MacroScope

Housing boom and bust lesson still not sinking in

Housing markets are booming again in parts of the U.S. and Britain and they haven’t stopped doing so in Canada for the better part of a generation.

What is most striking about the latest round, at least when you listen to those who ought to know, is how nothing much except the price has changed.

We were told a stern lesson in the months and years after the financial crisis, borne out of an over-inflated, over-leveraged U.S. housing market securitised up to the scalp by Wall Street and leaping ever higher up a steeper incline on a blind instinct never to look back.

But as most school teachers know, sometimes a lesson has to be repeated in order to be properly learned. And some students will still fail.

Scanning through the results of the latest Reuters surveys of property market analysts and economists would leave any reader with a memory stretching back before 2008 with a sense of déjà vu.

Daniel Tarullo’s dovish war cry

It was his first speech on the economy in almost three years in office, but Daniel Tarullo did not pull any punches. The Federal Reserve Board governor, who tends to focus primarily on regulation, on Thursday called for the central bank to step up its purchases of mortgage bonds:

I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets.

More broadly, Tarullo made a strong call for further monetary easing, arguing quite dovishly that the recovery is still too weak for the central bank not to take further action.

from Tales from the Trail:

Bold budget boosts bailout

USA-OBAMA/How do you buy $750 billion of toxic bank assets with only $250 billion of taxpayer money?

If you know to play U.S. budget rules like a violin.

President Barack Obama told Congress in passing this week he might need more money than lawmakers have already approved to stabilize banks and pull the economy out of the ditch. 

How much? His budget virtuoso Peter Orszag said on Thursday he could support buying up to $750 billion in bad assets but only needed to set aside $250 billion to do it.

from Tales from the Trail:

When is a housing crisis like venereal disease?

If you're among those upset that your taxpayer dollars may be spent in volume to rescue people who -- for whatever reason -- can't make their mortgage payments, Federal Financial Analytics analyst Karen Shaw Petrou recommends thinking about it this way:

"Preventing foreclosures has a lot in common with treating syphilis. In both cases, you help some who are undeserving, but – in an economic collapse or a public-health emergency – one acts nonetheless. "

Just as in an serious epidemic, you'd take care of the problem and leave moral judgements to others, the right course of action is to take action to halt the housing crisis and leave the debate about moral hazard to economists, she wrote in a note to clients on Friday.