Why Herman Cain (and Almost Everyone Else) Missed the Housing Bubble

American Thinker ^ | October 16, 2011 | Ed Braddy

[neverdem]

Now that Herman Cain has become a top-tier presidential candidate for the Republican nomination, he is receiving a greater degree of scrutiny than ever before. And that includes efforts by the mainstream media to do what they do best to conservative candidates: prove somehow that said candidates are unfit to serve.

First it was MSNBC's Lawrence O'Donnell playing the role of the white liberal lecturing Herman Cain on what it means to be black. Now it's Chuck Todd wondering what did Cain know and when did he know it...about housing bubbles.

During an October 11 interview (minute 4:58) on MSNBC, Chuck Todd said to Cain:

This is something you wrote in 2005, saying, arguing that there was no housing bubble. You wrote this in 2005, in Business and Media Institute, you said, "Coverage of the Bush economy reads like a collection of Democratic Party press releases, calling a strong economy everything from struggling to volatile or dicey. That kind of ignorance makes homeowners fear that their most expensive possession could turn worthless overnight. That won't happen."

Cain said he didn't know "just how bad Fannie Mae and Freddie Mac had distorted the housing market."

The implication is that Herman Cain is not fit to lead America into economic recovery because he didn't see the bubble before it burst. But if failing to recognize the housing bubble and its causes is a disqualifier, then virtually all presidential candidates would be ineligible, including President Obama.

The housing bubble was real, as the figure below of select housing markets illustrates...

[LouAvul]

If true, that's a pretty huge oversight for any presidential candidate.

[org.whodat]

Real estate was not his area of education. Hell 95% of the so called real estate professionals, plus, developers and bankers thought the supply of people that could buy a 300000 house was unlimited and that a year later they would have an unlimited supple of buyers for a 350,000 homes. Pure ignorance of the market.

[Gunslingr3]

"if failing to recognize the housing bubble and its causes is a disqualifier, then virtually all presidential candidates would be ineligible, including President Obama."

Virtually? How about all of them except Ron Paul?

I'd prefer Paul for president, but I believe I could settle for Cain.

[Outlaw Woman]

The writer is RACIST

[steve8714]

You can’t afford $32.00/hour workers on a $65,000.00 house. Bubble solved.

[Gunslingr3]

Hell 95% of the so called real estate professionals, plus, developers and bankers

were profiting from the bubble, and not about to blow the whistle...

Even Keynesians like Krugman knew what was up, he just didn't appreciate the damage that would be wrought, "economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer."

Now his 'main answer' is the threat of alien invasion to spur government expenditure. I wish I was kidding.

[Lazlo in PA]

Cain said he didn't know "just how bad Fannie Mae and Freddie Mac had distorted the housing market."

No one did except for Chris Dodd and Barneys Frank.

[Senator Goldwater]

Herman Cain didn’t put the arm on lenders to fork over forty and fifty year no-money-down loans of a half a million dollars for McMansions in the DC suburbs to government clerks and secretaries, who augmented their “found” money with a flat screen TV and BMW and a Hummer in the driveway.

No, that was the Democrats.

[Polybius]

Real estate was not his area of education.

Real estate is not my area of education either but I predicted the future Real Estate Bubble disaster on Free Republic back in 2005.

"Three million home owners with ARM loans just got a BIG surprise in the mail." ...... That's nothing compared to the orchietomies that those who have stretched their budgets to buy over-priced real estate with Interest Only loans will get when the "interest only" grace period expires. ..... 34 posted on Sunday, November 20, 2005 2:49:56 PM by Polybius

All it took to see the obvious Bubble was common sense. Common sense, however, appears to be in very short supply nowadays.

[Fred]

The Fed Charimain, Bernanke MISSED IT (he has 1000 economists working for him)
The Treasury Secretary Paulson MISSED IT

Ex Fed Chair Greenspan MISSED IT

Hundreds of so called expert economists MISSED IT...

The statements about Cain make no sense...unless one is a PTard..

[9YearLurker]

According to that graph, the worst of the bubble hadn’t yet happened in 2005.

[LomanBill]

       

"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

http://www.pbs.org/wgbh/pages/frontline/warning/view/

[Jim Robinson]

Go back and ask Barney Frank what HE knew about the bubble. Dodd? Reid? Pelosi? Paulsen? Geithner? Bernanke? Obama? Ferris Bueller? Anyone?

[federal__reserve]

One common thread among all bubbles is...not a single major bubble burst could be predicted precisely. The reason for this is that bubbles can grow to extremes, beyond logical and rational valuations.

Housing bubble did not deviate the rule!

[Eyes Unclouded]

Indeed. Even here on FR it was debated with pro and con arguments for the housing bubble. Even the derivatives and the alphabet soup of financial products created were not known even to people.

Hindsight is 20/20 and it is good to see all stripes of conservative realize what monsters Freddie and Fannie are and how things like the Community Investment Act and a tootless SEC can add up to a disaster. The question is once we take the Senate (and hopefully) the White House will we do anything about it.

These debates are pointless. They should have one on ones or allow them all to give policy speeches alone. Having a nine person debate with time for youtube/twitter questions and silly questions (who on the stage would be your running mate?) don’t do anyone favors.

