As some in policy circles advocate unilateral financial disarmament, I think it is useful to think about what history tells us about the financial crisis of 2008, which seems to have already receded in people’s collective consciousness. Here I turn to Alexander Field’s new volume on the Great Depression, A Great Leap Forward. From Chapter 10, “Financial Fragility and Recovery”:
The regulatory or policy failure was not simply or primarily a matter of interest rate policy. Rather it was a failure to control, or really be interested in controlling, the growth of leverage. …
…This is understandable from a political-economic perspective. In the boom period, higher leverage combined with riskier lending engendered vastly increased financial sector profits and compensation and both the means and motivation to lobby effectively against government regulation, which stood in the way of the continued operation of the money train. That is how we got to where we are.
There is thus a strong case that lax regulatory environments contributed to the onset of both the Great Depression and the recession of 2007-09 and that well-designed rules are necessary to reduce the likelihood of future crises. In part it is a matter of fairness. Citizens should not be faced with the choice of either saving the creditors and employees of financial institutions that are too big or too interconnected to fail from the consequences of their risky behavior or enduring serious declines across the economy in output or employment.
Once the economy goes into recession, of course, it is too late. …
So, as efforts proceed to enable financial capture of the Consumer Financial Protection Bureau [1] and defund implementation of Dodd-Frank [2], we should remember “Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.”
The book also debunks the notion that rapid technological innovation necessarily induces rapid growth. As Field documents, TFP growth during the 1930’s was actually quite rapid (see also [3]) Demand was the missing ingredient.
Wise words. Technological change from the 1890s to the 1920s was actually more rapid and more disruptive than was the case during the introduction of the internet, the home computer, the smartphone, etc.
If you think about it, the transformation from the 1890s to the 1920s was almost unimaginable. The world went from steam power to electricity, from a telegraph to voice & music by radio, from horse-drawn carriages to automobiles everywhere, from gliders to passenger airplanes, from tin phonographs to vacuum tube electronics. By comparison, the transformations wrought by the internet and PCs and smartphones have been largely incremental — they enhanced what was already present, but didn’t represent anything fundamentally new. FIDONET, for example, predated the net: I was on FIDONET back in the early 1980s, and it had most of the characteristics of forums like this, except without the glitzy graphics — text-only, and on a green-screen monitor. Smartphones are likewise merely upgrades of the Psion Organizer and other PDA widgets that proliferated throughout the 80s. But radio was something radically new. There had never been anything like it. Passenger planes were wildly new: people had imagined such a thing, but had never come close to creating ’em.
I think you’re implying the ‘illness’ version of recession, in which recessions reflect an undesirable event to be avoided.
There is a second version of recessions as price dislocations associated with lags in fixed asset investment. You can see this pattern clearly, for example, in the orders for offshore drilling rigs. The cycles run 4-5 years–and it takes 3-4 years to order and build a rig. This view is related to Jim’s notion of recessions as primarily associated with housing and autos–so, fixed asset related. In such a world, recessions are part of a necessary re-balancing and inherent given fixed asset investment lags. It’s not about avoiding such recessions, but perhaps about smoothing a bit.
The third type of recession is a financial crisis, associated with excessive leverage linked to fixed assets: stocks and real estate, primarily. This seems to be the result of very low interest rates which fuel asset price rises and excessive leverage as investors take greater risks in search of yield. The driver for these sorts of crises would seem to be either excessive real liquidity or rapid productivity increases. I’m not sure we have a particularly good understanding of the dynamics here, but it may be no coincidence that depressions followed the Roaring ’20s in the US and the Roaring 00s in China. I think it might be interesting to consider depressions as problems of excessive productivity growth, thereby creating a large overhang of excess labor which takes a relatively long time to absorb.
In any event, I am pessimistic about whether recessions can–or even ought to–be outlawed. Further, not all recessions are necessarily the same.
As for Dodd-Frank:
It would seem that SOX did a pretty good job of gutting the IPO business in the US. Maybe Dodd-Frank can do the same for banking. I was at a party with a senior banker from Barclays a few weeks ago, and he was talking about managing a declining industry in the US. We have comparative advantage in finance in the US. Killing that comparative advantage won’t make us any better at making lawn chairs.
