Friday, August 04, 2006

Kindleberger’s Last Bubble

The famed economist, Charles P. Kindleberger, author of over 30 books, including the great title “Manias, Panics, and Crashes: A History of Financial Crises”, appears to have spent his final days clipping out newspaper articles in order to corroborate his intuition of a mounting real estate bubble.

This is no small bit of trivia as Kindleberger not only lived through the Great Deperssion, but was an active and astute economist publishing works throughout the 1930’s and onward.

The following is an excerpt from an interview with the Wall Street Journal published less than a year prior to Kindleberger death in July of 2003:

The object of his greatest fascination today is the real-estate market. For weeks, Mr. Kindleberger has been cutting out newspaper clippings that hint at a bubble in the housing market, most notably on the West Coast. Nationwide, median home prices are up about 7% from a year ago, even though the stock market has tanked and the economy has floundered. Over the long term, economists agree, housing prices can't continue to outpace growth in household incomes. Mr. Kindleberger says he isn't certain there is a housing bubble yet, "but I suspect it is."

The trick with spotting real-estate bubbles, he says, is that they don't always spread. In 1925, for instance, real-estate prices in Florida soared and crashed, but that didn't spread to the rest of the country. Yet he notes that something is distinctly different about the nation's housing market today, when compared with 1925. Fannie Mae and Freddie Mac, two large government-sponsored enterprises, own or guarantee nearly $3 trillion in mortgages, helping to keep the mortgage market liquid with cash. That is a boon to homeowners, but Mr. Kindleberger says he fears that Fannie Mae and Freddie Mac's deep nationwide presence in the market is fueling a speculative fire.

"Banks will make a mortgage and sell it to them. It means that the banks are ready to mortgage more and more and more and more. It's dangerous, I think," he says.

A Fannie Mae spokeswoman describes the argument as "preposterous," and notes Mr. Greenspan dismissed the chances of a housing bubble in testimony to Congress last week. Robert Van Order, chief international economist for Freddie Mac, says home prices might decelerate in the months ahead, but they're unlikely to crash because interest rates are so low, the inventory of unsold homes is also low and the economy has proven surprisingly resilient.

Yet Mr. Kindleberger isn't convinced. "If I was 30 years younger," he says, "I'd write a small book on Fannie Mae and Freddie Mac."

Given today’s real estate climate, the response by the Fannie Mae spokeswoman and the Chief Economist for Freddie Mac seem so ridiculously flimsy and comical.

It seems almost too perfect for Fannie Mae to offhandedly dismiss Kindleberger’s concern as “preposterous” by simply invoking the “Maestro said so” response.

14 comments:

  1. I clipped this article out of the Wall Street Journal when it ran waaaaay back in 2003. I often re-read the article in the ensuing years and marveled at the foresight of this great man. I wish he had taken the short time he had left to write that book on FANNIE & FREDDIE perhaps we would not be in the situation we are in today if he had. Mr. Kindleberger how right you were!

    ReplyDelete
  2. Dagger4:22 PM

    From the article:

    A Fannie Mae spokeswoman describes the argument as "preposterous," and notes Mr. Greenspan dismissed the chances of a housing bubble in testimony to Congress last week.

    If he hadn't been a respected economist Kindleberger would've been labeled a crackpot. Group-think doesn't like dissent.

    ReplyDelete
  3. I clipped this article out of the Wall Street Journal when it ran waaaaay back in 2003. I often re-read the article in the ensuing years and marveled at the foresight of this great man. I wish he had taken the short time he had left to write that book on FANNIE & FREDDIE perhaps we would not be in the situation we are in today if he had. Mr. Kindleberger how right

    Sightline Payments Kirk Sanford
    lottery results

    ReplyDelete
  4. Anonymous2:38 PM

    http://123etfportfolio.blogspot.com/

    ReplyDelete
  5. Thanks for such informative article about the US Real Estate Bubble blog.It really Proves helpfull in my Luxury Condos Fort Lauderdale Business.

    ReplyDelete
  6. We all know that man did a great job! thanks for the share.

    ReplyDelete
  7. The book is alleged 'The Millionaire Real Estate Agent' but again appropriate on the awning it says 'it's not about the money.

    Property Management

    ReplyDelete
  8. Good information, good content, I like the way of writing. You have described point to point information! I also have a news related Brigade Meadows.

    ReplyDelete
  9. The Nike Elite football boots are supplying new quantities of performance, as well as the Nike Elite Tiempo Legend Nike mercurial soccer cleats really are a testament to this. We'll be looking for to create once the Mercurial Vapor Superfly 3 likes of Gerard Pique, Raul Meireles, Andrea Pirlo and Joe Cole pastime these new celebration Red/Metallic Silver Nike Football Boots Sale Elite Tiempo Legend football boots.

    A new Nike Mercurial Superfly age of 'smart football' has arrived for adidas. The adizero miCoach engineering delivers intelligence for that place of play. By permitting which you totally grasp your all round Mercurial Vapor Superfly standard performance data, you can educate using the would like even although comparing your information for that World's most beneficial athletes and breaking your Mercurial Vapors particular assortment and amount records.

    ReplyDelete
  10. The idea using the Nike soccer cleats Elite Legend soccer shoes, may maybe be considered a carry out result of Nike's extensive investigation and participant testing. Their findings showed the Nike Football Cleats common energy expenditure of an elite participant is greater than 1,000 Kilo fat laden calories every Cheap Football Boots online game for just about any 75kg player.

    minimizing the unwanted fat carried by New nike soccer shoes game fanatics facilitates reduce the energy required greater compared to program of 90 minutes. By Nike Mercurial Vapor Superfly delivering a super-strong and lightweight carbon fibre plate, the Elite Nike Tiempo Legends are lighter compared to common Best Football Boots boots to provide game fanatics an borders through the decisive last stages of the game.

    ReplyDelete
  11. i enjoy your writing ,its so readable ,pleasurable and easy to read .. thx .

    ReplyDelete
  12. Nice edifying blog covered various topics of cleaning thanks for sharing it keep posting.

    Brian Linnekens

    ReplyDelete
  13. I liked your article, I will share your article to everyone!!




    GW2 Gold|Guild Wars 2 Gold|Buy GW2 Gold|RS gold

    ReplyDelete
  14. That is really cool. Thanks for finding it. Some really good ideas there, this is going to be a real time sink. I am a china tour lover,You can learn more: China and Asia tour packages | China vacation packages

    ReplyDelete