Great Recession - Revision history

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	In '''2002''', [[Robert Blumen]] summed up the effect of the activities of Fannie and Freddie on the housing market as shows the systemic risk and foresaw a coming bailout.<ref name="Blumen_Fannie">Blumen, Robert. [https://mises.freecapitalists.org/daily/986 "Fannie Mae Distorts Markets"], ''Mises Daily'', June 17, 2002. Referenced 2011-01-10.</ref> [[Sean Corrigan]] pointed to the blooming real estate business among all the bankruptcies, and noted that real estate bubbles tend to pop several years after stock market bubbles, and that mortgages may fare much worse compared to stocks... along with their owners.<ref name="Corrigan_Trouble">Corrigan, Sean. [https://mises.freecapitalists.org/daily/994 "The Trouble with Debt"], ''Mises Daily'', July 01, 2002. Referenced 2011-01-10.</ref> Congressman [[Ron Paul]] criticized government involvement in housing, and said that like all artificially created bubbles, the boom in housing prices cannot last forever.<ref name="Paul_Testimony">Paul, Ron. [http://paul.house.gov/index.php?option=com_content&task=view&id=323&Itemid=60 "Testimony to U.S. House of Representatives"], July 16, 2002. Referenced 2011-01-10.</ref>		In '''2002''', [[Robert Blumen]] summed up the effect of the activities of Fannie and Freddie on the housing market as shows the systemic risk and foresaw a coming bailout.<ref name="Blumen_Fannie">Blumen, Robert. [https://mises.freecapitalists.org/daily/986 "Fannie Mae Distorts Markets"], ''Mises Daily'', June 17, 2002. Referenced 2011-01-10.</ref> [[Sean Corrigan]] pointed to the blooming real estate business among all the bankruptcies, and noted that real estate bubbles tend to pop several years after stock market bubbles, and that mortgages may fare much worse compared to stocks... along with their owners.<ref name="Corrigan_Trouble">Corrigan, Sean. [https://mises.freecapitalists.org/daily/994 "The Trouble with Debt"], ''Mises Daily'', July 01, 2002. Referenced 2011-01-10.</ref> Congressman [[Ron Paul]] criticized government involvement in housing, and said that like all artificially created bubbles, the boom in housing prices cannot last forever.<ref name="Paul_Testimony">Paul, Ron. [http://paul.house.gov/index.php?option=com_content&task=view&id=323&Itemid=60 "Testimony to U.S. House of Representatives"], July 16, 2002. Referenced 2011-01-10.</ref>

	In '''2004''', [[Mark Thornton]] wrote that higher interest rates (indicated by the Fed) "should trigger a reversal in the housing market and expose the fallacies of the new paradigm, including how the housing boom has helped cover up increases in price inflation. Unfortunately, this exposure will hurt homeowners and the larger problem could hit the American taxpayer, who could be forced to bailout the banks and government-sponsored mortgage guarantors who have encouraged irresponsible lending practices."<ref name="Thornton_Housing">Thornton, Mark. "[https://mises.freecapitalists.org/daily/1533 Housing: too good to be true.]" June 4, 2004. Referenced 2011-01-10.</ref> Later on, he spelled out the consequences for the construction industry, unemployment, foreclosures, bankruptcies, bailouts of banks and GSEs, and a long recession.<ref name="Thornton">Thornton, Mark. [~~http~~://~~mises~~.org/journals/scholar/~~Thornton13.pdf~~ "The Economics of Housing Bubbles"], June 2006, p. 27, 29, 31. Referenced 2011-01-10.</ref>		In '''2004''', [[Mark Thornton]] wrote that higher interest rates (indicated by the Fed) "should trigger a reversal in the housing market and expose the fallacies of the new paradigm, including how the housing boom has helped cover up increases in price inflation. Unfortunately, this exposure will hurt homeowners and the larger problem could hit the American taxpayer, who could be forced to bailout the banks and government-sponsored mortgage guarantors who have encouraged irresponsible lending practices."<ref name="Thornton_Housing">Thornton, Mark. "[https://mises.freecapitalists.org/daily/1533 Housing: too good to be true.]" June 4, 2004. Referenced 2011-01-10.</ref> Later on, he spelled out the consequences for the construction industry, unemployment, foreclosures, bankruptcies, bailouts of banks and GSEs, and a long recession.<ref name="Thornton">Thornton, Mark. [https://freecapitalists.org/journals/scholar/thornton13/ "The Economics of Housing Bubbles"], June 2006, p. 27, 29, 31. Referenced 2011-01-10.</ref>

