Friday, July 25, 2008
Six months ago, when former Countrywide CEO Angelo Mozilo participated in a panel to talk about the future of the nation's troubled housing market, he was labeled a "moron" when he noted that falling home prices are the cause of the current mortgage mess.
Oh, here it is ... number one ...
Now it looks like "The Bond King" Bill Gross at Pimco is desirous of joining that club if his latest Investment Outlook is any indication:
Make no mistake, the current conundrum that must be solved is: how to make the price of 120 million U.S. barns stop going down in price and then to make them go up again.When he writes "barns", he really means "single family homes" - part of a rather disastrous barnyard metaphor. The above was even written in bold type, as if to make an even stronger case for the Mozilo comparison.
Of course you don't have to look too hard elsewhere in this piece to get a better sense of where this logic originates. Early on you get a good idea that, like many others, history starts in the mid-1980s for the Bond King.
Aside from cyclical contractions and a brief bout of deflationary monetary policy in the Volkerian 80s, credit has always been available and at a relatively cheap price. Credit and debt finance is, in fact, the mother’s milk of capitalism: without it, entrepreneurs may transact, but economic progress would be most difficult with seashells or gold bars for mediums of exchange.While it is true that credit is a key ingredient for a robust capitalist economy, excessive credit is the key ingredient for a "bubble economy", a distinction that should not be lost on Mr. Gross, but apparently is.
It is as if the last twenty years were the "normal" years, nothing before that time is relevant, and the last 11 months are just an aberration. This view is expressed elsewhere in another passage (once again in bold for emphasis) where the housing bill is lauded for all the good it will do.
But absent that (blowing up houses to reduce inventory and push prices back up), lowering the cost of mortgage credit via the omnibus housing/GSE bill now placed before the Congress and the President is the best way to begin the long journey back to normalcy.Apparently, "normalcy" is an infinite stream of easy money and a perpetual "bubble economy" is a good economy.