“Il etait digne de notre nation de singes de regarder nos assassins comme nos protecteurs;nous sommes des mouches qui prenons le parti des araignées” Voltaire
Historians, economists, writers have and will expand on the so called great recession, but none of them have so far reached the confines of this economic debacle. No parallel can be drawn from the past with this present self mutilation, where politicians, public administrations, governments, public institutions, supra national institutions have all converged together around theories, unchecked and untested applications of mathematical models, unchecked financial markets, permissive financial rules, checkered financial instruments and financial accounts. None has pictured, the cynical smiles around the lips of the financial representatives when asked to justify this financial debacle. None has stressed the credulity behind the belief that a financial sector could be healthier and wealthier than the productive sectors of its domestic economy. None has ever asked how increasingly leveraged multiple functions with multiple variables, could be understood and monitored by banks chief executive officers or any of the operating staffers.
When 1927 1932 financial crisis remains a private sector” laissez faire” and a benign neglect of the financial administrations, the actual crisis is the byproduct of a forceful participation of the political circles and their administrations. When reading through the literature of the great depression, in no circumstances administrations seem to be directly involved in the make up of a crisis to come. Trust funds are engaged in pyramidal schemes, banks are closed, consumers financing is leveraged, public accounts become the same and in that order. Central banks are not engaged in interest swaps, they did not prior to the great depression derogate to their fiduciaries obligations, derivatives are absent from any books. The collusion between the institutional work frame and the financial corporation is not transparent. States, municipalities, regions are not overleveraged, public accounts are not occulted. The western world, besides few exceptions enjoy positive current accounts prior to the crisis.
The narrative remains the same, when sitting on a four legged armchair, keeping the four legs strong, may include political administration, customers, staff and whatever has to be prioritized.
The Cistercian, knew that falling asleep at work could be damageable to the task, they devised a
One legged stool.
One part of the answer is greater transparancy for all financial institutions. FI’s cannot expect to conceal portions of their balance sheet while at the same time expecting taxpayers to bail them out.
Regarding Dodd Frank and the CFPB, removal of the partisan b.s. and the adoption of a few targeted rules would be much more effective, IMO.
tj: It would be helpful for us to know exactly what are the partisan b.s. components you would want purged. Greater transparency of CDS trading? Higher capital requirements? Should we target only the deposit-taking banks and let the investment banks, hedge funds and SIVs be completely unregulated?
Menzie, how do you address the fact that the Bassel financial regulations were behind the demand for mortgage backed securities? The bottom line was that risk was mispriced, but nobody cared. How does regulation address that?
Buzzcut: MBS’s existed before Basel II. I would delink payment for securities ratings (buy my book!). And, if the regulations include higher capital requirements (as they do), then we are more likely to prevent overleveraging. Better than relying on “self-regulation”.
What we need is smarter regulation, not more regulation. Dodd-Frank just creates another federal bureaucracy with non-elected officials writing rules and with all the problems of regulatory capture and politics. Blunt regulation is often better in the long run, because it’s harder to dance around. Why didn’t Congress just pass a law saying any prime mortgage must have a 20% down payment, and no mortgage could be originated with less than a 10 or 15% down payment? That would have taken care of all the NINJA, NegAm, IO, and other junk mortgages that got us into this mess in the first place. What’s wrong with just passing a law saying commercial banks that offer FDIC protection to account holders cannot also function as investment banks? When you create a new regulatory body, that just encourages political interests and lobbyists to create a labyrinth of rules that only protects incumbents and creates a plethora of unintended side effects, often without addressing the root problems, like mortgages where borrowers don’t have enough skin in the game to have an incentive to honor their contracts.
Brian: Nothing you suggested would have prevented off-balance sheet operations with high leveraging. You’re really blaming the entire 2008 crisis on NINJA loans?
Menzie,
In typical progressive fashion, another lumbering bureaucracy is created that shifts power to the executive branch.
Reform is certainly necessary, but if we let progressives continue to craft policy, we will run out of money to feed the federal beast. They are creating entire industries of regulators and paper shufflers. If we learned anything from the healthcare debate, its that these major pieces of legislation need to be bipartisan in nature to avoid creating more problems and unintended consequences in the future.
See Sections 1011 and 1012 for starters:
http://www.sec.gov/about/laws/wallstreetreform-cpa.pdf
(a) POWERS OF THE BUREAU.—The Bureau is authorized to establish the general policies of the Bureau with respect to all executive and administrative functions, including—
(3) RULES AND ORDERS.—No rule or order of the Bureau shall be subject to approval or review by the Board of Governors. The Board of Governors may not delay or prevent the issuance of any rule or order of the Bureau.