	[[Stefan Karlsson]] wrote that the next crisis will be more serious than the mild recession of 2001 one; as it is, in fact, that very same crisis, only postponed.<ref name="Karlsson_Unsustainable">Karlsson, Stefan. [https://mises.freecapitalists.org/daily/1670 "America's Unsustainable Boom"], ''Mises Daily'', November 8, 2004. Referenced 2011-01-10.</ref>		[[Stefan Karlsson]] wrote that the next crisis will be more serious than the mild recession of 2001 one; as it is, in fact, that very same crisis, only postponed.<ref name="Karlsson_Unsustainable">Karlsson, Stefan. [https://mises.freecapitalists.org/daily/1670 "America's Unsustainable Boom"], ''Mises Daily'', November 8, 2004. Referenced 2011-01-10.</ref>

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Show changes

Pestergaines: /* Links */ +res

2013-06-25T18:53:07Z

Links: +res

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	* [http://vimeo.com/45687897 Fraud. Why the great recession] (video, movie), July 2012		* [http://vimeo.com/45687897 Fraud. Why the great recession] (video, movie), July 2012
	* [http://www.kellogg.northwestern.edu/~/media/Files/Faculty/Research/CRA.ashx Did the Community Reinvestment Act (CRA) Lead to Risky Lending?] (pdf) by Benmelech, Efraim, Sumit Agarwal, Amit Seru and Nittai Bergman, January 2012		* [http://www.kellogg.northwestern.edu/~/media/Files/Faculty/Research/CRA.ashx Did the Community Reinvestment Act (CRA) Lead to Risky Lending?] (pdf) by Benmelech, Efraim, Sumit Agarwal, Amit Seru and Nittai Bergman, January 2012
			* [http://www.independent.org/pdf/tir/tir_18_01_10_higgs.pdf Real Gross Domestic Private Product, 2000–2012] (pdf) by Robert Higgs, 2013

	{{DEFAULTSORT:Great Recession, The}}		{{DEFAULTSORT:Great Recession, The}}

Pestergaines: A new bubble.

2013-05-21T18:57:49Z

A new bubble.

← Older revision		Revision as of 18:57, 21 May 2013
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	Another factor in the rise of food prices has been the subsidizing of corn for use as a [[biofuel]]. As of 2011, the [[United States]] has been spending about $6 billion a year on federal support for ethanol production through tax credits, tariffs, and other programs. Thanks to this financial assistance, one-sixth of the world’s corn supply was burned in American cars. That would be enough corn to feed 350 million people for an entire year. As a result of official policy in the US and Europe, including aggressive production targets, biofuel consumed more than 6.5% of global grain output and 8% of the world’s vegetable oil in 2010, up from 2% of grain supplies and virtually no vegetable oil in 2004.<ref name="Lomborg_Race">Bjørn Lomborg. [http://www.project-syndicate.org/commentary/lomborg70/English "A Race to Hunger"], ''Project Syndicate'', 2011-03-10. Referenced 2011-04-23.</ref> In 2011, 40% of America's corn crop will go to ethanol production, when 10 years before it was only 7%.<ref name="Evans_Global">Alex Evans. [http://www.guardian.co.uk/global-development/poverty-matters/2011/may/31/global-food-crisis-real-cost-biofuels "Global food crisis: Counting the real cost of biofuels"], 'The Guardian'', 31 May 2011. Referenced 2011-06-06.</ref>		Another factor in the rise of food prices has been the subsidizing of corn for use as a [[biofuel]]. As of 2011, the [[United States]] has been spending about $6 billion a year on federal support for ethanol production through tax credits, tariffs, and other programs. Thanks to this financial assistance, one-sixth of the world’s corn supply was burned in American cars. That would be enough corn to feed 350 million people for an entire year. As a result of official policy in the US and Europe, including aggressive production targets, biofuel consumed more than 6.5% of global grain output and 8% of the world’s vegetable oil in 2010, up from 2% of grain supplies and virtually no vegetable oil in 2004.<ref name="Lomborg_Race">Bjørn Lomborg. [http://www.project-syndicate.org/commentary/lomborg70/English "A Race to Hunger"], ''Project Syndicate'', 2011-03-10. Referenced 2011-04-23.</ref> In 2011, 40% of America's corn crop will go to ethanol production, when 10 years before it was only 7%.<ref name="Evans_Global">Alex Evans. [http://www.guardian.co.uk/global-development/poverty-matters/2011/may/31/global-food-crisis-real-cost-biofuels "Global food crisis: Counting the real cost of biofuels"], 'The Guardian'', 31 May 2011. Referenced 2011-06-06.</ref>

