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The Real (Easy Credit) Bubble II: Its Effects On The Macro-economy

Updated on December 29, 2011

Unlike the technology bubble of the late 1990s, the real estate bubble was the real deal. If the word “bubble” implies something incredulously nebulous and explicitly clumsy in the field of economics, then the real estate bubble was a time when prices weren’t exactly legerdemain. This said, the word bubble has come to be a brief period of unexplainable, artificial and superficially sky high soaring prices. In other words, an economic bubble could be considered market euphoria—something analogous to an altered state of mind. When you’re in an economic bubble, you know something’s wrong because everyone’s sense of perception becomes jaded and unreal—and for a brief moment— the economic engine, unexplainably, blast off like it’s on nitrous oxide—it becomes a financial adrenaline rush like none other.

Everyone, including economists, financial experts and common folks, alike, knew that something was seriously wrong with the price of real estate in some major real estate markets throughout the United States. You had some U.S. cities like California, Florida and Arizona, to name a few, that had home prices at three times their normal value; real estate prices for these particular markets ran totally out of control—the market frenzy was like a bunch of starving feral dogs, let out from the woods, looking to unleash havoc on our modern society.

Also, in the end, what the bursting of the real estate bubble did reveal was the fact that our banking system wasn’t really in business to service the people but in business to respond to an impulsive demand. Furthermore, banks justified their involvement in the real estate bubble on the basis that they were trying to supply a need but what they really were trying to do was create profit where there really wasn’t any. Fact is, whenever a bubble economy becomes inflicted with maniacal tendencies, the mental sickness of greed superimposes itself on to the economy, again, to the point of causing all “macroeconomic hell to break loose.”

Want to know what caused the real estate bubble to grow up into the troposphere? Kamikaze economics! And this version of kamikaze economics wasn’t driven by, “the need for greed 80s” or the “instant millionairism” of the late 90s: this kamikaze economics simply wanted to a piece of the American pie. What was wrong with that? Absolutely Nothing! It’s just that the knife being used, in theory, was a bit dull: the art of real estate speculation got pushed to unimaginable limits—as many Americans in search of a big piece of the American pie used real estate speculation to run down an economic engine that already had been ran to the ground by the era.

It was a simple case of perverse greed all over again, through bubble induced real estate speculation; would-be American investors felt that they could immediately cash in on it. During the height of the bubble, it appeared everyone wanted to speculate: I remember talking to a recent 22 year old college graduate that was able to buy a house—this was just two months before she found her first job. Talk about kamikaze economics, this was a four-bedroom, two- bathroom home cavalierly given to a very young adult who—just two years ago—wasn’t legally able to buy a beer. I asked her, “how come a home so early?” She response by saying, “well my intended goal is to avoid rent payments, live in the house for a year or so, build up equity and then cash in.” If I’m not mistaken, she did exactly that. With only 3 percent down payments and one-year adjustable rate mortgages at 3.89 percent at the time—who could blame her? Fact is, during the height of the real estate bubble, it cost more to put down for a car than it did for the biggest investment one makes in an advance economy.


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