Crazy stuff.
Menzie, you’re right that there are more issues than I addressed. However, to your direct question, yes, much of the crisis is a result of loans made to unqualified buyers. Without those types of subprime loans, we wouldn’t have had such a large speculative run-up in house prices; and without those types of loans there would not be so many toxic RMBS’s sitting off banks’ balance sheets. Your issue could be addressed through better accounting rules and stricter Federal Reserve enforcement of banks. But again, the best way to fix lax oversight is not simply to create more oversight but rather to correct the problems that led to lax oversight and resulting mess in the first place.
Several researchers did an excellent job showing that the financial meltdown was really an asset bubble. The asset bubble grew not because buyers had innovative mortgages with too little skin in the game. It grew because people were convinced that the assets would appreciate. Ron White may not be an economist, but he correctly observes, “You can’t fix stupid!” There is no amount of regulation which will make managers smarter. The answer is not to assume that regulators can teach people to ignore bad incentives or to stop believing that which they hold dear. I do agree the Good Regulation is necessary. Having litigated SorBox issues, I do not believe it was Good Regulation. As Dodd-Frank regulations are still being written, I doubt that it is Good Regulation. In my opinion Good Regulation is that which is easily understood. For example, Brian’s proposal that if an entity wants FDIC insurance, then it ought not be allowed to function as an investment bank is Good Regulation. It is simple and easy to enforce. It separates the risks which society is willing to insure from those which ought to be private risks.
If one needs a law degree to decipher the regulation, then 1) compliance is hard, 2) compliance is expensive, 3) there are ways around the rules (complying with letter but not spirit), 4)enforcement is also made more difficult. Regulation without enforcement is a nullity. It means that there will be an extra charge on the indictment in the event that one gets caught. However, I am certain that if one gets caught, whatever they were doing was already proscribed.
I do not believe the US needs more regulations. What the US needs is to overhaul the regulatory schemes. Remove stupid regulations. Re-write the incomrehensible prescriptions and proscriptions. Make compliance comparatively easy. Then enforce, enforce, enforce. Until that happens, we are just throwing vague and uncertain words at real problems. We are creating unnecessary artificial barriers to entry which protect the esconced TBTF firms. Nearly every market needs intelligent regulation. That means we 20,000 fewer pages in the CFR not 20,000 more. I know it is so much harder to write a short message than a long one, but if we want our regulators to be effective, then we need clear and concise rules that people, both the regulated and the regulators can understand.
Menzie, your answer is deeply unsatisfying. People gamed the Bassel reg’s using mispriced MBS. They found a way to get junk passed off as AAA rated securities.
Now, the real story is not on the supply side, it is the demand side. Why did bankers buy this stuff? Because the regulations demanded that they have a certain reserve requirement, and the bogus MBS met those requirements. It was DEMAND that created the MBS, not supply. Bassel created the demand.
It is a two way street, Menzie. Again, there was a supply side and a demand side. Both the supply and the demand were created by regulators. It is not clear at all that this crisis was a failure of too little regulation.
The real story about this financial crisis has more to do with public choice theory than anything else. Financial engineers figured out how to game the system, exploiting the Bassel regs for fun and profit. And the crazy thing is, we haven’t done a damn thing to fix it, if anything we are trying to get the securitization system back up and running.
I don’t disagree that leverage is at fault, I just disagree that leverage is best managed by regulation. The Bassel regs prove otherwise.
hi yes The bottom line was that risk was mispriced, but nobody cared. How does regulation address that?
“The book also debunks the notion that rapid technological innovation necessarily induces rapid growth. As Field documents, TFP growth during the 1930’s was actually quite rapid (see also [3]) Demand was the missing ingredient.”
I haven’t got around to reading Field’s book but I am a huge fan of his papers on TFP. In particular: “US economic growth in the gilded age”, “The Most Technologically Progressive Decade of the Century” and “The origins of US total factor productivity growth in the golden age”.
Using those papers and the BLS database average annual TFP growth is as follows:
1835-1855-0%
1855-1869/1878-(-0.5%)
1869/1878-1892-2.0%
1892-1919-1.1%
1919-1929-2.0%
1929-1941-2.8%
1941-1948-0.5%
1948-1973-1.9%
1973-1995-0.5%
1995-2005-1.5%
As you noted TFP growth was at its most rapid ever during the Great Depression. The second thing one should observe is that TFP growth was at 1.9% or higher from the 1870s through 1973 with the exception of 1892-1919 and 1941-1948. TFP growth has picked up since 1995 (but has slowed since 2005).
