efbdergraf

Housing Conversation Needs a Dose of Reality

Agree with most points of both articles, concerning the causes and need to let the market adjust without artificial props. In fact over several hundred years and unlike the pushers' hype of the past decade housing in general has never made a good investment (there have been exceptions limited to specific markets and for short periods). Housing should be for giving people shelter - not speculation. Nor should construction outpace demand. It is fairly simple to draw a graph, using ALL elements of inflation rather than only the politically expedient ones of the Greenspan days, and extrapolate the housing prices of a saner era - say 1930s through 1980s. That should give a reasonable estimate of where housing might logically be. The calculation can be refined by local areas, changes in salaries, employment and population,... Or one might simply reset the clock to pre-Greenspan "free money", i.e., say 1999. Prices of ten years ago might be just about the right starting point, adjusted for a "true" annual inflation rate of perhaps 1-2%. That could happen quickly and would also help the mortgage holders write-down assets to realistic levels, i.e., even sub-primes probably are worth 50% of the book prices (not zero) and most mortgages would require no adjustment. That in turn would give relief to all holders of "toxic" assets and liabilities, including the banks and insurers and unclog the credit lines. It's fun to point fingers at rich fools (even though they've also taken enormous hits) but the greed and fraud started with common people being offered (by realtors and brokers) and buying (ineligible purchasers) overpriced housing (built without orders) and being given the mortgages (banks) which were then sliced, diced and leveraged (investment bankers) and incompetently insured (the AIGers). The right price is the one decided by two people only - a buyer and a seller, but there are tools to know about which price is reasonable.

Housing Bubble: Two-Thirds of the Way Back to 2000

Whether Case-Shiller is perfectly accurate is of little importance. It is enough to know that historically housing costs (after to food the most essential of human needs) have tracked but seldom outpaced inflation. A roof was always a necessity and with the exception of specific markets not considered fair game to speculation. Greenspan's free money and Bush's no-tax but mega-government expenditures and deficits only encouraged speculation and rampant greed amongst citizens, contractors, brokers and bankers. Wrong-headed legislation sought to correct that by creating the "sub-prime" category of buyers rather than closing the money spigot. Poorer or otherwise unqualified people were given keys with no downpayments or legs - but ARMs. Legitimate wage-earning families were squeezed out and deprived of reasonable cost housing. The only long-term remedy is to allow the market auction mechanism to rediscover the "right" price - probably not far from where normal inflationary pressures would have evolved after 2001. Trying to protect unqualified "owners" will only prolong the agony.

AIG: Willumstad's Hard Choice

Agree with nygiants58. F.Salmon doesn't have a clue about AIG or the insurance industry - which is NOT where AIG's problems lie. Insurance results may be off but that is the nature of the business cycle. Check the rest of the industry's current PC pricing. All that's needed is another Katrina or so this autumn. The also-rans will be gone and prices will jump along with bottom-line and share price. The capitalized giants such as AIG and Allianz will thrive - as always!