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Few Would Have Believed Roof Could Fall In

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The Tampa Tribune

Published: November 1, 2008

We in the press deserve some blame for not warning loudly enough early enough that the fast-moving housing market was circling the drain.

Not that willing sellers, eager buyers and zealous lenders would have listened. In fact, before the bubble burst, we were criticized by local real estate agents and developers for suggesting the housing boom couldn't last forever. They accused us of talking the economy down.

In the summer of 2005, a time when any air breather could qualify for a mortgage, this page warned that "if housing prices take a dip, overextended buyers and the banks holding these mortgages could be in trouble."

We suggested regulators should begin to skim the "froth" off the red-hot housing market by tightening credit standards. Some local banks and credit unions had wisely maintained traditional principles, but almost everyone else in the housing industry was grabbing as much as they could as fast as they could. They were profiting handsomely and wouldn't listen to any of us anxious nay-sayers.

An interesting question is what level of warning would have been strong enough to bring some sanity to the lending frenzy.

Just for fun, let's assume we knew in 2005 all that we know now. Our warning would have been much sharper:

"Reckless bankers and mortgage brokers are pushing the whole credit industry toward a crash. They're steering us into the biggest economic crisis since the Great Depression. Fannie Mae is trading for over $50 a share now, but in 2008, you'll be able to buy a share for 90 cents.

"Major investment banks will go broke. Housing prices are going to plunge 25 percent, and more in some neighborhoods. Things are going to get so dark that President Bush will say the whole national economy is in danger. He'll push Congress to partially nationalize the credit industry. Taxpayers will be forced to buy stock in private banks.

"Arthur Laffer, the big-shot economist and former member of President Reagan's Economic Policy Advisory Board, will foresee 'the end of prosperity.' He'll say Bush will be remembered no more fondly than Herbert Hoover.

"Consumer confidence will plunge to its lowest level in the 41 years it has been measured. The scope of the nation's financial woes will leave former Fed boss Alan Greenspan in a state of shocked disbelief."

Also try to imagine how hard, in 2005, it would have been for you to believe any of that. The value of your home had been increasing steadily and you were being bombarded with credit offers to withdraw equity to buy that boat you've always wanted and to live beyond your means.

Instead of joining our call for reform, you more likely would have canceled your subscription.

Now imagine how folks would have felt if regulators had been brave enough to clamp down. Mortgages would have become harder to get and housing prices would have started to flatten out or even fall a few years ago.

The public would not have seen it as a crisis avoided. They would have accused regulators of causing an unnecessary slowdown. They would have looked for someone to blame for spoiling the party, and that would be the theme of this year's presidential election.

It's easy to wish that someone could have headed off the housing stampede before it reached the edge of the cliff.

It's hard, even in hindsight, to think of words that would have done the job.

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