Juggling Dynamite

The US housing market continues to fold as reported by Bloomberg this morning.  http://www.newsday.com/business/ny-bzfore5203745may08,0,4007906.story?coll=ny-business-print

Meanwhile in other parts of the world the bubble is still billowing,  See London Housing Gap Sparks `Gazumping' Epidemic of Bidding Wars  http://www.bloomberg.com/apps/newspid=email_en&refer=economy&sid=aqCYhxafUCWE

Sure we all had this coming.  Cycles repeat over and over through human time and this time is perhaps no exception.  But it is still hard to watch.  Housing crashes hurt real people with real families who need a place to live.  In this sense, bubbles in real estate are much more painful than bubbles in other assets.  A housing bubble breaking is more broadly felt.  Hitting us in hearth and home literally; these “corrections” have a negative and often lasting impact on family and emotional stability of the society as a whole.

Consumer protection laws will doubtless be increased in this area as the carnage falls out.  Some of that is needed, sadly, at this point though most of it will be well-meaning and too little, too late. 

Human beings are nothing if not predictable.  Especially when the greed of large commissions are motivating.  A story today in the Washington Post highlights that the same old characteristics have been running rampant in the mortgage business of the past few years as have accompanied other similar manias and cash grabs throughout market history.

http://www.washingtonpost.com/wp-dyn/content/article/2007/05/06/AR2007050601402.html?referrer=emailarticle

“But salespeople worked on commission–meaning the more loans they sold, the more bonus money they received.  “That's a bad business model.  Its absolutely contradictory.”

My thought:  of course the conflicts are staggering, but the whole financial sales business works this way.  Governments and regulators continue to be willfully blind as they dance on the arm of the sales firms.  More fallout to follow. 

The Federal Reserve Board, under fire from Congress for lax enforcement during the biggest mortgage boom in American history, will hold a public hearing on how it might use its authority to prevent abuses in the mortgage market.  See Bloomberg story http://www.bloomberg.com/apps/news?pid=email_en&refer=economy&sid=az0YslU2CiQU

Bottom line:  few people see the need for caution and restraint until after wild excess has brought great pain on the nation.  Yet again.  There will be more fall out from this free-flowing money era.  The waves of lawsuits and finger-pointing are just getting underway.