Busted: Bankers and The Global Economy

May 13, 2008

Housing Crisis Over?

If the Wall Street Journal says it, it must be true! The brilliant economist and author Cyril Moulle-Berteaux declares that “most people forget that the current housing bust is nearly three years old.” He bases the supposition on evaluation of latest trends.

He’s right that affordability ultimately created the mortgage bust. How high can real estate prices go while undergoing the intense misuse and abuse of the banking community? Affordability was created by “false affordability” through unsound practices. You cannot finance the world in a never-ending upward spiral.

The doctor of Wall Street declared that “the boom made housing unaffordable for many American families, especially first-time home buyers.” The fact is that abusive and overextended lending practices lead to the fall of the market. The availability of easy lending has been a large factor in the overheating and self-destruction of the market.

He correctly asserts, “During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.” The problem is that over-financing through abuse and predation extended the reach of the market, but could not sustain the housing economy. That over-financing is what destroyed the bubble and brought the system to its knees.

The “new system” was built on the idea that financing a home was possible every few years or so to avoid the pain of the abusive and predatory practices that the industry and the consumer grew to accept as normal: an everyday part of the business world. A return to that time is impossible and the same mentality unwise.

It’s nice to see an optimist in the world. He just needs to take off his rose-colored glasses and see the fruit that past policies and practices have borne instead of evaluating the symptoms.

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