A down market is as necessary as an up market, and it will indeed solve some of the excesses that were there.

And, it leads us to a day when, with mortgages tight, "cash is king". If you were conservative and have real cash money available to you, then there can be any number of fine opportunities that were not there before.

Yes, put on the vulture cap and see what becomes available!

The media shrieks when prices are high - no one can afford buy!

The media shrieks when the prices are dropping - no one can afford to sell!

When prices drop, people who were unable to buy a home now have the opportunity for ownership. When prices rise, people make a nice profit and usually buy a more expensive home, which adds jobs and helps drive the economy. The housing market has always been cyclical.

Want to become rich? Then, here is the secret: Buy low. Sell high.

Heh. :)

making housing and its derivative consumerism a major part of an economy is fairly shortsighted. but then again thats what you get when you allow banks to dictate economic policy.

there was a time when industry and endeavour made a nation economically viable, nowadays everyone has been hoodwinked into believing that borrowing for everything is the norm, and that this alone can support a national economy. that may be fine while banks dish out the cash, at low real rates of interest. but what they wont tell you is that what the banks can give with one hand they can take away with other. the so called credit crunch is a PRIVATE restriction of money to the public. Modern banking is the most enormous fraud to fall upon this earth and it needs done away with. nations dont need it, economies dont need it, capitalism doesnt need it. infact all would likely function better and more honestly, for everyone, without it.

Daphne and Patty, as far as im aware housing based economics is relatively new to the US. you have enjoyed relatively stable prices across the nation for decades. it was only after one bubble burst that the banks sought out the lowly consumer to prop up an ailing economy post millenium. its a complete sham, for which the general public will be blamed, while the banks ask for hand outs and many go homeless with no support. which should indicate whose interests our governments really serves.

Blair getting a job at investment bank JP Morgan (after his work experience) can only be seen as further evidence of this.

What's the alternative, Daytripper?

not finance biased economics. money is too important to be left to private banking. it should not be theirs to release and restrict as they see fit and for their own gain.

remember, credit creates deposits, not the other way around. modern banking is a slight of hand trick that has almost everyone fooled. not me. they lend money (that didnt exist till somebody asked for it), and take no risk from lending it, yet reap much reward (regardless of success or failure). its called usuary and was for centuries considered deeply immoral.

If a nation controlled its own source of money it could regulate lending properly to the public and industry. the nation could also lend itself money interest free for public works and infrastructure which helps the overall economy as that money heads out to pay for material and labour.
its no accident that the control of all money is in private hands for private gain. what kind of world do we live in that our own nations have to go to private banks to borrow its own money at interest to finance public spending. our taxes pay off the debt, they do not pay for public works.
it is also no accident that more people globally are becoming less well off under this system.

international banking controls our economies and its no conspiracy theory, its self evident fact. blair at JP Morgan is pay off for a job well done, and should be seen as nothing less.

the founders of the USA knew this well.

"The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating."

Thomas Jefferson

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."

James Madison

"The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government ever since the days of Andrew Jackson."

Franklin D. Roosevelt

"Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits."

Sir Josiah Stamp, President of the Bank of England in the 1920's, the second richest man in Britain.

The last quote has been my wallpaper for a few months now.

Daytripper: "money is too important to be left to private banking"

Yes, let's by all means take money out of private banking and put it into the hands of politicians! Fabulous, fabulous idea!

Why didn't we think of this earlier? Oh wait! We did..it's called commune something...commanastic? or computastic? oh yeah!....communism!

Wasn't this already tried in the Soviet Union?

Daytripper, I don't know if you're aware of the housing crash we had in the 1980's. I think it was actually more widespread than the current situation (which is showing indications of stabilizing) and was tied to a major recession, sky high mortgage interest rates, and massive unemployment. The current problem is only showing up in scattered pockets across the country and can be directly attributed to overheated pricing, speculative overbuilding, and poor lending practices. Of course, I'm inclined to toss stupid buyers into the mix - unwilling to restrain their greedy impulse to buy a "better" house than they could actually afford.

Wasn't this already tried in the Soviet Union?

it was successfully done centuries before that. in many nations including your own.

i thought the quotes from your own former leaders would have told you that. not that ignoring facts its your achilles heel or anything.

daphne, im aware of the previous spikes and dips. but if you go and hunt out a real adjusted chart for house prices in the US you will see that they have remained relatively stable from the post war period until the millenium, after which they rise very sharply. also in any other industry other than banking such behaviour would be considered fraud. btw Sub Primes have also been shown to be racist.

