Housing Bubble Forgotten? : Home Buying Surging?

This is a little confusing in that the author doesn't mention government intervention during the decade before and after 2000 that brought the American and for that matter the entire world economy down.

Remember the millions of home buyers that took out loans with no credit ratings, no jobs and many that couldn't even fill out the applications, some couldn't write or speak English, but yet were given loans and then sold to Fannie and Freddie which were insured by the American government, bought up by the big banks and sold them around the world.

Remember, it was the Community Reinvestment Act inspired by the Democrats and forced down the throats of the financial markets with threats from the DOJ head Janet Reno, Barney Frank and Chris Dodd, that started the bubble to expand over the eight years of the Clinton administration and continued under George Bush.

When President Bush came into office 2000, he and others, including John McCain, came to the congress more then ten times warning them to do something about all of the bad loans that were sure to cause problems for the financial markets, but Barney Frank passionately assured us all that nothing was wrong with the program.

There is no need here to reiterate all of the facts that lead to the collapse of the housing market and consequently the rest of the economy, that has been done many times by myself and many others. What is so unsettling now, it seems so many have forgotten what caused the problem in the first place and which will assures the smartest people in the room are doomed to repeat the mistakes of the past.

Want some proof? Ever here of the Dodd/Frank banking bill that sailed through congress with much fanfare? Well, here we go again.

Bubble Watch
Source: John H. Makin, "The Global Financial Crisis and American Wealth Accumulation: The Fed Needs a Bubble Watch," American Enterprise Institute, August 29, 2013.
September 6, 2013

The global financial crisis destroyed over one-fifth of accumulated American wealth in just one year: 2008. That huge loss was on top of a far more modest but still significant 1.62 percent wealth loss in 2007. Both the U.S. stock market bubble burst in 2000 and the housing bubble implosion of 2008 contributed to the current situation, reinforcing the need for a Federal Reserve "bubble watch" program. If we could recognize patterns that lead to these bubbles, we could see them coming and adjust policy to protect wealth accumulation and the economy as a whole, says John H. Makin, a resident scholar at the American Enterprise Institute.

• The 2008 housing bubble burst and the ensuing global financial crisis destroyed an unprecedented 22 percent of accumulated American wealth.
• This massive destruction of wealth has resulted in a tepid recovery marked by below-average recovery levels of saving, consumption and investment.
• The Federal Reserve needs to create a "bubble watch" program to prevent speculative bubbles from destroying wealth accumulation in the future.

However, the two major avenues of American wealth accumulation, financial assets and owner-occupied housing, have been both a help and harm to American households over the last half century.

• The unique convenience of wealth accumulation through homeownership became so compelling after the equity bubble burst in 2000 that the housing bubble developed with considerable government encouragement from tax preferences during the decade after 2000.
• The bursting of the stock bubble early in 2000 left American households searching for another avenue of wealth accumulation, and with considerable encouragement from banks and brokers, Americans households turned to real estate to accumulate wealth.

As history has shown, the financial asset and housing approaches to wealth accumulation have their drawbacks, particularly manifest in bubbles that, upon bursting, have set wealth accumulation back a long way. Policymakers' sensitivity to financial and housing markets and their desire to support those avenues of wealth accumulation have probably contributed to the bubbles in both sectors during the last half century. It may be better to allow the pace of wealth accumulation in those sectors to slow somewhat to avoid the disruptions that inevitably accompany the bursting of such bubbles.

In any case, the Fed needs to pay more attention to the tricky problem of identifying speculative bubbles before they burst. Any prospective Fed chairman needs to step up to the challenge of creating a viable Fed bubble watch program.