News Release

Housing Bubble Fallout

DEAN BAKER
Co-director of the Center for Economic and Policy Research, Baker said today: “There is a simple and direct way in which the federal government can help out millions of moderate-income families struggling to keep their homes: They can simply change the rules on foreclosure to allow moderate-income homeowners the option to remain in their homes indefinitely as renters, paying the fair market rent. … In contrast, the politicians are lining up with plans that ostensibly protect homeowners, but would most immediately benefit the mortgage holders who speculated in predatory mortgage debt.”

Baker said on an IPA release on June 30, 2004: “Just as he allowed a stock bubble to inflate to dangerous proportions in the late nineties, Alan Greenspan has allowed, and arguably promoted, the development of a housing bubble in the last four years. For the first time in the post-war period, home prices have substantially outpaced the overall rate of inflation, creating nearly $4 trillion in bubble wealth. While the collapse of this bubble will almost certainly lead to a recession, the problem is only made worse by delaying the inevitable.”

For more IPA releases on the housing bubble going back to 2002, see:

The U.S. Economy and War

* Fed Interest Rate Hike * Housing Bubble

* Tax Cuts * Greenspan * Jobs

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DOUG HENWOOD
Henwood is editor of Left Business Observer and author of the book Wall Street. He said today: “Recent turmoil in the financial market is the entirely predictable result of the bursting of the U.S. housing bubble (and the exotic securities that Wall Street invented to finance it), whose very existence was repeatedly denied by experts from Alan Greenspan on down. As with most financial manias, it was a product of simple greed, malignant optimism, and outright criminality; the sad fact is that many people will lose the houses that they were tricked or seduced into buying. Beyond that, we just don’t know yet whether this will remain a localized crisis or will spread to have broad economic effects. But given how the expansion of the bubble powered about half of U.S. economic growth in recent years, the bubble’s demise is at the very least likely to drag down an already weak economy.”

In 2005, Henwood wrote an article titled “Frothing at the House,” stating: “Alan Greenspan, who spent much of the late 1990s denying the existence of a stock bubble, has spent much of the last couple of years denying that housing was getting pumped up. He coyly argued in a May 6 speech, ‘nominal house prices in the aggregate have rarely fallen and certainly not by very much,’ which sounds reassuring. … [However,] large chunks of Greenspan’s analysis don’t survive fact-checking.”
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For more information, contact the Institute for Public Accuracy at (202) 347-0020.