Russell Roberts on the housing bubble and financial crisis

Here's a new paper on the housing bubble by GMU economics professor Russell Roberts.Here's a summary of the paper by GMU economics professor Tyler Cowen:1. It isn't "too big to fail" that's the problem, it's the rescue of creditors going back to 1984, encouraged imprudent lending and allowed large financial institutions to become highly leveraged.2. Shareholder losses do not reduce the problem even when shareholders are the executives making the decisions3. These incentives allowed execs to justify and fund enormous bonuses until they blew up their...

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David Brooks on financial regulation

From David Brooks via Greg Mankiw:Between 1997 and 2006, consumers, lenders and builders created a housing bubble, and pretty much the entire establishment missed it. Fannie Mae and Freddie Mac and the people who regulate them missed it. The big commercial banks and the people who regulate them missed it. The Federal Reserve missed it, as did the ratings agencies, the Securities and Exchange Commission and the political class in general. ...The premise of the current financial regulatory reform is that the establishment missed the last bubble and,...

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In search of fairy tale regulators

Arnold Kling echoes my skepticism of regulation:Kevin Drum writes,From a systemic point of view, the real issue is that predatory lending on a large scale helped to massively inflate the housing/credit bubble of the aughts. If the home loan market had been regulated stringently enough to keep mortgage lending relatively sober, the bubble most likely would have been half the size it ended up at...Well, yes, if a regulator had stepped in and required 10 percent down payments, the bubble would have been much smaller. That is excellent hindsight. But...

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Home sales leap as tax credit nears expiration

Offer potential home buyers other people's money, and they will use it:New-home sales rose 26.9% to a seasonally adjusted annual rate of 411,000 last month, compared to a upwardly revised annual rate of 324,000 in February, the Census Bureau said. ...New-home sales spiked in every region of the United States. The South saw the biggest jump in new home sales, up a stunning 43.5%, while the Northeast region saw sales climb 35.7%. The West and Midwest regions both saw single-digit growth. The Census Bureau data followed a report from the National...

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Is now a good time to buy a home?

No. Maybe.One correction for David Leonhardt. He writes:Markets often overshoot, on both the upside and downside.Actually, financial markets often overshoot on the downside. Real estate markets don...

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A libertarian view of financial regulation

In The Wall Street Journal, Gerald P. O'Driscoll writes:Public choice theory has identified the root causes of regulatory failure as the capture of regulators by the industry being regulated. Regulatory agencies begin to identify with the interests of the regulated rather than the public they are charged to protect. ...Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. The interests of...

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A big flaw in the proposed financial reform bills

Mark Thoma writes: When I was asked what was missing from the proposed financial reform legislation, I should have mentioned the lack of effective reform measures for ratings agencies, particularly the incentive to provide high ratings to encourage future business. As noted below, part of the reform legislation is directed at the ratings agencies, but it doesn't get at the main problem, which is the incentive to tell its customers what they want to hear, i.e. the incentive to deliver higher ratings than deserved. For some reason ($$$???), the ratings...

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Regulatory capture

Why depending on human regulators is doomed to fail, continued...

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Yes, Virginia, there is a housing bubble

...in China.And on Wednesday, the government said housing prices had risen 11.7 percent in March alone, the fastest rise ever record...

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Leading indicators point to another housing downturn

Robert Shiller makes the case for another downturn in housing, including the fact that leading indicators are negative:Today, we need to worry about strong headwinds, as the government begins to withdraw its support of a still-troubled lending industry and as foreclosures are dumping millions of homes onto the market.Consider some leading indicators. The National Association of Home Builders index of traffic of prospective home buyers measures the number of people who are just starting to think about buying. In the past, it has predicted market...

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House hunting in DC

Megan McArdle is shopping for a home:We've been dipping our toes into the DC housing market recently, but after this weekend, I think I'm just about ready to give up. Anything that comes on the market at a decent price is snapped up almost immediately—by my count, mean time from listing to contract is under seven days.From a supply and demand perspective, if a house is selling in seven days, it means the price is too low. It may be too high from a long-term discounted cash flow perspective, which means potential home buyers should rent instead,...

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Google economic search trends

From a Wall Street Journal article on new ways to read the economy:One rich repository of predictive data is Web searches, said Hal Varian, Google Inc.'s chief economist. Jumps in such queries as "unemployment office" and "jobs" can help predict increases in initial jobless claims, he said. Other search terms, he added, can anticipate traditional data on travel behavior and sales of cars and homes.Using Google Trends, I decided to try it out for...

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Why regulators have incentive to look the other way

I think people who expect human regulators to step in and rein in the next bubble are deluding themselves. The Washington Post's Sebastian Mallaby helps elucidate the point:As the Fed chairman in February 2000, Greenspan appeared before a Senate committee and explained why he was raising interest rates. Inflation had yet to pick up, but the powerful advance of technology stocks had fueled such strong growth that price pressure seemed likely. Of course, Greenspan could not know that he was right. ... Greenspan was greeted with a torrent of abuse....

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More of Meredith Whitney on housing

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The Fed claims to be on the lookout for new bubbles

It sounds as if the Fed might have abandoned its old policy of ignoring bubbles:Federal Reserve officials at their March meeting stressed the need to make sure record-low interest rates don't feed new speculative bubbles in stocks or other assets. ...To aid the recovery, the Fed held the target range for its bank lending rate at zero to 0.25 percent. It's stood at that level since December 2008. And it maintained a pledge — in place for a year — to keep rates at rock-bottom levels. ...Thomas Hoenig, president of the Federal Reserve Bank of Kansas...

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Why the experts believed bubbles can't exist

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Where the bubbles are, and where they are not

Click on the image to see the full-sized version:Sour...

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Larry Kudlow criticizes Obama's latest attempt to prop up housing prices

 Like me, Larry Kudlow doesn't like President Obama's latest attempt to subsidize irresponsible banks and homeowners:Yet again, Team Obama is rewarding reckless behavior, punishing the 90 percent of responsible homeowners who are making good on their mortgages, and setting up a greater moral hazard that will surely lead to an expansion of bailout nation.I’m talking about an add-on to HAMP, the $75 billion Home Affordable Modification Program, which has been a dismal failure. In fact, the entire foreclosure-prevention effort — including forgiveness...

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