5 Comments
Oct 4Liked by Kevin Erdmann

I'll propose a wacky theory: some American and European economists and policy makers were drawing the wrong lessons from the Japanese asset bubble of the 80's and projecting a similar future for the West. Consequently, a firm hand was needed to address the reckless overbuilding and speculation in the housing market in the early 2000's.

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Oct 4Liked by Kevin Erdmann

"Public policy was biased toward stagnation...."---KE.

That may be one of the greatest, quick policy analyses ever written, and so applicable generally.

I will steal this phrase 100 times over.

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"Lenders didn’t get cold feet because properties had lost value. Properties lost value after the lending stopped."

Single family housing is a market of houses and buyers, but it's also a market of lenders and loan buyers. The demand for, and availability of lenders to provide securitized mortgage dried up, and the availability of mortgage loans dried up with it.

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Oct 16Liked by Kevin Erdmann

Mr. Erdman,

This post, excerpted from Dominic Frisby looks eerily like your description of housing (financing) denial:

Mobile phones and the naysayers

"Here’s a little story for you. By 2023, some 85 per cent of the global population - 6.8 billion people - had a smart phone. That’s more people than have a toilet. Yet, at its peak in 2008, there were 1.3 billion landlines for a global population near 7 billion. Why did the mobile, and then the smartphone, succeed where the landline failed?

Yes, superior wireless technology made widespread coverage more possible. But there is another, simpler reason: to get a landline, you need a bank account. When more than half of the world’s population is ‘unbanked’, as it was in 2008, without access to basic financial services, telecoms companies saw no potential custom. Those companies would have built lines in the Arctic circle if there was profit to be made by it, but there wasn’t. Too many people were financially excluded. The infrastructure was never built, and people were left with fewer possibilities to communicate.

A mobile, on the other hand, you can buy with cash. You don’t need to be banked. The financial system was a barrier to progress for the world’s poor. Cash is a facilitator for them - it means total financial inclusion, a luxury the better off take for granted. Without financial inclusion - and there will always be some that, for whatever reason, often some bureaucratic quirk, won’t have it - you are trapped in poverty. Beware the war on cash."

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author

The regulators who were still codifying the newly tight standards into law even at the market bottom seemed to think there was a lot of capital that wanted to fund even reckless mortgages and that it needed to be blocked. Otherwise, why would they be passing the regulations removing discretion of lenders about the ability of borrowers to repay the loans, the underwriting required, and the spreads they were allowed to charge?

I imagine the family in the $700 rental could have paid a spread of 20% and still would have chosen to buy the $50,000 house with that mortgage. You don't think there were lenders willing to buy mortgages with 20% spreads?

(Don't get me wrong. An unregulated market would never have gotten to a place with $50,000 houses and 20% mortgage spreads.)

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