Housing booms are wasteful — and the subsequent busts are deeply destructive. Worse, they have become bigger and more frequent since the 1970s. An important new paper from Oscar Jorda, Moritz Schularick, and Alan Taylor places the blame on structural changes in the financial sector that exacerbate the impact of excessively loose monetary policy.
This is a continuation of earlier research on the drivers of credit booms and their impact on GDP using data from more than a dozen rich countries going back to 1870, which we covered in detail here. For those who don’t want to reread that post, the two important takeaways are, first, that the growth rate in private borrowing during an economic expansion predicts the severity of the subsequent downturn even when there is no financial crisis: Read more
This occasional Alphaville contributor just got back from a prolonged reporting stint in Las Vegas.
On the agenda was not one but two securitisation conferences. Some readers may recall that the American Securitization Forum (ASF) has for many years hosted an annual gathering, most often in the pleasant confines of the Aria hotel in Las Vegas. This year, a bitter schism within the securitisation industry meant there were dueling conferences – one organised by the ASF and the other by the break-away Structured Finance Industry Group (SFIG). Read more
Albert Edwards, the SocGen strategist, is pretty much beside himself. His latest Global Strategy Weekly recycles his usual spit, sweat and fury, thrown again at “bozo” policymakers.
But it also includes this fab J Paul Getty quotation, via John Hussman… Read more
Here’s a chart to ponder from the peer review of residential mortgage practices, just published by the internationally-coordinated Financial Stability Board:
No, not north to German bunds. Further north.
Pär Magnusson and Filip Andersson — Scandinavian macro and fixed income analysts at RBS — have a few things they want to get off their chest at the moment, clearly. As they write (emphasis and link ours): Read more
Maybe it was Jackson Hole or the August slowdown, but academics are in a reflective mood these days.
And some of them are especially interested in answering one specific question that continues to linger — just what caused the damn housing bubble? A description of three attempts from the past week follows. Read more