Now, why was TFP growth faster during the periods mentioned?
Well, Field analyzes the growth by sector and sector size and comes to some interesting conclusions. TFP growth was fast from the 1870s through 1892 because of railroads (which peaked in track mileage in 1916) and to a much lesser extent because of the telegraph. Almost all growth in TFP in the 1920s can be accounted for by manufacturing and that probably fed that decade’s stock market boom. Why did manufacturing TFP explode in the 1920s? According to Field it was due to the widespread electrification of factories (which had started in the 1880s). In the 1930s manufacturing TFP, although still relatively fast, slowed down. (He also points out that private R&D quintipled from 1929-1941.) But transportation TFP soared from 1929-1941 mainly due to the five fold increase in the share of tons-miles hauled by interstate trucking and its interaction with railroad transportation. (The US built its first interstate highway system in the 1930s.) And he argues that transportation TFP was largely responsible for the growth seen from 1948-1973, as manufacturing TFP actually went negative for part of that period. (And recall the Interstate Highway System, built on top of or paralleling the US Route system of the 1930s was largely completed from 1956-1973.)
TFP growth was negative from 1855 to the 1870s primarily because of the Civil War. Note also that the two other slow periods of TFP growth through 1973 (1892-1919 and 1941-1948) contain the world wars. Wars, it would seem, are counterproductive to useful technological progress.
Recent work by Bart van Ark shows that TFP in the distribution sector was the main source of the surge in growth from 1995-2005, and he argues that was due to the widespread adoption of ICT technology by that sector. (Think big box Walmarts.)
What’s interesting is that Federal government money played a major role in all of those developments with the exception of factory electrification (urban areas were largely electrified with private money), even including ICT technology, since the internet, as we all know, owes its origins to ARPANET in 1969.
The era of supposed supply side economic reforms (1980-present), on the other hand, has been more or less a bust from the standpoint of TFP growth.
P.S. Coincidentally Santayana came up as a subject of dinner conversation this weekend. My neighbors were astonished that I occasionally read something other than economics.
Until the other day I agreed with the “it’s the leverage, stupid” perspective on the financial crisis. It’s hard to see such a crisis happening without excessive leverage. Then I read a piece by William Cohan in The Atlantic (http://www.theatlantic.com/magazine/archive/2012/06/how-we-got-the-crash-wrong/8984/) that sews the seeds of doubt. It’s worth a read.
Excellent batch of comments from mclaren, but most particularly JLR and Mark S. Now that’s the standard we should be aiming for.
Regarding the Cohan piece it muddies the water as there is no correlation of leverage by financial entities to the crisis. But there is evidence of excessive household debt to service ratio with a peak in 07/08 in addition to other measures of excessive leverage.
You left out the ideology / theology part, which is a belief that extends the idea of market efficiency to outcomes. People, even key legislators, believe not only that free markets are inherently good but that regulation reduces outcomes. That is, if markets are good, then more markets is better and even more markets can only be better than that. If there is a failure, that must be due to government interference. It’s nonsense but it has captured huge numbers of minds.
Menzie, the master of partisan BS says to tj: it would be helpful for us to know exactly what are the partisan b.s. components you would want purged.
What a hoot!
Thank goodness Jim Hamilton posts here and posts on REAL economic matters, otherwise this blog would be a joke.
Nearly every market needs intelligent regulation. That means we 20,000 fewer pages in the CFR not 20,000 more. I know it is so much harder to write a short message than a long one, but if we want our regulators to be effective, then we need clear and concise rules that people, both the regulated and the regulators can understand.
-JLR
Complexity, verbosity, and opacity are the problem with regulations and institutions. We need smart regulation as you say, and it needs to be human in scope. Have computers, word processing (all technological advances), spreadsheets, etc., created more problems than they have solved?
http://www.nytimes.com/2008/10/12/opinion/12dooling.html?pagewanted=all
The Rise of the Machines
I find it funny that when someone raises a point that does not fit into Menzie’s worldview, say for example, that regulatory uncertainty is depressing growth, Menzie is quick to criticize it for lack of evidence. But when someone makes a statement that does fit with Menzie’s preconceptions, say for example, lax governmental regulations caused the recession, all of Menzie’s principled calls for empirical support go silent.
Be careful.
