Let the games continue!
This is a great topic and all you have a fair handle on the issue, but it is very easy to look in the rearview mirror and say "boy was that dumb!"
Nobody wanted to contain the run up in home prices, why would they do that?
There was a pent up demand, the tech bubble had burst, money was moved out of the stock market(which became very scary after 9/11) and smart people invested in real estate, at least you could live in it and it was unlikely to dissappear a room at a time.
It was simple, easy to understand, money was cheap, houses began to be seen as investment vehicles, not homes.
One of you makes a point about cities reinvesting in themselves thru the sale of bonds, how do the cities qualify for those bonds? They pony up the future tax value(and income) of all this new developement as security.
I don't know about the rest of the world but developers in San Diego County do have to supply much of the infrastructure needed to support new communities, obviuosly that adds many thousands to the cost of a home.
A friend of mine sold a square block in downtown San Diego that had been in his family for several decades, the taxable asessment value went from its 1976 value as basically undeveloped to well over $20,000,000, factor in the value of the new housing that sprouted up on it {$100,000,000?} and you are talking serious change in tax revenue, now think about many blocks and you see what makes city and state beaurocrats drool!
Another problem is the lead time on these projects, in 2004 some realizes that their is an ongoing demand in SD county for say 3,000 new homes and he starts to plan and develope, strangely enough there are 10 other wizards who have the same thought and 2 years later 20,000 homes are being built to satisfy the 3,000 demand!
How do these wizards sell their new homes in this now dying market?
That will be a story for later.
If you don't think that everybody in the world wasn't cheering on Wall Street to keep looking for people to buy all these loans and keep this thing in the air than you are on dope.
There was a huge appetite for all of this paper all over the world, after all it was secured by US real estate, it just doesn't get any better than that!
Picture the difference in these two scenarios, the Japanese banking system in the early 90' kiting checks and making loans to Japanese companies secured by Tokyo real estate up to the point where their banking system had valued downtown Tokyo to be more than the entire US! No Japanese bank is allowed to fail and even when the bank rate was set to zero nothing could save that bubble when it burst and the Japanese economy was affected for years.
The event in the US was different because not only did our banks think that US real estate was a safe bet, the rest of the world thought so too and all wanted part of the action.
This is all very simplistic and is not meant to do anything except to keep you thinking and not allow the media to close your minds.
Again I state this one simple fact, when everybody is making lots of money what is the motivation to change?
Housing drove our economy after 9/11, when prices got into the stratosphere the Fed chickened out and raised rates 15-18 times,( I can't recall) in just a few months.
They will tell you that even the affect of a small change cannot be gauged for many months and by the time they could analyze what was going on it was too late,
the Fed has lowered rates since but as you can see it is too late, housing was not just tired, it was dead and had been that way for months, along with everything connected to it.
A last comment, I had to laugh when the public whined about the 700 billion to get things moving, the result was a 777 point drop on Wall Street easily wiping out well over 700 billion in the countries wealth, I would have rather paid my $2000 as my part of the bailout but they probably won't give me a rebate of the balance of what I lost on that day!
Dave
This is a great topic and all you have a fair handle on the issue, but it is very easy to look in the rearview mirror and say "boy was that dumb!"
Nobody wanted to contain the run up in home prices, why would they do that?
There was a pent up demand, the tech bubble had burst, money was moved out of the stock market(which became very scary after 9/11) and smart people invested in real estate, at least you could live in it and it was unlikely to dissappear a room at a time.
It was simple, easy to understand, money was cheap, houses began to be seen as investment vehicles, not homes.
One of you makes a point about cities reinvesting in themselves thru the sale of bonds, how do the cities qualify for those bonds? They pony up the future tax value(and income) of all this new developement as security.
I don't know about the rest of the world but developers in San Diego County do have to supply much of the infrastructure needed to support new communities, obviuosly that adds many thousands to the cost of a home.
A friend of mine sold a square block in downtown San Diego that had been in his family for several decades, the taxable asessment value went from its 1976 value as basically undeveloped to well over $20,000,000, factor in the value of the new housing that sprouted up on it {$100,000,000?} and you are talking serious change in tax revenue, now think about many blocks and you see what makes city and state beaurocrats drool!
Another problem is the lead time on these projects, in 2004 some realizes that their is an ongoing demand in SD county for say 3,000 new homes and he starts to plan and develope, strangely enough there are 10 other wizards who have the same thought and 2 years later 20,000 homes are being built to satisfy the 3,000 demand!
How do these wizards sell their new homes in this now dying market?
That will be a story for later.
If you don't think that everybody in the world wasn't cheering on Wall Street to keep looking for people to buy all these loans and keep this thing in the air than you are on dope.
There was a huge appetite for all of this paper all over the world, after all it was secured by US real estate, it just doesn't get any better than that!
Picture the difference in these two scenarios, the Japanese banking system in the early 90' kiting checks and making loans to Japanese companies secured by Tokyo real estate up to the point where their banking system had valued downtown Tokyo to be more than the entire US! No Japanese bank is allowed to fail and even when the bank rate was set to zero nothing could save that bubble when it burst and the Japanese economy was affected for years.
The event in the US was different because not only did our banks think that US real estate was a safe bet, the rest of the world thought so too and all wanted part of the action.
This is all very simplistic and is not meant to do anything except to keep you thinking and not allow the media to close your minds.
Again I state this one simple fact, when everybody is making lots of money what is the motivation to change?
Housing drove our economy after 9/11, when prices got into the stratosphere the Fed chickened out and raised rates 15-18 times,( I can't recall) in just a few months.
They will tell you that even the affect of a small change cannot be gauged for many months and by the time they could analyze what was going on it was too late,
the Fed has lowered rates since but as you can see it is too late, housing was not just tired, it was dead and had been that way for months, along with everything connected to it.
A last comment, I had to laugh when the public whined about the 700 billion to get things moving, the result was a 777 point drop on Wall Street easily wiping out well over 700 billion in the countries wealth, I would have rather paid my $2000 as my part of the bailout but they probably won't give me a rebate of the balance of what I lost on that day!
Dave
