walkitout (walkitout) wrote,
walkitout
walkitout

spooky little quote about credit and housing

http://www.calculatedriskblog.com/2009/06/wsj-real-time-economics-housing-bubble.html

CR is quoting Mian and Sufi, writing over at the WSJ in response to some people who claimed the housing bubble and its collapse didn't have a lot to do with consumption (CR and these two disagree. Guess who I think is right?).

"Finally, the effect of house prices on homeowner borrowing is isolated to homeowners with low credit scores and high credit card utilization rates. These “credit-constrained” households respond aggressively to house price growth, whereas the highest credit quality borrowers do not respond at all."

Two responses to this spring immediately to mind (beyond, "Duh"): the rich get richer and the poor get poorer is one. I feel guilty about the other one (which ends the same, but starts with, well, there's a _reason_ why...).

Quick on the heels of those two responses comes what I really believe: this is why we shouldn't let asset bubbles develop, and we _really_ shouldn't let people borrow against those assets if the loan terms are dangerous for them.
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