What Caused the Housing Bust (1)

Run on the bank

Today, we take a break from our normal format to answer in detail a question regarding the current housing problem that must be on the minds of nearly all of our readers, as expressed by paid-up subscriber David Walker:

What is so unusual about the current times that so many smart people could be so catastrophically wrong?

Porter comment: What happened (and what is still happening) is simply leverage in reverse, or what people used to call a "run on the bank."

For nearly 10 years, as interest rates fell from 1995 to 2005, the mortgage and housing business boomed as more and more capital found its way into housing.

With lower rates, more people could afford to buy houses.

That was good.



By Porter Stansberry