Interesting thread. What is the role of government and its institutions? Where is the line of personal responsibility? I have somewhat libertarian views on this so Ultimately I put a bigger portion of responsibility on the consumer. Greed has its consequences people. I’ll buy that 750K dollar house although I make 90K a year and have to use a Neg Am Arm to get in because I know that house is going to hit 1.2 in two to three years. Yeah! Fear also has its consequences, you have the person that buys the 750k with a 90K income using an exotic loan for fear of being priced out forever. These are simplistic examples but they highlight the two primary emotions that took over this market, Greed and Fear. IMO government cannot effectively legislate or regulate the actual animal spirits of the market place. There really is no need, MARKETS ALWAYS CORRECT!
Now I think somebody pointed out that the leaders of our institutions, in this case the Fed and Congress, also have a responsibility to the market place and I agree. Let the animal spirits be animal spirits but know when to take the punch bowl away. IMO Greenspan simply mismanaged the last recession. Basically they overshot liquidity into the market and grew too dependent on RE to drag us out of the downturn. Usually American innovation will take over and lead us onto new horizons providing investment opportunities and jobs. Our greatest innovation of this decade has been…..drum role please……….The IPOD!
Here is the risk moving forward. Do you notice all the media and congressional hearings going on right now. IMO the risk moving forward is that those in power will overshoot in the other direction. We may run into a period where credit becomes too tight. You have angry congressman grandstanding and coward lenders looking at all applications under a microscope. Generally corrections have a tendency to overshoot in the other direction. If that happens California is toast. It will also provide some good investment opportunities for those left over with credit and cash.