			==A new bubble==
			The Case-Schiller 20-City Index shows that housing prices increased by 1.2 percent in February and 9.3 percent year-over-year. All cities included in the index experienced substantial gains, which have been driven by staggeringly large increases in the bottom tier of the market. In Phoenix housing prices rose by 23 percent over the past year, but by 39 percent in the bottom third of the housing market. Las Vegas home prices were up by 17.6 percent in the past year while prices for houses in the bottom tier rose by 34.2 percent, and at an annual rate of 56.2 percent in the last three months. In Atlanta, bottom-tier home prices rose 36 percent year-over-year and at an annual rate of 70 percent in the past three months.

			In light of the data, Dean Baker, one of the few left-of-center economists to issue an early warning about the last housing bubble, sees signs of a renewed housing bubble on the horizon:

			{{cquote\|This rapid increase in house prices should be prompting serious concern among regulators. At the moment, it is not driving the economy in the same way as the housing bubble did in the last decade. Construction is still at very low levels, so a plunge in prices could not have impact on the economy through this channel. While saving rates are again low, possibly due in part to increasing home equity, it is likely that the data are somewhat distorted by the large dividend payouts of the fourth quarter. If the saving rate remains below 3.0 percent into the second half of the year (the post-World War II average is more than 8.0 percent) then this would suggest that inflated house prices are playing a role. If that is the case, a decline in house prices would lead to another hit to consumption.

			However the main reason that the rapid run-up in prices in the bottom tier should be a cause for a concern is that moderate-income homebuyers may again take a big hit if these prices plunge in a correction.<ref name="Salerno_Bubble">Joseph Salerno. [http://bastiat.mises.org/2013/04/bubble-bubble-housing-in-trouble/ "Bubble, Bubble, Housing in Trouble"], ''The Circle Bastiat'', April 30th, 2013. Refers to [http://www.cepr.net/index.php/data-bytes/housing-market-monitor/hmm-2013-04 "Price Increases Accelerate Further in February, Driven by Bottom Tier of Market"] by Dean Baker, ''Housing Market Monitor'', April 30, 2013. Referenced 2013-05-21.</ref>}}

	==See also==		==See also==

Pestergaines: /* Links */ +res

2013-03-30T15:20:28Z

Links: +res

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	* [http://mises.org/daily/4896/Hoover-Bush-and-Great-Depressions "Hoover, Bush, and Great Depressions"] by [[Mark Thornton]], January 2011		* [http://mises.org/daily/4896/Hoover-Bush-and-Great-Depressions "Hoover, Bush, and Great Depressions"] by [[Mark Thornton]], January 2011
	* [http://vimeo.com/45687897 Fraud. Why the great recession] (video, movie), July 2012		* [http://vimeo.com/45687897 Fraud. Why the great recession] (video, movie), July 2012
			* [http://www.kellogg.northwestern.edu/~/media/Files/Faculty/Research/CRA.ashx Did the Community Reinvestment Act (CRA) Lead to Risky Lending?] (pdf) by Benmelech, Efraim, Sumit Agarwal, Amit Seru and Nittai Bergman, January 2012

