Remember the S&L debacle? Everyone says that the downturn of 1990 was caused by defense cut backs. That’s partly true. The S&L scandal did that too. It was a confluence of events. Defense cutbacks, S&L debacle, correction in the market, the Japanese repatriating their money, caused the bubble to burst in SD. In 1980’s the deregulation of S&L industry caused cash to flood the market thus creating a bubble. Today, the exotic mortgages are doing the same thing.

In 1990 Boston, NYC and other markets crashed as well. They did not not have large defense contrators like San Diego, but the had the S&Ls.

A bubble is born whenever new sources of cash are available. It’ll be uglier this time around because RE is what is proping up the entire economy. Think of all the markets where RE is overvalued.