Daytripper: Banking of yore and banking today are very different. One small example: there once was a time when debtors were thrown into “debtors” prison – we now have extremely liberal bankruptcy laws relieving debtors from their obligations.

Easy credit has caused many problems for many individuals but as a group we are much richer for it. More people own cars and homes than ever before because of the easy accessibility of credit.

Owning your own business is easier than ever before due to small business loans.

Take a look at these figures:
http://www.heritage.org/Research/welfare/bg2064.cfm

- 43% of all “poor” households (classified as “poor” by the US Census) own their own homes. Average home is a 3 bedrrom, 1.5 bath, garage and porch or patio.

- 80% of poor households have air conditioned homes, compared to only 36% in 1970.

- The average “poor” American has more living space than the “average” (not classified as “poor”) European.

- Nearly, 3/4 of poor Americans own their own cars; 31% have 2 or more cars.

--Sub Primes have also been shown to be racist.--

Oh, last night's baseball scores have been shown to be racist too.

Those who say subprimes are racist are the same stunads who say that the banks were "redlining" when a proper share of mortgages were not given to different ethnic groups etc.

--Easy credit has caused many problems for many individuals but as a group we are much richer for it--

I think that's largely true. One of my best buddies drives a truck for the Arnold bakery. Does not make a lot of money, and even with a dual income household, expenses are tight with two young boys who like to eat.

But because of "easy credit" this couple who saved every available nickel, was able to buy a lovely little house in a very desirable block in Brooklyn, two blocks from the harbor. They bought it at the ideal moment, just before real estate shot up to hell.

This is anecdotal, but...there are millions of households like this, even in hot/inflated markets like this one still is.

So, yes, if there has been abuse, highlight it, and if there are people in a bad spot, I'm all ears about helping them, but by and large, this system has worked very well all across the US.

And in other countries too.

Banking of yore and banking today are very different. One small example: there once was a time when debtors were thrown into “debtors” prison – we now have extremely liberal bankruptcy laws relieving debtors from their obligations.

liberal bankruptcy is slowly being replaced with the modern equivalents of debtors prison. Bush has recently made it harder to file for bankruptcy, no?

DT,

Surely that should please you?, it will make it all the more difficult for all those 'greedy developers', to over borrow, and when things get tough, to just walk away from the wreckage, leaving peple like you and I to pay their debt...

The intent is to stop irresponsible borrowing on the assumption that one can always 'walk away'...and live to borrow another day, - in many cases without any of the liablities being settled.

Bankruptcy laws need strengthening, here as well in the US, there are just too many loopholes for the crooked to exploit...

Surely that should please you?

That depends what you call an irresponsible borrower. And no it doesnt please me.

it will make it all the more difficult for all those 'greedy developers', to over borrow, and when things get tough, to just walk away from the wreckage, leaving peple like you and I to pay their debt...

greedy developers are only one part of the issue. as for the offloading of unpaid debt to all other consumers, it should be seen for what it is. punishment, as they could just as easily write them down. the banks only get into difficulties when they create enormous amounts of bad debt and are potentially left with a mass of withering assets. plus you are quick to say "over borrowing", yet nobody asks if "over lending" may also be a major factor, if not the bigger one. afterall the banking industrys only real risk is confidence.

Bankruptcy laws need strengthening, here as well in the US, there are just too many loopholes for the crooked to exploit.

im sure there are loopholes, and im sure they are exploited. but the laws are not aimed squarely at premeditated abusers.

"the only economic bills signed into law this year [2005] have tilted against the little guy: Legislation that restricts class-action lawsuits, and a major rewrite of the nation's bankruptcy laws, signed yesterday, that will make it harder for debt-ridden Americans to wipe out their obligations." WaPo April 20 2005.

"Bush has recently made it harder to file for bankruptcy, no?"

Yes, a few years ago. I guess an argument could be made that he was in the finance companies pockets and did their bidding, but the fact is that too many bankruptcy filings were not due to real hardship (medical, loss of a job, extreme circumstances) but used by many people as an excuse to evade paying for their irresponsible spending and credit card debt.

"you are quick to say "over borrowing", yet nobody asks if "over lending" may also be a major factor, if not the bigger one."

