I'll leave you this week with two quotes from the person most responsible for the housing bubble, and eventual crash - Mr. Alan Greenspan

"Don't allow money-supply growth to spiral out of hand.”

- Alan Greenspan, 1977

But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums

- Alan Greenspan, 2005

HousingPANIC Stupid Question of the Day

What's the stupidest thing you saw someone do during the Late Great Housing Mania?

Manias, Panics and Crashes... And Housing Crash Reality

Loyal HP'ers know we've been following the "Manias, Panics and Crashes" playbook perfectly. And when I say perfectly, I MEAN ABSOLUTELY INCREDIBLY HILARIOUSLY PERFECTLY.

So there are no surprises (for HP'ers), here's another check-in with the HP bible...

Here's where we are today:

* Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.

Here's where we'll be soon:

* The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

FLASH: UK central banker comes clean: Admits causing housing bubble for short-term gain, leaves financial catastrophe for others to deal with

You'd like to think the world's central bankers were smart people. That they cared about short term issues, but had their eye mainly on the long term welfare of people, families and society at large.

That's not the case folks. The US and UK central banks are evidently made up of incompetent, clueless, morally-questionable boobs, driven by short-term business profits and serving their political masters, who could care less about the societal and personal destruction caused by their misguided, short-sighted, greed-inspired ways.

Seriously.

Here's a startling and bizarre admission from UK bank governor Lord Eddie George, where he admits he and his crew inflated the biggest bubble the world has ever seen simply because they thought they had no other short-term option to deal with the 2001 slowdown.

Here's one they should have considered in 2001 - go into recession. Taking that medicine then would have prevented the bubble, and prevented the biggest asset crash in recorded human history now underway.

You should all be outraged, sickened... and not surprised.

The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.

Lord George said he and his colleagues on the Monetary Policy Committee " did not have much of a choice" as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to "sort out" the problems he had caused.

"We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said.

What goes boom must go bust - U.S. housing collapse comes as liquidity dries up

There are days when reading the headlines is like reading "Manias, Panics and Crashes". It's all just so damn OBVIOUS. At least to HP'ers...

Like night follows day, credit crunches and panics follow gleeful financial manias. And now we're here.

My question is, now that a credit crunch and contraction of historic proportions is to come, will the Fed start cutting rates?

NEW YORK (MarketWatch)

Official news over the last several weeks that lenders from Countrywide to Freddie Mac would be tightening their lending standards in the subprime sector of mortgage originations positively begs the question: what's changed?

But before we can attempt to limn even the faint outlines of the answer, we need to countenance the conclusion that such question asking as: "Do you have an income?" and "Can I see proof?" has one and only one effect on credit supply and demand: a decrease.

And that means liquidity is drying up in the mortgage market.

Which means someone is stuck with $2,350 per month in maintenance, taxes, insurance, and mortgage costs on an 'investment property.' And $3,775 when the re-set comes in late 2007.

Whomever it was that first came to his/her senses in this credit madness is moot; it's the fact that his/her action -- that mortgage banker, that CDO trader, whoever -- catalyzed the opposite trend toward probity.

Booms turn to busts not because something 'happened.' They turn to bust because there is simply no other path.

It is said that when men go mad they do so all at once. But they gain their sanity slowly and one by one.

That credit supply is being tightened means we've passed the 'one-by-one' stage and we're approaching 'all-at-once.'

HousingPANIC Stupid Question of the Day

"Bull Trap" dead ahead?

HP'ers, I'll keep repeating how this is going to go down until you can recite it from memory

There should be NO surprises. As an HP'er you should know EXACTLY how this will unfold. This is like watching evolution in real time, and don't you all feel like you know something, some eternal truth, while others are still clueless.

From the HP bible, "Manias, Panics and Crashes" by Kindleberger, with my notes on what each stage felt like to Joe Homedebtor:

* The upswing usually starts with an opportunity - new markets, new technologies or some dramatic political change - and investors looking for good returns.

2001: Hey, isn't it GREAT that the Fed lowered interest rates to 1%! Boy, it sure is easy to get a loan these days, wonder why? That stock market sure sucks, maybe I should try real estate?

* It proceeds through the euphoria of rising prices, particularly of assets, while an expansion of credit inflates the bubble.

2002 - 2003: Everyone's getting rich! Marge, our home just went up in value, let's get a cash-out refi and buy a Hummer! Man, getting credit from a bank has never been easier! Now you don't even need a job to get $1 million!

* In the manic phase, investors scramble to get out of money and into illiquid things such as stocks, commodities, real estate or tulip bulbs: 'a larger and larger group of people seeks to become rich without a real understanding of the processes involved'.

2004 - 2005: I'm gonna go with my friend Pete and go camp for a few days so we can win a condo! I mean, win the right to pay whatever the developer asks to buy a condo! (No, seriously, HP'ers, just a year ago people were CAMPING OUT FOR FUC*ING CONDOS!)

* Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.

2005 - 2006: Oh, crap, my Scottsdale investment condo has been on the market for 5 months and no offers. Maybe I should lower the price? But Larry next door sold his a few months ago for X so I should be able to get X too. Hmmm... OK, I'll lower the price. (months go by). Oh, crap, nobody wants this sh*tshack! Where did all the buyers go?

* The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

2007 - 20??: OH DEAR JESUS SOMEONE BUY MY HOME! Why are all these subprime mortgage companies going belly up all of a sudden? I'll sell my home for any price - I don't care, Mr. Banker, just tell me what I owe! Get rid of this damn thing! I HATE HOUSING! Oh, dear, I need to raise cash and raise it fast otherwise I won't be able to eat! How did I get $2.2 million in debt!? What was I thinking! AAAHHHHGGGHHH!!!! SUZZZZAAANNNNEEEEE!!!!