Raise the Hammer

JonC >> Yes it does. A house is an asset. Unless your debts are devalued by an equal amount, your net worth drops. That's as basic as economics gets.

This is what I said..."As long as you didn't refinance and extract every dollar of inflated equity from your home in the boom years, your inflated equity values have simply come back to reality."

Therefore, when the housing bubble was going on, if you simply paid your mortgage, you are no poorer now than you were before it began. However, if you borrowed against the value of your home based on inflated values, then I agree you are now poorer (more debt, less equity). However, for every person that borrowed against their house, or paid too high of a price for a home, is a business that sold to these people. Therefore, if you bought shares in the home builders when the boom began (2000), you are likely much richer. Wealth was transferred to people selling the "idea" that investing in a home was a great idea, from people who believed it would go on forever.

>> That's not growth, that's innovation in the world of technology.

According to the BEA, real GDP has gone from 6981.4B to 11,652.7B over the past twenty years.

>> What you don't acknowledge, is that both the overvalued homes and the exotic financial instruments had an over-stated dollar value and that real, actual money was loaned against them (as collateral) and this money was then injected into the economy.

I agree that banks made loans based on unsustainable home price increases. These banks who invested in the idea that home prices would increase forever, are now suffering the worst losses. In a free market economy, these banks would become insolvent and their assets (mortgages, homes for foreclosure) would be sold off and the proceeds would be given to depositors.

>> This is wholesale fraud by the world's largest banks, trading houses, insurers and rating agencies. The purest, capitalist greed gone unchecked by the government.

Just to be clear, where was the fraud? Are you telling me that all of these companies wanted to go out of business? If you are saying that the CEO's knew, but wanted to collect big bonuses, then you may have a point. However, the shareholders of these companies didn't believe the housing bubble was a hoax, otherwise they wouldn't have kept their shares.

But on further reflection, how did anyone, including the buying public, believe that price increases of 6-12% a year was anything but inflation. It wasn't as if the population of the country was going up 3-9% a year, while the housing stock stayed stagnant. If the government had used actual home prices in it's CPI calculation (not owner's equivalent rent), interest rates would have been much higher and far less money would have been loaned for home building.