Bloated, poorly thought out regulations cause more of the problem they were trying to fix. They also create additional unanticipated problems.
regulation and/or accounting rules are the most fertile breeding ground for derivatives and synthetic or packaged securities.
I’ve worked with regulators drafting regulations. It’s a very difficult job. Remember, regulations are open for public review and comment and there can be a tremendous amount of lobbying pressure from members of Congress as well as from affected industries.
My belief is that, sure, it’s great to imagine “intelligent regulation” that would be concise. Not going to happen. Concise, intelligent regulation doesn’t benefit industry. They want loopholes. They want uncertain wording. They fight for that. They have members of Congress pressure for that. A major strategy, seen with Dodd-Frank, is to muddy the wording and to carve out areas which can be used to work around restrictions.
The idea is attractive but it’s utopian. It ignores the reality of political process anywhere in any society.
Steven Kopits I was at a party with a senior banker from Barclays a few weeks ago, and he was talking about managing a declining industry in the US. We have comparative advantage in finance in the US. Killing that comparative advantage won’t make us any better at making lawn chairs.
How do you know we have a comparative advantage in finance? I think you’re confusing comparative advantage and absolute advantage. Just because a country has an absolute advantage in producing a good or service does not mean that country has a comparative advantage.
There’s something almost otherworldly bizarre about most of the comments on this thread. A lot of the comments blame the recession on undeserving homebuyers and too much financial regulation. Selling mortgages to high risk buyers is not necessarily a bad financial decision. The safest portfolio is not the one entirely composed of the safest assets. The only time high risk mortgages become a problem is if their true risk is hidden or falsified, and the folks most responsible for that are kindred spirits of tj and Brian and Bruce Hall. You know…nice respectable business types. And this thread really enters BizarroLand with all of the anti-regulation talk when it wasn’t the regulated banks that were the problem. The bad boyz in this whole affair were the unregulated shadow banks. Very strange comments. Scarier still, most of these folks vote. God help us.
Wisconsin Republican Governor Scott Walker leads Democratic Milwaukee Mayor Tom Barrett by 7 percentage points in the state’s June 5 recall election.
Jeff, TJ, Brian, Bruce Hall, and others, for once Menzie has a point, you knuckleheads. No wonder 2slugbaits is worried that you might actually be voting. Reminds me of a quote from one of my favorite authors, George Santa Ranta: “When you don’t remember the past, you are condemned to forget it.”
Let’s go back to 2004 for example. Concerned members of congress were calling for more regulations and were supporting the current regulator. These concerned congressman were worried that if new and robust regulations aren’t implemented immediately, there could be a serious problem not far down the road. And they were right: current estimates of taxpayer losses are currently between $142 and $259 billion. And yet other powerful members of congress were not only saying at that same time that there was nothing amiss, but were actually attacking the regulator for pointing out the problem. Amazingly, one of those powerful congressional attackers went on in 2005 to scoff at the idea that there might be a housing bubble and to pooh pooh the notion that there could be a large fall in housing prices. The situation back then is eerily like today and reminds me of another pertinent Santa Ranta quote:
“When you won’t remember what really happened back then, you are condemned to quote Santayana again.”
Check out these videos for the shocking details.
http://www.youtube.com/watch?v=NQXbT5ZMYaY
http://www.youtube.com/watch?feature=endscreen&NR=1&v=iW5qKYfqALE
Rick Stryker Current taxpayer losses are not evidence to the claim that lax regulations caused or contributed to the current recession. Perhaps you should abstain this election year if you are so easily persuaded by youtube videos.
2slugs
Please cite the post above where I did not preface my comment with a statement that regulation was necessary.
Post 1 is aimed at your shadow banks: One part of the answer is greater transparancy for all financial institutions. FI’s cannot expect to conceal portions of their balance sheet while at the same time expecting taxpayers to bail them out.
2slugs replies – The only time high risk mortgages become a problem is if their true risk is hidden or falsified, and the folks most responsible for that are kindred spirits of tj and Brian and Bruce Hall.
Let’s see, I propose more transparency and you claim I support hiding true risk. Bizarre.
Post 2 Reform is certainly necessary.
My point is that regulation can be effective without creating bureacratic monsters that are directed by the executive branch. Dodd Frank is a perfect example.
Jeff,
Sorry, I was just joking when I said that Menzie had a point. I do agree with your comments and the comments of the others I mentioned. And I certainly hope that you all do vote. Let me clarify.
