bubbleinfo.com

One thing I've found persistently mysterious about this housing bubble is how many people seem to have been surprised by it. I mean, it was obvious to me, it was obvious to JtR, to Rob Dawg, to OC renter, to Dr. Housing Bubble, probably to a whole lot of people who read this blog. I don't mean to be disparaging of us, but really, since it was obvious to us, shouldn't it have been obvious to all those people who got paid dump trucks full of money to think about this exact thing?

Yes, a big part of it was people who made money and had no skin in the game (i.e., the mortgage brokers). But from events in the past few weeks it's become obvious that a lot of people who you would have thought would know better ended up buying those crap mortgages. For example, Lehman Brothers was around 148 years, surely you'd think they could tell the difference between a prudent financial move and throwing money into a hole in the ground. Yet apparently they couldn't tell the difference.

It's tempting to believe it's stupidity. But I don't actually think that's true. My current hypothesis is that it was a kind of peer pressure. I've noticed that it is very, very difficult to stick to your guns and do what you reason through is the correct course of action if everyone around you is doing just the opposite. I think a lot of people did it exactly because a lot of other people were doing it. In some ways it's a humbling lesson to know our minds think this way. Maybe it's some residual survival instinct gone awry.

You know...this reminds me of the dot-com bubble. At that even highly educated people were referring to the "virtuous cycle" and the supposed end of the "business cycle" and how stock prices would just go up and up and up (with no hint of profits in many cases). Why do people drink the cool-aid? I don't know. I do know though that I was just entering the market place and I did put some (small) amount of money in the dot com market and lost quite a bit of it. Boy am I glad I did...it was a learning experience if ever there was one. I could tell how out of touch with fundamentals the San Diego housing market was and so stayed out of it.

Economic fundamentals eventually catch up...question is, can you dupe enough people long enough that you can get in, make money and get out?

Lereah, Yun, Karevoll and "Dawg." Thanks I guess.

Commerce Dept New Housing Starts this morning. Let's see how different things are now.

No slight against you Dawg, just trying to point out the stark contrast between opinions.

I'm with dwip, the IBs buying this paper must have been intimidated by Angelo's salespeople that if they didn't get in on these huge yields from secured mortgages, the guys down the street would, and beat them to the punch. The peer pressure, combined with the ability to slice and dice the loans after purchase, had to be what drove them blind.

Selling private-label MBS should have caused a "buyer-beware' red flag to go off, especially given that California and others are a non-recourse state. They must have thought it would last forever, or at least long enough to get one more big bonus.

I wonder where Angelo is today....

"You know...this reminds me of the dot-com bubble."

There are definite similarities, if you think of subprime mortgages as the equivalent of internet companies trying to sell you bags of pet food that cost $15 in the store for $5 with a $20 shipping fee (duh). The difference is that while the dotcom had a core of *good* ideas that are still profitable today (eBay, Amazon, etc.) surrounded by a lot of harebrained schemes, the huge percentage of new buyers in the housing bubble who were employed in home construction, real estate and mortgage financing should have been a huge red flag with "pyramid scheme" written all over it.

JIm, Reading those is better than any writer could do for a Saturday Night Live skit! My financial planner gave me the same old line yesterday he has for the last 15 years when I moved my IRA's funds to a cash preservation to stop the bleeding as total crisis continues. The old robotic, stay put, its all gonna come back! When the game changes are so drastic, the game plan has to now change.

Jim should probably keep track of all the predictions we amateurs have made here so he can compare ours to the "pros" after the dust has finally settled.

Two things

Very timely given that Dataquick came out with the large reported declines for August, then stated, "The market is starting to form a bottom"

Any thoughts on all the people who bought to flip in 2005 and 2006 when the rationale in the market was, "If you do not buy now you will never be able to buy". If people who did not buy now could never be able to buy in the future at higher prices, why did the flippers believe they could flip?

I don't know what income bracket you're in, but there's never been a shortage of people who have more money than I do.

The reason nobody "saw it coming" is simple. Money, money and more money. Everybody (Realtors ®, brokers, lenders, appraisers, title conpanies, home inspectors, pest companies, etc) made tons of it and no one wanted the the gravy train to pull into a siding.

Cut corners, eyes turned askance and outright fraud all contributed to the party, but the punch was concocted of greenbacks.

It's not correct to say that "nobody saw it coming." Lots of people saw it coming, including those who made their profit and ran and those who stayed and figured (correctly) that they'd be able to bamboozle the government into bailing them out.

Oh, I don't honestly mind. What those others have doesn't rub off.

See what I meant about housing starts and permits? This ain't comparable to any past cyclical parallel. I can put up with the gut wrenching volatility and losses and such. I'm still not accepting as to all the intervention that is only serving to make things worse.

Gene K

I do not kow what income bracket you are in, however I will assume you are responsible and buy the home you can afford. That being said, we now know that if you were rational most people bidding against you in 2005 were making less than you.

I maintain the statistics have yet to capture all the homes that were built or refurbished during the bubble. Therefore even if home starts are at a 20 year low new and exisiting home prices are going down cause about 5 additional years of homes were built throughout 2006. I agree Rob Dawg you cannot compare this cycle to past cycles.

Oh sure, I was just talking about why someone might think that even though it was their last chance to buy into a rising market there would still be someone else who would buy into it a couple of years down the line. That's how pyramid schemes work, after all; each new round of investors thinks there's at least one more after them.

I'm still not accepting as to all the intervention that is only serving to make things worse.
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Dawg,

You should see the Housing Financial Services Committee's Hearing on Preventing Mortgage Foreclosures

Truly disturbing!

http://www.c-span.org/