Fed Governor Kevin Warsh, in a speech on the Promise and Peril of the New Financial Architecture (via Calculated Risk), argues convincingly I think that the current crisis involves more than housing – a whole lot more:
Many observers maintain that the boom and bust in the housing market are the root cause of the current turmoil. No doubt housing-related losses are negatively affecting household wealth and spending. Moreover, the weakness in housing markets and uncertainty about its path have caused financial institution balance sheets to deteriorate. This situation has further accelerated the deleveraging process and tightened credit conditions for businesses and households…
While housing may well have been the trigger for the onset of the broader financial turmoil, I have long believed it is not the fundamental cause. Indeed, recent financial market developments strongly indicate that housing, as an asset class, does not stand alone. Indeed, the problems associated with housing finance reveal broader failings, including inadequate market discipline, excessive reliance on credit ratings, and poor credit and liquidity risk-management practices by many financial firms.
…I would advance the following: We are witnessing a fundamental reassessment of the value of virtually every asset everywhere in the world.
We are still in the very early phases…
November 11th, 2008 at 2:57 pm
That makes sense, if housing is considered as one asset to consume amongst a whole gamut of consumables, and one understands the present crisis to be about an economy built on consumption rather than production.
After all, lots of small-time investors looking to get rich quick (I would call them petit bourgeois but I don’t think everyone understands the term in the same way) by getting risky buy-to-let mortgages thinking that there’d be an endless supply of tenants; or even buy-to-leave mortgages thinking that tenants are irrelevant as long as the value of housing keeps going up – and that “get rich quick” desire is part of the whole “thou must consume” philosophy that has permeated modern culture so thoroughly over the last 20 or so years: celebrity worship, the adulation of the wealthy, the loss of sympathy for the poor and dispossessed…
Further – the desire to consume and to appear to be successful (much more than the actual wealth itself) leads to people aiming higher than they can afford, pushing the whole stack upwards… and then the more dishwashers and televisions we buy the bigger the houses we need, the more relationships we break up, the more houses we need to store our children from various partners in; the more we abandon our parents by leaving town looking after the next job (to make us even wealthier) the more we need to provide care homes for them…
Consumption drove the housing boom, consumption and greed. You can strip that down even further, to the bare bones and say that the reason we consume is because modern, western culture is empty. There is no fulfilment anymore – even religion is about fundraising, success, the appearance of charity, the public pronouncement of faith rather than introspective and personal communion. Western culture is baseless, moribund and vacuous – so we have to fill our lives with televisions and relationships, which drives a housing boom and an economic boom that has come spluttering to a stop, and suddenly people are professing to be more in tune with the disenfranchised, the downtrodden and the dispossessed.
Let’s hope it’s true.