Re-Inflating the Bubble

We all know from progressive and Democratic writers the the Community Reinvestment Act and other efforts to offer cheap home loans to people without good credit had nothing to do with the mortgage industry offering too many loans to people without good credit.

So we should not be in the least bit worried that the Obama Administration is calling for more mortgages to be given to people with weaker credit, while sub-prime auto loans are simply booming.  Because we have learned from Iceland and Greece and Cyprus that the best way to deal with a debt crisis is by encouraging consumers to take on more debt, and the best way to respond to an asset bubble is to try to re inflate the bubble.

All of this, of course, is simply crazy talk.  The people who are involved HAVE to know this won't end well, because the most recent example of this leading to disaster is only 4 years old.  Hell, the people doing this were in office when this same approach fell apart last time.  But politicians refuse to face some pain now to avoid huge pain in the future - for politicians, the discount rate on pain is infinite.


  1. Joshua Vanderberg:

    I know it won't end well, but unfortunately while I timed my exit from the housing market well, I simply could not wait around for interest rates to spike and housing prices to go back to reasonable levels.

    I'm ok as long as I pay off my current loan. But, if in ten years, interest rates are back in the 6-9% range - nobody will be able to afford what I paid should I need to sell. I also consider myself somewhat lucky that I bought in just before the current real estate feeding frenzy, which apparently started last summer/fall. We are back to multiple offers and bidding wars in my neck of the woods.

  2. SamWah:

    No worries! I'm investing in tar and feather futures!

  3. mesaeconoguy:

    Also pitchfork, torch, ammo, and dynamite....

  4. Ted Rado:

    The trick is to buy a place that you can afford and intend to stay in indefinitely. When I was 50 I bought a condo that would ne a good place for me in retirement. Since then, the value went down 40% in the 1980, oil boom collapse, then shot up in the housing bubble, etc. All this didn't matter to me, as I could afford my home and had no intention of moving. I am still here at age 84 with no problems.
    If you buy a place and the price goes way up and you sell, the next home will also have an inflated price so you have gained nothing. Unless you are near retirement and move into a smaller place in a location where housing is cheap, there is no way to profit. In fact, the realtor and moving costs will eat you alive. Only your heirs will benefit. If you change jobs and must move, you have no choice, of course. This is an argument in favor of renting until you feel your job situation is long term.and stable.
    Many believe that increase in one's home value is money in the pocket. This is an illusion.

  5. Joshua Vanderberg:

    Well, prices for single family homes in desirable areas are not what I would call affordable, especially when you consider the tax levels required these days to fund a halfway decent school system. The low interest rate helps of course, and I plan to be in this house long enough that I can probably afford to eat a loss in real dollar equity.

    But you don't always control when you have to move. Job loss and having to move for work could force me to sell sometime in the future when interest rates are not as favorable.