubble by keeping out an important check on the optimism.
            A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

            "$250,000 a year won't get me to Central Park West."

            Comment


            • #7
              Re: The New Ultra Bubble Thread

              I dunno if you can dismiss Freddie/Fannie Mae or deregulation causes by pointing to the global nature of the real estate market's collapse, since the financial system that supports the market in the US is the same financial system that supports markets in other countries. The reason why these markets have collapsed may have some partial causes in demand slowdown, but the killer has been that banks aren't lending, and banks stopped lending in response to the US market slowdown, it seems to me.

              I like the notion of a housing (and commercial real-estate) index. I wonder if the CDOs (properly understood, not magically classified by some "ratings" agency - who need to be ridden out on a rail) and possibly the CDS's, as the hedge, could be linked to form that index.

              The supply is fixed. As Mark Twain noted, "Buy Land: They stopped making it". Credit availability seems the largest factor in determining the degree to which a bubble can grow and the speed with which it can burst. An index that correctly measures and shorts credit risk would directly point to housing risk, no?

              Comment


              • #8
                Re: The New Ultra Bubble Thread

                Originally posted by leejo View Post
                An index that correctly measures and shorts credit risk would directly point to housing risk, no?
                Only indirectly. "Housing economist" Robert Shiller has been trying to setup a housing index for a few years now - I believe he's got something close to it based on derivatives of something trading on a merc in either Chicago or NY.

                Originally posted by leejo
                The reason why these markets have collapsed may have some partial causes in demand slowdown, but the killer has been that banks aren't lending, and banks stopped lending in response to the US market slowdown, it seems to me... The supply is fixed... Credit availability seems the largest factor in determining the degree to which a bubble can grow and the speed with which it can burst.
                In the "mass mania" model, the bubble inflated because of wide scale optimism, and deflated quickly once that optimism began to erode. Whether the erosion was caused by a US market slowdown or a growing acceptance that housing prices were too high - or by something else entirely - would seem essentially impossible to know.

                Additionally, one must not count out the possibility that the US general market slowed down precisely because of the knock-on effects of the housing bubble's deflation: In fact, I'd say that this view is pretty much the consensus at the moment.

                Originally posted by leejo
                As Mark Twain noted, "Buy Land: They stopped making it".
                Ever the housing optimist? Maybe Twain will be correct 5,000 years from now, when humans are using most of the land on earth.

                On CNBC's "How to Profit from the Real Estate Boom" in 2005, [Shiller] noted that housing price rises could not outstrip inflation in the long term because, except for land restricted sites, house prices would tend toward building costs plus normal economic profit.
                Last edited by Nikolas; 11-02-2008, 01:25 PM.
                A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

                "$250,000 a year won't get me to Central Park West."

                Comment


                • #9
                  Re: The New Ultra Bubble Thread

                  I guess my question is why did all these markets simultaneously choose housing to bubble? Why didn't different countries bubble in different markets?

                  My take on it is that bubbles are caused by too much free money and till little borrowing, leading to people with money to invest chasing bad bets. Had there been less money in the first place ("heating up" the economy), there's be no excess money chasing bad loans. This is an example of boom-bust being hard-driven first by too much money, then suddenly pulling back when people realize the money is fake, and more fake money getting poured on the fire (the bailout) to compensate for the contraction. In controls theory, this is called a "bang bang" system, because of the loud noises it makes as it tries to do what you want. It's like the first time I drove a car: Pedal to the metal, followed by full-on braking when the car went too fast.
                  Dude, seriously, WHAT handkerchief?

                  snooggums' density principal: "The more dense a population, the more dense a population."

                  Iliana: "You're a great friend but if we're ever chased by zombies I'm tripping you."

                  Comment


                  • #10
                    Re: The New Ultra Bubble Thread

                    You're talking about a global savings glut. This glut is pretty well recognized. But there are thousands of things to invest in. Why did everyone decide to invest so much in housing at the same time? If there was so much money, why wasn't there more investment in medical technology, or desalination tech, or cold fusion, or whatever? Why houses?

