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Good Grief: 5 Stages of Housing Grief

From Paul Krugman’s Op-ed piece Bursting Bubble Blues [NYT subsc] [1]:

* (1) Housing bubble? What housing bubble? “A national severe price distortion [in housing] seems most unlikely in the United States.” (Alan Greenspan, October 2004)

  • (2) “There’s a little froth in this market,” but “we don’t perceive that there is a national bubble.” (Alan Greenspan, May 2005)

  • (3) Housing is slumping, but “despite what you hear from some of the Eeyores in the analytical community, a recession is not visible on the horizon.” (Richard Fisher, president of the Federal Reserve Bank of Dallas, August 2006)

  • (4) Well, that was a lousy quarter, but “I feel good about the U.S. economy, I really do.” (Henry Paulson, the Treasury secretary, last Friday)

  • (5) Insert expletive here.

Krugman makes the argument that the drop in GDP and construction spending as well as the rise in foreclosure rates foretell a long decline in housing (I seem to recall a recurring pessimistic theme in his past columns on housing). From a political perspective, the Bush administration has tried to turn coverage from the Iraq War to the economy but that doesn’t appear to be a wise strategy.

In case you’re wondering, I don’t blame the Bush administration for the latest bad economic numbers. If anyone is to blame for the current situation, it’s Mr. Greenspan, who pooh-poohed warnings about an emerging bubble and did nothing to crack down on irresponsible lending.