Housing bubbles are not funny

from Dean Baker

The United States has more than 20 million people unemployed, underemployed or out of the workforce altogether because of a burst housing bubble. We also have more than 10 million homeowners who are underwater in their mortgages. And, we have tens of millions of people approaching retirement who have seen most of their life’s savings disappear when plunging house prices eliminated most or all of the equity in their home.

This situation could have been prevented if the government had taken steps to stem the growth of the housing bubble before it reached such dangerous levels. It is incredible that the Bush administration’s economics team failed to see the dangers of the bubble. It is even more remarkable that Alan Greenspan, Ben Bernanke and the Fed ignored the growth of the housing bubble. But even more astounding is the fact that no one in a position of authority has learned any lessons from this disaster.

At the moment, there are housing bubbles in the United Kingdom, Canada, and Australia that are arguably larger, relative to the size of their economies, than the one that collapsed and wrecked the U.S. economy. The basis for saying that house prices in these countries are in a bubble is that there has been a sharp increase in the sale prices of homes that has not been matched by a remotely corresponding increase in rents.

The housing bubble and what Greenspan should have done

from Dean Baker

In Washington policy circles, money and influence can be used to make even the most simple and obvious things complicated and confusing. This is certainly the case with the housing bubble and its aftermath. Four years into the housing bubble downturn, much of the country remains hopelessly confused about what happened, why it happened and who is to blame.