Thursday, April 2, 2009

Someone Might Want to Tell the Wall Street Journal There Was a Credit Bubble, Not Just a Housing Bubble

So, according to Daniel Henninger, we're just suffering from a housing bubble that requires relatively minor fixes. Indeed, Henninger seems so skeptical about the chaos in our financial system and markets, that he puts quotes around the phrase "the greatest financial crisis since the Depression" (if he can name a financial crisis since the Great Depression worse than this one, he neglects to mention it). According to Henninger

The housing bubble that floated into view in 2007 is turning into the blob that ate the world. Real-estate mortgages and their derivative securities are a significant problem. That discrete problem, however, has been pumped up to an historic "crisis of capitalism."

Capitalism didn't tank the U.S. economy. Overbuilt housing did. Overbuilt housing tanked the economies of the U.K. and Ireland and Spain. If little else, we've learned that artificially cheap housing sets loose limitless moral hazard.

Um...what? Maybe he didn't notice that aside from the housing bubble, there was a more generalized credit bubble. Credit cards, auto loans, home equity loans, private equity LBOs, increased financial leverage - they were all symptoms of a massive credit bubble. Housing was the most pernicious part of this bubble, since it was the collateral so many people used to secure loans, and so many banks held so many securitized mortgages on their balance sheets, but it was hardly the only aspect of this crisis. Although give him credit - at least Henninger is actually proposing new regulations in the housing market as part of the fix, instead of just saying Merry Christmas.

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