Here is my attempt to offer the shortest possible explanation that gets to the core of the issue, and show why the idea of a bailout is completely foolish.
Source link: http://blog.mises.org/8632/the-housing-bubble-in-four-easy-steps/
The Housing Bubble in Four Easy Steps
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The roller coaster video must be from February.
Housing prices are down 40-55% percent since last year in many zip codes here in Orange County, California, including in my own city of Ladera Ranch.
Point 4 needs some clarification. What does “had to” mean, exactly? What is the nature of the compulsion that seems to be alluded to?
Two very good comments above. Yes the video is about that old as Greg suggests. I can’t wait till they update it because it is my favorite part of the roller coaster.
The loans “had” to be made to less credit worthy borrowers because the more credit worthy borrowers already are accounted for and if banks increased their lending to the more credit worthy borrowers they would be definition become less credit worthy. The banks could restrain their lending, but some less restrained lender would fill the void.
Excellent points and accompanying graphs!
Here is another reason why the bailout is completely foolish:
It will be the trigger for the economic whirlpool that will drag the dollar to the bottom of the sea taking with it all dollar-based assets.
Yes, that means every dollar-based asset owned, directly or indirectly!
Only those who have navigated their ship (net worth) into real assets will be in waters far enough away from the whirlpool to stay afloat. The waters will be rough, no doubt, but navigatable.
When will the whirlpool vortex form? Watch for the signs!
How does it work with prices rising all ever since 1997?
Take a look at my “Economics of Housing Bubbles” which was a working paper in 6/2006 and will be published next month in a book edited by Ben Powell and Randy Holcombe
Thank you, I will.
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