                    My guess is that because of the faulty thinking illustrated in Leejo's Mark Twain quote, people thought that housing was a safe investment at any price. They figured that people won't make any more land, demand for land will only go up, and so it's a safe investment. It's exactly the same as what happened with the Oil Bubble of 2008.
                    A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

                    "$250,000 a year won't get me to Central Park West."

                    Comment


                    • #11
                      Re: The New Ultra Bubble Thread

                      The housing bubble would have failed one way or the other regardless of US economic performance. It was a bubble, no? What bubbles live forever?

                      I base my thought partly on all the "flip it" programs on TV. I watched all of them from a couple of different countries. Every one of them showed inexperienced individuals buy an already overpriced home, putting a bit of money into it over a period of weeks or maybe months then selling the house for an even higher price.

                      It was completely ridiculous. You had complete morons, doing really crappy work, making money.

                      Here is a story that adds to my conviction that this was a mass mania of some sort. There simply was no sense behind most of the investing that went on at any level. From the dupe being sold the house to the grand investment bankers creating the complex financial devices based on those dupes decisions to the investors making side bets on the success of the devices.
                      Iím not racists, I have republican friends. Radio show host.
                      - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
                      - "A foolish consistency is the hobgoblin of little minds" - Emerson
                      - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
                      - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
                      - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
                      - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

                      Comment


                      • #12
                        Re: The New Ultra Bubble Thread

                        Ain't this the truth : Extraordinary Popular Delusions and the Madness of Crowds

                        Comment


                        • #13
                          Re: The New Ultra Bubble Thread

                          Good topic. I see the 'bubbles' as just parts of one bigger giant bubble that we have failed to address on a global level. It starts with the complete debasement of the currencies -- each country is in a race to the bottom in terms of devaluing their currency for trade reasons. A result of this is an explosion of available money, mostly via credit.

                          Ultimately, this 'money' finds its way into the hands of people and institutions who need to do something with it, so they seek yield. They sought yield in the stock market, in the late 90s, but that blew up. They sought yield in real-estate, but that blew up. They sought yield in commodities, but that's blown up. They also did currency carry trades which are imploding, and god knows what else. Furthermore, much of this yield seeking was done with leverage, with the predictable exaggerated swings to both the highs and still-to-come lows.

                          So, while all of these bubbles have risen and popped, one thing that has remained is the flow of easy money. Interest rates in the US are back to 1%, and the rest of the world is following in lowering their rates and pumping money into the system. There will be another bubble, and probably many more, until this cycle ends.

                          It's just a matter of identifying and timing the bubbles appropriately. That's what the rich do, while the rest of us suffer.

                          3) Support game play in a near-simulation environment. Where the focus of play would not be solely on doing what it takes to win, but doing so utilizing real-world combat strategy and tactics rather than leveraging exploits provided to players by the design of the game engine.

                          Comment


                          • #14
                            Re: The New Ultra Bubble Thread

                            You don't have to be rich to make money off the bubbles. People made 1500%+ in the last few months on single trades. That would turn $1,000 into $15,000. Bernard Baruch, George Soros, and so on went from poor to rich by identifying bubbles and helping deflate them - imagine putting your entire life savings into a trade which ended up paying 1,000% - that's similar to what Baruch did (but please, don't try to do it yourself, I'm just making examples here). Popping bubbles is also a public good, it makes the rest of the people better off.

                            On the flip side, I know some guys who bought $15M+ houses in the past few years. They're not too stoked at the moment.

                            Guess I don't see the rich-poor dichotomy regarding who makes money in bubbles.
                            A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

                            "$250,000 a year won't get me to Central Park West."

                            Comment


                            • #15
                              Re: The New Ultra Bubble Thread

                              Bubbles can come and go, the problem is when public money gets burned in the fire and bystanders end up paying a price for something they never really bought. Government regulation is supposed to prevent this and other kind of financial blowback.

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