The subtext of Menzie’s post is that Republican’s like Mitt Romney and other “free market fundamentalists” fought against responsible reformers to weaken regulatory rules, thus bringing down the financial system. And now they are doing it again, in a repeat of history.
Like you, I want to see the evidence for this claim. Instead of offering evidence, however, Menzie quotes Santayana. In my experience, a Santayana quote usually means a false history is coming to justify some false narrative today.
The only case in which Menzie is right about the history is one in which I’m sure he doesn’t want to be right: Menzie is accusing Romney and the Republicans of fighting against responsible regulatory reform but in fact the people he is defending as the good guys in that fight are themselves guilty of Menzie’s charge.
That’s what the videos show.
Rich Stryker You picked a couple of bad examples. The first video is from 2004 and the second video is from 2005. Very few people believed there was a housing bubble back then. And I doubt you did either. Even Nouriel Roubini didn’t start warning about a housing buble until 2006. Shiller didn’t even come to that conclusion until 2005. So you seem to be blaming a few Democrats for not seeing what no one else was seeing.
And while allowing Fannie Mae & Freddie Mac to move into below prime mortgages was a bad idea, those two entities did not get into the below prime market until very late in the game and only because they were losing market share to unregulated shadow banks. Republicans had no problem with allowing unregulated shadow banks create toxic waste, but they did nothing but whine when Democrats wanted to allow Fannie Mae and Freddie Mac to do the same thing.
When Menzie comments about Mitt Romney friendly Republicans who want to gut financial regulations and cut regulatory staff, I’m guessing he has some of the ex-Bushies in mind. For example, try googling James “Chain Saw” Gilleran.
tj I’m glad you support regulation and transparency; but I’m not sure you actually understand what regulation is all about. You worry about the executive writing the regulations…well, that’s how it has to work. Would you rather regulations be left vague so that prosecutors decide what’s okay and what’s not? If you don’t want complicated and detailed regulations, then Congress has to write complicated and detailed laws. But wait…you whine about that too. I don’t know what world you live in, but where I live there are lots of private sector sharks who will try to bend and twist every rule to their advantage. If we learned anything about the financial collapse surely it has to be that professionals in tailored suits are just as criminal as the drug dealers on the corner and lie just as much as shady used car dealers. In the abstract you support regulations. Great. But you have do more than support regulations in the abstract; you have to swallow hard and deal with the workaday reality that regulations have to be complex.
Finally, most of the finance guys I know are not afraid of complexity. Ever see a graduate finance textbook? I remember giving a guest lecture to a bunch of finance grad students and being practically assaulted during a break by eager young faces who wanted to talk about Ito’s Lemma and stochastic calculus, so I’m pretty sure that regulatory complexity isn’t something that bothers them.
2slugs You forgot to add Congress and the oval office to your list of crooks. I am not sure what world you live in, but the majority in Congress is intentionally writing legistlation that leaves many important details to the agencies that are filled by executive order.
2slugbaits,
I am not blaming a few democrats for failing to predict the housing crisis or the subprime problem. The 2004 hearings were not about subprime. Instead, they were about attempts to strengthen regulation of GSEs by either giving OFHEO more power or by creating an alternative regulatory environment more similar to what banks have. The concern at the time was that OFHEO, as a part of HUD, was too weak. The context at the time was OFHEO’s report uncovering serious accounting and control problems.
That few people saw the housing bubble in 2005 is another historical myth. Frank was not commenting in a vacuum in 2005 but was rather reacting to pretty widespread bubble talk. For example, The Economist had an article on June 16, 2005 called “After the fall Soaring house prices have given a huge boost to the world economy. What happens when they drop? ”
http://www.economist.com/node/4079458?Story_ID=4079458
Here’s a quote from that article:
“PERHAPS the best evidence that America’s house prices have reached dangerous levels is the fact that house-buying mania has been plastered
on the front of virtually every American newspaper and magazine over the past month. Such bubble-talk hardly comes as a surprise to our
readers. We have been warning for some time that the price of housing was rising at an alarming rate all around the globe,
including in America. Now that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty.
How the current housing boom ends could decide the course of the entire world economy over the next few years.”
Alan Greenspan also warned about the housing bubble in 2005 along with plenty of other people. Your comment attempts to perpetuate yet another myth, that only a few left-wing seers such as Krugman, Roubini, or Schiller saw the housing bubble. But tons of people of all political stripes were worried about it.