Michael Burry on time preference

If you are considering a career on Wall Street or in Washington, DC, you should be aware of the social proof that operates there.  This is that many, if not most, people will be doing questionable things that obviously make money and obviously earn respect from common peers.  If you find yourself in such a place, I would ask you to consider a rule I learned as a physician: first, do no harm.  Besides, life is not that short.  Life is well and long enough for you to regret any activity or habit involving exchange of long-term risk for short-term benefit.  This is what many, if not most, Americans did during the refinancing and consumption boom of last decade and it was what our government did in egging on the boom.  This is also the gospel of drunk drivers and cheating spouses.  Of course, when you encounter the opposite: the short-term risk exchanged for long-term benefit, consider hitting that button again and again and again.

~ Michael Burry, "Dr. Michael J. Burry at UCLA Economics Commencement 2012," YouTube.com, 18:45 mark, June 20, 2012

Ben Bernanke on housing bubble talk (2005)

Well, unquestionably housing prices are going up quite a bit, but I would note that the fundamentals are very strong – a growing economy, jobs, incomes . . . much of what has happened [with home prices] was supported by the strength of the economy.

~ Ben Bernanke, CNBC, July 2005

Barron's editors: housing bubble blowoff still to come

There seems to be a bubble in news coverage about the housing bubble, which shows editors aren't much different from investors in trying to latch onto a hot trend.  But which stories should contrarians bet against - ones warning of the bubble bursting or those explaining why house prices are unlikely to crash?  In the late 1990s, when tomes forecasting Dow 10,000 came out, bears were slaughtered before they were vindicated.  Indeed, the final blowoff is the most violent phase.  We could be at a point in housing analogous to 3000 on the Nasdaq - which hit 5000 before crashing to 1200.

~ Barron's "Market Week," May 30, 2005

Marvin Goodfriend says markets undeservedly overconfident in Fed in 2005

It was a major mistake of the Fed. It gave markets a sense that the Fed was on top of everything to a degree that wasn’t the case. It gave the impression that this was a mechanical adjustment to normality. The market was overconfident.

~Marvin Goodfriend, professor, Carnegie Mellon University, on attending Richmond Fed meetings in 2005, "Fed Officials Saw Housing Bubble in 2005, Didn't Alter Policy" Bloomberg.com, January 14, 2011

Ned Riley says the cold housing market is a big problem for the economy

One of the biggest problems we've got is that we can flood the system with money but the banks don't turn around and lend it where it's needed. The housing industry is still on its back. If you try to get a refinancing of a mortgage, it takes you four to six weeks minimum just to get them to look through your applications.

The banks are still parsimonious in handing out any money toward the housing market. A purist, somebody that has high credit ratings and everything else, can't get an equity line of credit for about two months. So, Bernanke's nice to give us all this money, but the banks have pressure, big pressure, because the lending offices aren't giving the money away.

~Ned Riley, Riley Asset Management, CNBC's "The Kudlow Report", November 4th, 2010

Matt Taibbi on Goldman Sachs gaming the housing bubble

The effects of the housing bubble are well known - it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought againsts their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.

~ Matt Taibbi, "The Great American Bubble Machine," Rolling Stone, July 9-23, 2009

Tom DiLorenzo on the drive to expand homeownership that helped foment the housing bubble

Let us briefly review some of the more notorious behavior of the federal government in recent years that has spawned the current economic crisis. First, every law and government agency having anything to do with housing policy, from HUD to the Fed, FDIC, Comptroller of the Currrency, Office of Thrift Supervision, enforcers of equal-lending laws, Fannie Mae and Freddie Mac, the Community Reinvestment Act, Congress, and more, did everything possible to force or bribe mortgage lenders into making trillions of dollars of bad loans to unqualified "subprime" borrowers. Among the various rationales that were given for this monumentally stupid policy were "discrimination," which the Fed admitted there was no evidence of when confronted by Forbes journalists Peter Brimelow and Leslie Spencer in the 1990s. Banks and mortgage lenders made trillions of dollars of bad loans as the Fed assured them that the risk could be swept away when Fannie and Freddie "securitized" the loans and sold them. And there was always an implicit (wink, wink) promise of a bailout if worse came to worse (as it did).