	{{DEFAULTSORT:Great Recession, The}}		{{DEFAULTSORT:Great Recession, The}}

Pestergaines: /* Links */ +res

2013-03-08T20:26:10Z

Links: +res

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	* [http://video.google.com/videoplay?docid=-2757699799528285056 Real Estate Roller Coaster] (video), history of home values, 1890-2006		* [http://video.google.com/videoplay?docid=-2757699799528285056 Real Estate Roller Coaster] (video), history of home values, 1890-2006
	* [http://mises.org/daily/3128 The Bailout Reader] by Mises.org, September 2008		* [http://mises.org/daily/3128 The Bailout Reader] by Mises.org, September 2008
			* [http://www.fee.org/files/doclib/HouseUncleSamBuiltBooklet.pdf The House That Uncle Sam Built: The Untold Story of the Great Recession of 2008] (pdf) by Steven Horwitz and Peter Boettke, December 2009
	* [http://mises.org/daily/4059 "Illusions of the Age of Keynes"] by [[Doug French]], January 2010		* [http://mises.org/daily/4059 "Illusions of the Age of Keynes"] by [[Doug French]], January 2010
	* [http://www.independent.org/blog/index.php?p=5142 "Anatomy of the Current Recession"] by [[Robert Higgs]], February 2010		* [http://www.independent.org/blog/index.php?p=5142 "Anatomy of the Current Recession"] by [[Robert Higgs]], February 2010

RayBirks: /* Prelude to the crisis */ wikify term 'Amortization' (though no page yet)

2012-09-29T18:53:26Z

Prelude to the crisis: wikify term 'Amortization' (though no page yet)

← Older revision		Revision as of 18:53, 29 September 2012
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	==Prelude to the crisis==		==Prelude to the crisis==
	Banks increasingly had the incentive to make long-term amortizing loans secured by long-term assets because the threat of bank runs has been taken away by increases in [[Federal Deposit Insurance Corporation\|FDIC]] deposit insurance. Deposit insurance started at $2,500 in the [[Great Depression]] and has increased in fits and starts to $250,000 in 2009. With the increase in deposit insurance there was no need to maintain liquidity. So instead of making short-term, self-liquidating business lines of credit, bankers opted for making real-estate loans.		Banks increasingly had the incentive to make long-term [[Amortization\|amortizing]] loans secured by long-term assets because the threat of bank runs has been taken away by increases in [[Federal Deposit Insurance Corporation\|FDIC]] deposit insurance. Deposit insurance started at $2,500 in the [[Great Depression]] and has increased in fits and starts to $250,000 in 2009. With the increase in deposit insurance there was no need to maintain liquidity. So instead of making short-term, self-liquidating business lines of credit, bankers opted for making real-estate loans.

	This shift over the decade (2000s) was reflected in numbers from the FDIC: at the end of the third quarter of 1999, the assets of the nation's banks totaled $5.5 trillion. As of September 30 2009, bank assets had grown to $13.2 trillion. Commercial and industrial loans outstanding only grew from $947 billion a decade ago to $1.27 trillion by September 30, 2009. Meanwhile, loans secured by real estate increased from $1.43 trillion in the fall of 1999 to $4.5 trillion in 2009. And investment in securities doubled, rising from $1.03 trillion to $2.4 trillion.<ref name="French_loans">Doug French. [http://mises.org/daily/3925 "Productive Debt versus Unproductive Debt"], Mises Daily, December 08, 2009. Referenced 2010-07-28.</ref>		This shift over the decade (2000s) was reflected in numbers from the FDIC: at the end of the third quarter of 1999, the assets of the nation's banks totaled $5.5 trillion. As of September 30 2009, bank assets had grown to $13.2 trillion. Commercial and industrial loans outstanding only grew from $947 billion a decade ago to $1.27 trillion by September 30, 2009. Meanwhile, loans secured by real estate increased from $1.43 trillion in the fall of 1999 to $4.5 trillion in 2009. And investment in securities doubled, rising from $1.03 trillion to $2.4 trillion.<ref name="French_loans">Doug French. [http://mises.org/daily/3925 "Productive Debt versus Unproductive Debt"], Mises Daily, December 08, 2009. Referenced 2010-07-28.</ref>

