. . . he is wrong to single out "speculative lending" as the culprit.
I don't think so, not at all. Neither does, apparently, Hyman Minsky. The Pecora Report agrees with our assessment.
I have no problem is some people do all of the things you indicate above are useful market actions. I have a big problem is others do them. The difference? The first group use their own money, which they have free and clear of any obligation . . . and the second group uses money they borrow.
So, when a home buyer moves into a new neighborhood to live, great! If they can pay the mortgage, if they can maintain the house, live on. If a different home buyer moves into a new neighborhood to live temporarily, hoping the house will appreciate with a month or two of cosmetic modifications enough to get them richer on the flip, great!
Ah, but if that second home buyer needs to first take out a mortgage. . . . Here a bank has abetted improper speculation. Borrowed money used in speculative purchase distorts the market beyond recognition by inflating the money supply, an inflation which brings no new assets to market. Thus new assets are concentrated on the same assets. This is a bubble.
Chris Martensen notes in his excellent Crash Course that bubbles take as long to deflate as they took to inflate. Given that improper lending has been around since at least 1983. . . .
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Date: 16/2/12 22:46 (UTC)I don't think so, not at all. Neither does, apparently, Hyman Minsky. The Pecora Report agrees with our assessment.
I have no problem is some people do all of the things you indicate above are useful market actions. I have a big problem is others do them. The difference? The first group use their own money, which they have free and clear of any obligation . . . and the second group uses money they borrow.
So, when a home buyer moves into a new neighborhood to live, great! If they can pay the mortgage, if they can maintain the house, live on. If a different home buyer moves into a new neighborhood to live temporarily, hoping the house will appreciate with a month or two of cosmetic modifications enough to get them richer on the flip, great!
Ah, but if that second home buyer needs to first take out a mortgage. . . . Here a bank has abetted improper speculation. Borrowed money used in speculative purchase distorts the market beyond recognition by inflating the money supply, an inflation which brings no new assets to market. Thus new assets are concentrated on the same assets. This is a bubble.
Chris Martensen notes in his excellent Crash Course that bubbles take as long to deflate as they took to inflate. Given that improper lending has been around since at least 1983. . . .