This actually a very good point Daytripper. Before the mid eighties in order to get credit, you had to establish a credit history (sounds like a circle jerk) or get a cosigner. To establish my credit, I had to take a loan from my bank secured by my own money and make timely payments for a year, then I was able to get credit from other places. They didn't just throw credit cards at you like confetti back then.

I have a relative with 25 credit cards, all of them maxxed out, and facing a debt load of $60,000.00 accumulated over the past 7 years. A large portion of her purchases have ended up flushed down the toilet. She likes to eat out. She's irresponsible and so are the finance companies that keep opening new lines of credit for her every three months.

DT,

Ye, of course the banks were lax in their borrowing criteria, but isn't that what the British and American governments wanted?

It's a far easier way to expand the 'tax base', than to actually provide a viable, and sustainable business environment.

In the UK they are proud that they relaxed the rules, to attract foreign investors, and the same goes for Greenspan in the US, decrying the Sarbanne Oxley act, as being too strict, and virtually getting it sidelined, when most of the shysters moved their business to London.

Cheap or easy loans are used to fuel the so-called boom, when in reality all that happens is that people mortgage their future. 'Borrow from tomorrow to buy today', is their motto, and they pay through the nose for the privilege.

As for easy lending, it is just another tactic to get you to mortgage your soul, - but no-one forces you! - ultimately it's your decision to pick the good from the bad, the affordable from the extravagance.

And yes, the banks do factor in a percentage for bad debts, but why should they even bother with doing that? when they know full well that the government will step in and pick up the tab...but then the banks are the politician's buddies...

The public want 'boom, boom,' and for your everloving governments, either US or UK, that is the easy option, it only gets difficult and embarrassing when the greedy overdo things and the defaults start to arrive, and politicians don't do embarrassment very well do they?

Ye, of course the banks were lax in their borrowing criteria, but isn't that what the British and American governments wanted?

id be inclined to think of it more as what the banks wanted and the governments gave. not the other way around. the british government abdicated responsibility during thatchers tenure. again the rise of a finance based economy and the decline of industry/labour economics are no accidents. one begets the other. now that we have but a shell of a real economy then its only a matter of time before the consumer must become the economy. to maintain that system the consumer must be provided continually with the finance to do so. once that cycle starts it is doomed as high levels of consumption are immpossible to maintain indefinitely. we are the economy. lending is the econony, money from money is the economy. its a completely sad state of affairs.

It's a far easier way to expand the 'tax base', than to actually provide a viable, and sustainable business environment.

again tax doesnt fund public spending. it repays private loans. then more loans are taken out for further public spending. a system that gauruntees continual increases in taxation as the level of debt increases. once a threshold is crossed then social programs are destroyed but taxation will still go up. its nothing new, the third world has lived with this system ever since the creation of the World Bank, the IMF and the WTO.

In the UK they are proud that they relaxed the rules, to attract foreign investors, and the same goes for Greenspan in the US, decrying the Sarbanne Oxley act, as being too strict, and virtually getting it sidelined, when most of the shysters moved their business to London.

international banking knows no and respects no borders. they dont care what nations they destroy. why? because no matter how bad it gets the very few the system really serves wont be affected.

Cheap or easy loans are used to fuel the so-called boom, when in reality all that happens is that people mortgage their future.

now take that and add globalisation and you soon realise that its not just personal futures that are traded. the entire planets resourses are mortgaged into the future. and on what basis is this predicated? that all resources are infinte. which of course they are not.

And yes, the banks do factor in a percentage for bad debts, but why should they even bother with doing that? when they know full well that the government will step in and pick up the tab...but then the banks are the politician's buddies.

in britian, the banks are the politicians real bosses. and have been for a very long time. their power and influence may wax and wane but for certain they are back on top in this day and age. as i said yesterday, Blairs new post at JP Morgan should be indication enough of this. Gordon knows the real legacy of what he has been left with, and I imagine it is this knowledge and the understanding of being relatively powerless to do anything about it that shows itself to us as a completely rudderless lame duck premiership.

anyway im off to watch battlestar galactica. btw has anyone seen Cloverfield yet?

DT,

"and on what basis is this predicated? that all resources are infinte. which of course they are not."