Pestergaines: /* Links */ +res

2012-07-18T22:14:30Z

Links: +res

← Older revision		Revision as of 22:14, 18 July 2012
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	* [http://mises.org/daily/4989 "Can Austrian Theory Explain Construction Employment?"] by [[Robert P. Murphy]], January 2011		* [http://mises.org/daily/4989 "Can Austrian Theory Explain Construction Employment?"] by [[Robert P. Murphy]], January 2011
	* [http://mises.org/daily/4896/Hoover-Bush-and-Great-Depressions "Hoover, Bush, and Great Depressions"] by [[Mark Thornton]], January 2011		* [http://mises.org/daily/4896/Hoover-Bush-and-Great-Depressions "Hoover, Bush, and Great Depressions"] by [[Mark Thornton]], January 2011
			* [http://vimeo.com/45687897 Fraud. Why the great recession] (video, movie), July 2012

	{{DEFAULTSORT:Great Recession, The}}		{{DEFAULTSORT:Great Recession, The}}

Pestergaines: /* Government intervention in the housing market */ Added intervention.

2012-01-12T08:27:29Z

Government intervention in the housing market: Added intervention.

← Older revision		Revision as of 08:27, 12 January 2012
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	Some borrowers and mortgage brokers connived to conceal applicants' inability to meet even the loosened financial standards. Borrowers and lenders were seduced by expectations that the collateral — houses — would keep rising in price indefinitely. Low interest rates spurred savers and institutions to look for better yields even on new or exotic and riskier kinds of investment. Financiers reached for these yields, resorting to complicated and poorly understood financial derivatives and making defective assessments and unclear explanations of risks.<ref name="Yeager_bubble_background">Leland B. Yeager. [http://mises.org/daily/4531 "Pandemic: The Contagious Crisis"], Mises Daily, July 08, 2010. Referenced 2010-07-28.</ref>		Some borrowers and mortgage brokers connived to conceal applicants' inability to meet even the loosened financial standards. Borrowers and lenders were seduced by expectations that the collateral — houses — would keep rising in price indefinitely. Low interest rates spurred savers and institutions to look for better yields even on new or exotic and riskier kinds of investment. Financiers reached for these yields, resorting to complicated and poorly understood financial derivatives and making defective assessments and unclear explanations of risks.<ref name="Yeager_bubble_background">Leland B. Yeager. [http://mises.org/daily/4531 "Pandemic: The Contagious Crisis"], Mises Daily, July 08, 2010. Referenced 2010-07-28.</ref>

			In 1997 homeowners were given a $250,000 exemption ($500,000 for couples) for capital gains that resulted from the sale of their house, adding greatly to the tax benefits of home ownership. This tax break could be said to have lit the fuse of the housing bubble. Then, government-sponsored credit corporations such as [[Fannie Mae]] and [[Freddie Mac]], who can acquire capital at a subsidized rate because of the implicit assumption that the Federal government will bail them out, began to collateralize home mortgage debt on a grand scale so that lenders could quickly and easily resell the loans they make. These government-sponsored agencies have helped stimulate the flow of credit to riskier borrowers who might not otherwise have access to credit, and have therefore helped to lower the credit standards of lending institutions.<ref name="Thornton_Told">Mark Thornton. [http://www.lewrockwell.com/thornton/thornton33.html "We Told You So"], ''LewRockwell.com'', March 24, 2007. Referenced 2011-01-12.</ref>

	===Financial markets===		===Financial markets===

Pestergaines: /* Predicting the crisis */ More predictions.

