Friday, June 26, 2009

People Like Bubbles

During the last two decades bubbles became the norm. We learned not to just live with bubbles, but expect and like them. The bubble became normal and comfortable. When one bubble popped we just turned to a new bubble. When the tech bubble exploded we propped up a housing bubble. And what euphoria the bubble brought. We were rich and could afford to live in luxury - the fact that it was borrowed and not affordable was secondary. In this article in MSNBC titled Uh-Oh, Here We Go Again? discusses the bubble ideology - the good and the bad. Let's take a look -

There's been a lot of talk about how lax lending standards helped blow up the housing bubble. Talk about short memories and logic disconnects, though; apparently Massachusetts Congressman Barney Frank and New York Representative Anthony Weiner are trying to pressure Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) to lighten up a little and relax condo lending practices. Um … I think we've seen this disaster flick before.


When the dot-com bubble popped with few Internet start-up survivors, a mild recession followed. The questionable answer was low interest rates and that brand-new inflating bubble to replace the old one, which certainly helped with that whole "mild" part (although you might call that instead a temporary fix).

Flash forward, and people were using their homes as ATMs and gorging on debt like home equity lines of credit and wallets bulging with credit cards from the likes of Visa (NYSE: V), MasterCard (NYSE: MA), and their banking partners, and this helped pump up our entire economy (and government tax revenues and stocks) artificially. Everyone from Starbucks (Nasdaq: SBUX) to Toll Brothers to banks like Bank of America (NYSE: BAC) (and its acquisitions Countrywide and Merrill) all bubbled up, too. And of course, many corporations -- a high-profile example might be Sirius XM (Nasdaq: SIRI) -- also gorged on debt in so-called good times, which as we can see, all probably seemed reasonable when everyone was doing it … until the party stopped.

Our economy needs to correct and our culture needs to get past the speculative, artificial, bubble-hungry mindset that we've relied on for too long, where easy credit gave too many people just enough rope to hang themselves with.


Hold on to your hats, folks. This news sounds like a red flag indicating that a lot more mistakes could be made that could put us right back on the path to future disaster, making the same mistakes again while calling them the solutions. Free market policies may frighten a lot of people, but politicians' meddling into the economy complete with short-term "fixes" to charm voters and the public are really bad medicine for what ails us.

When the bubble became the norm, the norm appears to inflate a new bubble. Push condo loans. Push reverse mortgages. Get that bubble money flowing again. Just hope there will be a new bubble to inflate in the future...

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