HUD announced in the early 1990s that its top policy priority was to sharply increase the percentage of Americans who owned their own homes, whether they could afford to own a home or not. The home building and mortgage finance industries applauded and supported this brand of egalitarianism run amok. The real culprit, however, was the Greenspan Fed, which flooded the markets with cheap credit, creating the housing market bubble which of course has now burst. Has anyone seen or heard from Alan Greenspan in the past eighteen months, by the way?

~ Thomas J. DiLorenzo, "Why Did This Happen?," LewRockwell.com, February 5, 2009

Jeremy Grantham on bubbles as outlier events

Just as all bubbles have broken, these bubbles did. Far from being a surprise, the bubbles breaking were absolutely not outlier events, contrary to protestations. The bubbles forming in 1998 and 1999 and in 2003 through 2007 were the outlier events. The U.S. housing market, which was a clear bubble with prices at least 30% above a previous very stable trend, is well on its way back to normal, and equities and risktaking may well have made it all the way back.

~ Jeremy Grantham, "Reaping the Whirlwind," GMO Quarterly Letter, October, 2008

David Lereah on the title of his real estate book published in 2006

Obviously I would change the title. There are places in the book where I actually say the boom is not healthy. But people don't read the book, and they just look at the title and they criticize it.

~ David Lereah, former chief economist of the National Association of Realtors and author of "Why the Real Estate Boom Will Not Bust -- And How You Can Profit From It," published in paperback in February 2006, "Why Real Estate Won't Go Bust, And Other Book-Title Bloopers," The Wall Street Journal, September 10, 2008, by Louise Radnofsky

(Mr. Lereah's book was served up in hardcover in February 2005 with the title "Are You Missing The Real Estate Boom? Why Home Values and Other Real Estate Investments Will Climb Through the End of the Decade -- And How to Profit From Them." That edition sold 12,000 copies. It was downhill from then. The paperback sold 2,300 copies in 2006 and 250 in 2007, according to Nielsen BookScan. So far this year, it's notched just 20 sales, Nielsen says.)

John Templeton on the housing bubble (2004)

When I was young, in the three years after 1929, a high proportion of people lost their homes in foreclosure. It's likely to happen again. It's not abnormal. It's cyclical, and it will put pressure on all prices.

~ John Templeton, "An Investment Legend's Advice," Forbes, February 4, 2004

Money magazine on housing speculators (2005)

In the 1990s, Flippers were stock jockeys who finagled their way into initial public offerings, only to flip them days or hours later for big profits.

These days the go-go market is homes, not stocks. In hot spots like Las Vegas and Florida, real estate flippers have discovered that a modest down payment and a little patience can net them tens (even hundreds) of thousands of dollars in profits, sometimes tax-free.

The most aggressive of them figure that some combo of paint, new flooring and kitchen upgrades can turn the dumpy house they bought for $300,000 in February into a $400,000 property they can unload in July. And in the most sizzling markets, they're absolutely right.

~ Money, "They call them flippers," March 14, 2005, by Jon Birger

Ron Muhlenkamp on speculation about a housing bubble (2005)

We think the real speculation is all the speculation about whether there's a [housing] bubble.

~ Ron Muhlenkamp, The Muhlenkamp Fund, CNBC, June 16, 2005

(Muhlenkamp was bullish on homebuilders.)

Raymond McKewon: "The nonprime lending industry is... acyclical" (2004)

The nonprime lending industry is to a large degree acyclical - not cyclical or countercyclical.

