Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy

Chapter 21. The Virtues of Foreclosure

	Home sales are coming down from the mountain peak, but they will level out at a high plateau, a plateau that is higher than previous peaks in the housing cycle.
	--David Lereah, National Association of Realtors'chief economist, December 2005[211]

	I don't know, but I think the worst of this may well be over.
	--Alan Greenspan, October 2006[212]

By now, you may have noticed that housing has played a starring role in our Bailout Nation. It is the unifying theme that runs through much of the bailout narrative.

Housing was the prime driver of the economic cycle of 2001 to 2008: It was a disproportionate source of newly created jobs. Mortgage equity withdrawal (MEW) was an outsized contributor to consumer spending. Home mortgages were a huge portion of much of the twenty-first century's consumer debt creation. On Wall Street, the securitization of mortgages was a major factor driving revenue and profits; residential mortgage-backed securities (RMBSs) were bundled by the Street, and then repackaged into collateralized debt obligations (CDOs). Pseudo insurance policies written on all those CDOs were credit default swaps (CDSs), a key element in the demises of Bear Stearns, Lehman Brothers, and AIG.

But that was then. Where does housing fit into the economy in our modern, postbailout world?

Today, housing presents a tricky catch-22. Allow me for a moment to be a two-handed economist: On the one hand, housing remains overpriced relative to historic norms; ...