Of Two Minds

All these curveballs will further fragment the housing market. Oh for the good old days of a nice, clean housing bubble and bust as in 2004-2011: subprime lending expanded the pool of buyers, liar loans and loose credit created speculative leverage, the Federal Reserve provided excessive liquidity and the watchdogs of the industry were either induced (ahem) to look away or dozed off in a haze of gross incompetence.

The casino has become complex and there are no easy answers or predictable paths. The Wall Street herd had it easy from 2009 to 2021. Life was simple and life was good: markets were easy to predict. As long as the Federal Reserve kept interest rates near-zero and increased its balance sheet to buy Treasury bonds, the stock market rose.

I’m simply pointing out “money” isn’t simple, and “backing money with X” leads to questions about the nature of “money,” collateral and the fluidity and complexity of the social construct we call “money.” The problem with money is it isn’t just one thing. We think it’s one thing because we use it to buy things, but it’s actually a bunch of different things. This is why I often refer to it as “money:”

Those glancing at the appearances will be assured all is well and it will all sort itself out. Those who look behind the screen will move away as fast as they can. When finances tighten, there are two choices: cut expenses or increase revenues.

What if all the new consensus memes are as wrong as the ones they replaced? I have the Contrarian Curse, and I have it bad. The Contrarian Curse is: as soon as the herd adopts your previously contrarian view, you start questioning the new consensus, just as you questioned the previous consensus.

We are all prone to believing the recent past is a reliable guide to the future. But in times of dynamic reversals, the past is an anchor thwarting our progress, not a forecast. Are we heading into another real estate bubble / crash? Those who say “no” see the housing shortage as real, while those who say “yes” see the demand as a reflection of the Federal Reserve’s artificial goosing of the housing market via its unprecedented purchases of mortgage-backed securities and “easy money” financial conditions.