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Both systems have a constant: massive government subsidies that distort the true supply, demand, and economic ROI for the good. There could not have been a hou

Both systems have a constant: massive government subsidies that distort the true supply, demand, and economic ROI for the good. There could not have been a housing bubble without Fannie and Freddie, the FHA, and the protected-by-regulation class of bond ratings agencies. Similarly, there would not be an education bubble without federal loan guarantees -- certainly they have escalated cost of college, and most of the shady for-profit colleges thrive on student subsidies.

simpleTruth 15y ago
Sorry, bubbles happen even without government action. Read up on the tulip bubble for a classic one. http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania There is also plenty of blame to spread around. EX: Irish http://en.wikipedia.org/wiki/Irish_property_bubble http://en.wikipedia.org/wiki/Irish_property_bubble burst 2008. UK http://en.wikipedia.org/wiki/British_property_bubble http://en.wikipedia.org/wiki/British_property_bubble burst 2008. Australian http://en.wikipedia.org/wiki/Australian_property_bubble http://en.wikipedia.org/wiki/Australian_property_bubble (yet to burst) etc. What is really interesting is how little the price could increase before market forces brought things back to reality. Housing is such a large percentage of the worlds wealth that we never saw the sort crazy multiples over value that other bubbles get to. EX: http://en.wikipedia.org/wiki/Japanese_asset_price_bubble http://en.wikipedia.org/wiki/Japanese_asset_price_bubble
- jpadkins 15y ago
  Bubbles require rapid credit expansion. There may be varied reasons for what fuels a particular bubble, but the necessary precondition is easy money/credit. When the government regulates the currency & credit markets tightly, then government should share in the responsibility for the bubble.
  - simpleTruth 15y ago
    The largest and least stable bubbles are often driven by credit but there is a wide range of causes. For example, one of the largest and less talked about bubbles comes from the shift from defined benefit plains to 401k style investing. In the mid-1980s there were fewer than 8 million participants with less than $100 billion of assets in 401(k) plans.[3] By 2006 there were seventy million participants with more than $3 trillion of assets in 401(k) plans. Now, what happens to the US stock market as baby boomers retire and there is a significant shift between people buying and selling stocks? PS: Many bubbles are simply money looking for somewhere to hide. Assume the US cut it's military budget by 80% and paid of the debt in 20 years, where do you think that money would end up?
  - jbooth 15y ago
    I'd recommend looking at a chart of GDP from before the Fed was established for the express purpose of mitigating boom/bust cycles. It looks like a jigsaw. If you look at a chart of actual numbers, it's pretty clear that the countercyclical tools available to the fed diminish the effect of bubbles.
jbooth 15y ago
"There could not have been a housing bubble without Fannie and Freddie, the FHA, and the protected-by-regulation class of bond ratings agencies." I beg to differ. You could have pulled the full cost of every defaulted mortgage out of the bottom line of a single big-5 investment bank and not even bankrupted it. But we had all these crazy hyper-leveraged instruments that turned a 50 billion dollar problem into a 5 trillion dollar problem. The issue wasn't the mortgages, it was the leverage and gambling.

simpleTruth 15y ago

Sorry, bubbles happen even without government action. Read up on the tulip bubble for a classic one. http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania There is also plenty of blame to spread around. EX: Irish http://en.wikipedia.org/wiki/Irish_property_bubble http://en.wikipedia.org/wiki/Irish_property_bubble burst 2008. UK http://en.wikipedia.org/wiki/British_property_bubble http://en.wikipedia.org/wiki/British_property_bubble burst 2008. Australian http://en.wikipedia.org/wiki/Australian_property_bubble http://en.wikipedia.org/wiki/Australian_property_bubble (yet to burst) etc. What is really interesting is how little the price could increase before market forces brought things back to reality. Housing is such a large percentage of the worlds wealth that we never saw the sort crazy multiples over value that other bubbles get to. EX: http://en.wikipedia.org/wiki/Japanese_asset_price_bubble http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

jpadkins 15y ago
Bubbles require rapid credit expansion. There may be varied reasons for what fuels a particular bubble, but the necessary precondition is easy money/credit. When the government regulates the currency & credit markets tightly, then government should share in the responsibility for the bubble.
- simpleTruth 15y ago
  The largest and least stable bubbles are often driven by credit but there is a wide range of causes. For example, one of the largest and less talked about bubbles comes from the shift from defined benefit plains to 401k style investing. In the mid-1980s there were fewer than 8 million participants with less than $100 billion of assets in 401(k) plans.[3] By 2006 there were seventy million participants with more than $3 trillion of assets in 401(k) plans. Now, what happens to the US stock market as baby boomers retire and there is a significant shift between people buying and selling stocks? PS: Many bubbles are simply money looking for somewhere to hide. Assume the US cut it's military budget by 80% and paid of the debt in 20 years, where do you think that money would end up?
- jbooth 15y ago
  I'd recommend looking at a chart of GDP from before the Fed was established for the express purpose of mitigating boom/bust cycles. It looks like a jigsaw. If you look at a chart of actual numbers, it's pretty clear that the countercyclical tools available to the fed diminish the effect of bubbles.

jbooth 15y ago

"There could not have been a housing bubble without Fannie and Freddie, the FHA, and the protected-by-regulation class of bond ratings agencies." I beg to differ. You could have pulled the full cost of every defaulted mortgage out of the bottom line of a single big-5 investment bank and not even bankrupted it. But we had all these crazy hyper-leveraged instruments that turned a 50 billion dollar problem into a 5 trillion dollar problem. The issue wasn't the mortgages, it was the leverage and gambling.