That growth is unlimited is just one of a number of strange assumptions that economists make. Others include:

- people are rational actors (in a world where some people believe the earth is 6,000 years old and others are ready to fly planes full of people into buildings full of people)

- the market optimally allocates/prices resources (meaning that destruction of the biosphere is really cheap, and a steak or a week's supply of monster munch is a better use of wealth than subsistence for 10 people in the third world)

*raises fist in JPF salute* 'amen brother, i mean sister.'

Frank

Economics is only concerned with what you do not what you believe. The predictability of the purchasing decisions of millions of airline passengers every year is the basis of the business.

That a handful act in an irrational way does not invalidate the general assumption.

Likewise a believer in creationism is still usually going to look for the best deal on car insurance just like his Darwinist neighbour.

Henry,

"Economics is only concerned with what you do not what you believe"

The two are surely connected and increasingly perception is reality and reason has left the building.

"That a handful act in an irrational way does not invalidate the general assumption."

So people were being rational when house prices were going up not long ago and now they are being rational when the prices of the same houses go down. Even though nothing tangible has changed in the meantime - there are still about as many houses and people wanting houses. Only the supply of money and perceptions have changed.

I have a relative with 25 credit cards, all of them maxxed out, and facing a debt load of $60,000.00 accumulated over the past 7 years. A large portion of her purchases have ended up flushed down the toilet. She likes to eat out. She's irresponsible and so are the finance companies that keep opening new lines of credit for her every three months.

daphne,

the blame lies squarely with the lenders, in my opinion. they provided your relative with the ability to outspend her means. they obviously had multiple oppurtunities to temper these urges, yet still allowed such levels of debt to accrue. its a bit like leaving an alcoholic to mind the liqour store while you go do a message. the results are inevitable.

Only the supply of money and perceptions have changed.

superbly put frank. embarrassingly succinct.

few also make that connection and the effect it has on markets. in this case housing.

free market my ass !!!

Frank

It was rational.

It made sense to buy if you believed the price was going to rise and now it makes sense not to buy if you believe the price is going to fall.

However I don't see many people selling their homes and renting in the hope of picking up a similar house at a lower price later.

FYI Phantom

http://tinyurl.com/4fa78s

"separate study on the subject showed that the trend is particularly pronounced in Boston. Jim Campen, an economics professor at University of Massachusetts Boston, found that high-income minorities were six to seven times more likely to have an expensive mortgage than high-income whites. Around 70 per cent of black and Latino borrowers in Greater Boston with incomes between $92,000 (£48,000, €70,000) and $152,000 took out mortgages with high interest rates in 2005, according to the study."

Daytripper, I can't read the article you link to (apparently they only allow you to read five free articles a month), but from the part you qouted I can't see how it demonstrates racism on the part of lenders.

Banks don't simply take incomes into account when making loans, they also consider assets snd credit history and there is no reason to assume that those figures are the same even when incomes are equal.

DT,

"the blame lies squarely with the lenders, in my opinion",

"For am I my brother's keeper?"

Either you want a 'free market', and the ability to make and take your own decisions, or do you want Nanny to hold your hand all the time?

"Only the supply of money and perceptions have changed."

Not quite, - it is the differing perceptions between the lender and the borrower that have changed, both as to value and risk. The money supply is then governed by those two parameters.

Even now - if the value and the risk are right, the money supply will provide the means.

The lenders know when they have gone too far, they get defaults, unfortunately borrowers seem to have no perception either of value or risk, their sole parameter is a desire that has to be satisfied as quickly as possible and stuff the consequences.

A study conducted by the Woodstock Institute, a Chicago-based organisation that promotes community development, and four other groups found that home loans are more expensive for minorities in Boston, Charlotte, Chicago, Los Angeles, New York and Rochester, New York.

In these six cities, blacks were 3.8 times more likely to receive a higher-cost home loan than were white ­borrowers, while Latinos were 3.6 times more likely than white borrowers to receive a higher-cost loan. Subprime loans – mortgages tailored to homebuyers with poor credit ratings – typically have interest rates at least 3 percentage points above regular mortgages.

From the same link. the point is Ross that you were statistically far more likely to end up with a sub prime mortgage (higher real rate of interest) if you were black or latino.

Either you want a 'free market', and the ability to make and take your own decisions, or do you want Nanny to hold your hand all the time?

A heavily deregulated market is not a free market either, so obviously there has to be a middle ground. that is all i ask. you have an awful habit of jumping to the other extreme and claim that is what i demand. i dont and it is not.