As housing implodes, "new economy" myths cave in too

Good paper at Kitco - here's a couple "new economy myths" that the housing crash exposed:

House bubble claimed as valid wealth:

Rising property values and associated home equity growth is a legitimate form of wealth generation, a viable foundation for the New Economy. In promoting this concept, Greenspan resembled a hedge fund manager, not a central banker. In fact, many expert financial analysts have compared the US Economy to a grand hedge fund, since so many shared characteristics are evident and identifiable.

As the housing crisis and the mortgage debacle have begun to unfold, we know better now. The reluctance shrouded in deep denial testifies to the desperation to maintain the myth. The mortgage lender burial ground now contains some Alt-A and borderline prime lenders, which undercut claims of no contagion. Next is the damage to commercial lenders, who employed the same ditzy lending practices with 0% down payment and slim documentation methods. In fact, the debacle in progress qualifies as a potential 3-SIGMA event to trigger derivative accidents.

US Economic dependence upon housing is ok:

The main source of fuel for the US Economy was derived from housing jobs and lending institution jobs, with spending based on home equity extractions. This is a nightmare design.

Such a design succeeds until the bubble retreats, or even stalls. The historically validated concept of business investment leading the pack has been discarded in favor of a reckless dependence upon a housing and asset bubble (like stocks).

A bigger perspective reveals that the US Economy has grown dependent upon a bond bubble which extends to housing, whose size is 20 times larger than the tech & telecom bubble in 2000. Both were destined to burst.

The current bond bubble bust is still in the initial stages of unraveling in a mounting crisis. Note how the spring housing recovery (another careless mythical construct last autumn) has already been discarded, yet it served its purpose in market levitation at the time. We have another two to four years at least in the housing & mortgage collapse. Consumers will be affected as surely as night follows day. No myth of constant sunshine is likely to emerge.