2012-01-10T20:29:40Z

Predicting the crisis: More predictions.

@@ Line 22: / Line 22: @@
 <small>Federal Reserve Chairman [[Alan Greenspan]], 2003.</small><ref name="Greenspan_bubble">Alan Greenspan. [http://www.access.gpo.gov/congress/senate/pdf/108hrg/86497.pdf "Global Aging: Opportunity or Threat for the U.S. Economy?"] (pdf), Hearing before the [http://aging.senate.gov/ Special Committee on Aging], United States Senate, One Hundred Eighth Congress, First Session, Washington, DC, February 27, 2003, p.10. Referenced 2010-07-24.</ref></blockquote>
-A common view from the very beginning of the credit crisis, shared from the upper echelons of the global financial and policy hierarchy and in academia to the general public, was that, ‘no one saw this coming’. However, several economical analysts - especially from the [[Austrian School of Economics]] - warned specifically about a housing-led recession, going against the general mood and official assessment, and well before most observers turned critical from late 2007.<ref name="Bezemer_coming">Bezemer, Dirk J. [http://som.eldoc.ub.rug.nl/FILES/reports/2009/09002/09002_Bezemer.pdf "No One Saw This Coming": Understanding Financial Crisis Through Accounting Models] (pdf), ''Groningen University'', 16. June 2009. Referenced 2010-07-30.</ref><ref name="Mises_Bailout">Mises.org. [http://mises.org/daily/3128 "The Bailout Reader"], ''Mises Daily''', September 2008, section "Who Predicted This?". Referenced 2010-11-11.</ref><ref name="Murphy_Recession">Robert P. Murphy. [http://mises.org/daily/2728 "The Worst Recession in 25 years?"], ''Mises Daily'', October 01, 2007. Referenced 2010-11-11.</ref> For example, in 2004, [[Mark Thornton]]<ref name="Thornton_Housing">Mark Thornton. [http://mises.org/daily/1533 "Housing: Too Good to be True"], ''Mises Daily'', June 04, 2004. Referenced 2010-11-25.</ref> and others warned about a bubble in the housing market.<ref name="Karlsson_Boom">Stefan Karlsson. [http://mises.org/daily/1670 "America's Unsustainable Boom"], ''Mises Daily'', November 08, 2004. Referenced 2010-11-25.</ref>
+A common view from the very beginning of the credit crisis, shared from the upper echelons of the global financial and policy hierarchy and in academia to the general public, was that, ‘no one saw this coming’. However, several economical analysts - especially from the [[Austrian School of Economics]] - warned specifically about a housing-led recession, going against the general mood and official assessment, and well before most observers turned critical from late 2007.<ref name="Bezemer_coming">Bezemer, Dirk J. [http://som.eldoc.ub.rug.nl/FILES/reports/2009/09002/09002_Bezemer.pdf "No One Saw This Coming": Understanding Financial Crisis Through Accounting Models] (pdf), ''Groningen University'', 16. June 2009. Referenced 2010-07-30.</ref><ref name="Mises_Bailout">Mises.org. [http://mises.org/daily/3128 "The Bailout Reader"], ''Mises Daily''', September 2008, section "Who Predicted This?". Referenced 2010-11-11.</ref><ref name="Murphy_Recession">Robert P. Murphy. [http://mises.org/daily/2728 "The Worst Recession in 25 years?"], ''Mises Daily'', October 01, 2007. Referenced 2010-11-11.</ref>
 The [[Federal Reserve]], led by then-Chairman [[Alan Greenspan]], identified a housing bubble in 2005 and failed to slow down the expansion of mortgage credit, as transcripts from Open Market Committee meetings that year show.<ref name="Torres_Fed">Craig Torres. [http://www.bloomberg.com/news/2011-01-14/fed-saw-housing-bubble-in-2005-failed-to-alter-policy-of-rate-increases.html "Fed Officials Saw Housing Bubble in 2005, Didn't Alter Policy"], ''Bloomberg'', January 14, 2010. Referenced 2010-11-11.</ref>