I digress. All I’m saying is I want hearings and one guy I credit for living up to the hype is Issa. I want him to go after Dodd, Reid, Pelosi (also for wasting money on her own airforce one with booze included), Paulsen, Geithner, Bernanke, Obama, etc. etc.

[oldbill]

More Cato Institute drivel.

The housing bubble in those cities used in this article was not caused by "land use regulations" Those cities are the same ones where a huge influx of illegal aliens with huge instantaneous housing needs were issued the no docs, no down payment, no income required subprime mortgages that were certain to go into default.

Those mortgages and their attendant bundling into derivatives created a mortgage Ponzi scheme that was guaranteed to fail. And when it did, it brought down the financial house of cards, causing banks to fail and otherwise good mortgages to go under water as housing values collapsed.

Here is a more detailed article that appeared in Human Events in 2009.

[oldbill]

Missing hyper link - it’s here http://www.humanevents.com/article.php?id=33821

[autumnraine]

Wow... we (the commercial insurance agency I worked for) were stressing about the upcoming ‘housing bubble’ back in 2005-2006 as it would surely affect our interest in the thousands (hundreds of?) dollars in commission lost if and when our mega-builders that were our clients hit the bubble pop.

Why did no one else see it?

[wontbackdown]

In 2001 my husband and I were looking to buy a house. Our real estate agent took our financial information and told us that we could afford an amount twice as much as we knew we could afford. She kept trying to sell us the pricier houses while we finally fell in love with a townhouse that fit perfectly into our budget. We bought the townhouse. What saved us from the bubble was refusing to be seduced into buying a house we knew we couldn’t afford. We did get the house with no money down, though.

[wontbackdown]

In 2001 my husband and I were looking to buy a house. Our real estate agent took our financial information and told us that we could afford an amount twice as much as we knew we could afford. She kept trying to sell us the pricier houses while we finally fell in love with a townhouse that fit perfectly into our budget. We bought the townhouse. What saved us from the bubble was refusing to be seduced into buying a house we knew we couldn’t afford. We did get the house with no money down, though.

[kearnyirish2]

A friend of mine was looking to buy around 2005, and held off because he realized that many of the units being sold in the development were not “owner occupied” (though they were one-family units); they were being bought and rented out by speculators, and this was driving the prices. Within two years the prices had fallen 30% (and the prices were high).

[wolfman23601]

Yep, owner occupied was my standard as well. I wound up buying a modest 2000 sf house built in 1940 in a safe, well established neighborhood. I am kneed underwater, but not nearly as bad as if I bought one of the McMansions or ghost town condos the realtor was pedaling. Plus, I am happy to live and grow my family here until it turns around.

[Huck]

The question is whether Cain was really so clueless he didn't see it, or if he was simply committed to Limbaugh-style cheerleader nonsense because "our guy" was in the White House. Was it ignorance, or just the talkradio template?

[aimhigh]

I started collecting articles on the subprime crisis in mid-2007. People were aware, but Dodd-Frank refused to allow any changes to prevent the collapse.

[Notary Sojac]

Here's my house on Zillow, the dollar sign is where I sold it (spring 2006).

And I am NO financial genius (my portfolio is sad testimony to that fact).....but I have at least a few brain cells functioning and could see that when my neighbors making $75-$100K a year were refinancing their houses at half a mill (lots of new Bimmers, boats and Harleys in the driveways in 2004-6!), we were cruising for a bruising.

Of course, since I was not making money from originating liar loans or building crapbox McMansions, that gain on my house was all I made from the bubble.

I got flak like you wouldn't believe when I advised a couple of my neighbors to sell. I was a wet blanket, a gloom and doomer, a turd in the punchbowl. These days, we mostly talk about sports and the weather, not the economy.....

[Notary Sojac]

It can't be denied that the housing toga party of 2002-2006 was heartily endorsed by both political parties.

I can recall no Republicans prior to 2008 warning that banks were overleveraged in housing assets and that they should not be bailed out.

And I STILL see Freepers boasting about the "booming Bush economy" who fail to realize how much of that boom was a Monopoly-money bubble.

[Cincinatus' Wife]

Bush (2001)(2003)

http://www.youtube.com/watch?v=cMnSp4qEXNM

[LouAvul]

According to that graph, the worst of the bubble hadn’t yet happened in 2005.

I knew it was a bubble long before 2005. Just because the worst hadn't hit doesn't mean it didn't already exist.

[Notary Sojac]

All Dubya had to say in 2005 to the banks was this:

"You are responsible for your own due diligence on the securities you acquire. If the underlying property values fall below your booked values, your bondholders will have to assume the loss. Do not even dream that the US Treasury or the Fed will take action to support insolvent investors."

I would have said that. By the end of 2005 I WAS saying that. But since I'm not the president, I don't have much of an impact.....

[kearnyirish2]

I had bought before the bubble, in an area that was affordable; rates fell soon afterwards, so I was able to refinance a low price at a low rate. I know I was just lucky with timing, but before we bought the house we were about to move into an apartment because prices were a bit high. We got lucky in finding this one, and haven’t missed a payment in over 10 years.