~ Raymond McKewon, executive vice president and co-founder, Accredited Home Lenders, "Subprime Time," Institutional Investor, December 2004, by Steven Brull

Citigroup banker and hip-hop performer on selling mortgages

Trust me, it's all the same hustle. It's just that mine is legal. Selling mortgages is very emotional. Just like in rap, we're trying to connect with people's hopes and dreams.

~ Terence Bradford, Citigroup banker by day, hip-hop performer by night, "The Rap on Wall Street," Fortune, August 22, 2005

David Lereah on housing prices (2007)

The steady improvement in [home] sales will support price appreciation... [despite]... all the wild projections by academics, Wall Street analysts, and others in the media.

~ David Lereah, chief economist, National Association of Realtors, BusinessWeek, January 10, 2007

Alan Greenspan on the housing bubble

I would tell audiences that we were facing not a bubble but a froth - lots of small, local bubbles that never grew to a scale that could threaten the health of the overall economy.

~ Alan Greenspan, The Age of Turbulence (2007)

NAR: "Homeownership is a safe, secure way to build long-term wealth" (2006)

It's a great time to buy or sell a home.

Contracts for home sales in August are up 4.3% and the outlook is for home prices to increase next year.

Former Federal Reserve Chair Alan Greenspan recently said the housing prospects are looking up...

Homeownership is a safe, secure way to build long-term wealth.

~ National Association of Realtors, full-page advertisement placed in WSJ, USA Today, and The New York Times, November 3, 2006

Alan Greenspan: "Most of the negatives in housing are probably behind us" (2006)

Most of the negatives in housing are probably behind us. The fourth quarter should be reasonably good, certainly better than the third quarter.

There are early signs of stabilization... It's not over.

The evidence is that we're beginning to see a flattening in statistics for sales of new homes. The rate of construction is well below the rate of purchases. [The U.S. is] beginning to dig into the inventories of unsold new homes.

~ Alan Greenspan, former Federal Reserve Chairman, speaking at a conference sponsored by the Commercial Finance Association, October 26, 2006

Bill Laggner on housing/credit bubble bursting

We knocked the ball out of the park! When we shorted New Century, the stock was $50 or $40. Now, it’s nothing.

Have we learned something from that last bubble? Holding Global Crossing and WorldCom debt? Obviously not. This bubble is much more damaging to the economic landscape than the last.

There is a lot of debate, and we would argue we are in a recession. Is it a housing-led recession? We think so.

~ Bill Laggner, Bearing Asset Management, "Respect is Due", Hedgefund.net, March 23, 2007

Comptroller of the Currency John C. Dugan on risky non-traditional mortgage products

Today’s non-traditional mortgage products – interest-only, payment option ARMs, no doc and low-doc, and piggyback mortgages, to name the most prominent examples – are a different species of product, with novel and potentially risky features.

...This dominance is increasingly reflected in the numbers. By some estimates, interest-only products constituted approximately 50 percent of all mortgage originations last year. In the first half of 2005, IOs started to decline in favor of payment-option ARMs, which, according to one source, comprised half of new mortgage originations. And roughly every other mortgage these days is also a “piggyback” or reduced documentation mortgage, which points to another development that concerns us: the trend toward "layering" of multiple risks. There is no doubt that when several risky features are combined in a single loan, the total risk is greater than the sum of the parts.

We can readily understand why these new products have become fixtures in the marketplace in such a short time. One reason is that they have helped sustain loan volume that would otherwise almost certainly be falling, because rising interest rates have brought an end to the refinance boom. More important, lenders have scrambled to find ways to make expensive houses more affordable – although there’s now a concern that the very availability of this new type of financing has done its share to help drive up house prices, which in turn stimulates demand for even more non-traditional financing."

~ John C. Dugan, Comptroller of the Currency, "Remarks by John C. Dugan Before an OCC Credit Risk Conference," Atlanta, Georgia, October 27, 2005

(Appeared in Calculated Risk blog, "Remarks by John C. Dugan," November 9, 2005.)