US Housing Bubble ($1 trillion) and Japanese Land Bubble ($24 trillion)
(Bulle immobilière américaine et japonaise terres bulle)
SECTION I: HOUSING BUBBLE BLOG
A year ago this blog introduced an article of Financial Times:
http://thehousingbubbleblog.com/?p=2631
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April 12, 2007
Subprime Loans “Continued To Decline”
….
The Financial Times. “US politicians are drawing up a bill that could make it less attractive for Wall Street investment banks and other financiers to repackage risky mortgages into securities and then sell them to investors around the world.”
“Spencer Bachus has backed an ‘assignee liability’ system which would mean investment banks that repackage mortgages into bonds would be liable to pay compensation to borrowers if loans turned out to have been mis-sold. unless they can show they conducted extensive due diligence.”
“Such a move would make it less attractive to repackage these loans and to buy mortgage-backed securities.”
...
“Credit problems exist all over the country, the report said, with the largest increases in California, Florida, Nevada and much of the Northeast. Beyond that, 30-day, 60-day, 90-day and 120-day delinquency rates all rose strongly.”
“At an annualized pace, first-quarter defaults reached 1.16 million, far outpacing the 900,000 defaults last year.”
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However more suggestive may be some comments for the blog of the day:
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Comment by chicagobubbleblog
2007-04-12 11:51:19
“owning a home can increase responsibility and stake out a man’s place in his community….The man who owns a home has something to be proud of and reason to protect and preserve it.” — Lyndon Johnson
This is somewhat but only if the owner has some skin in the game (20% DP). Many people who get caught up in this will lose very little money. It’s their credit that will take the hit but since your credit score isn’t posted on your lawn for you to see everyday it doesn’t matter to most.
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Comment by CA renter
2007-04-13 02:54:21
Like saying that marriage makes people more successful, live longer, stay healthier, etc. It’s not the marriage or the “purchased” home that makes a person a more responsible, productive member of society.
When you had to have 20% down, high credit scores and good, **proven** income, only the most successful could buy a home. Homeownership = productive member of society because ONLY productive members of society could buy a house.
Same with marriage. It’s the **already- successful**, dependable, stable, committed person who’s willing to get married.
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You should note that US non-nonsense citizens were arguing honestly subprime loan problem just one year ago. But, the US Government and super-rich Americans could not stop the occurrence of the $1 trillion loss in this time span, namely four quarters.
That is why I am telling you that any open or secret organizations formed by super-rich people in the U.S. together with those in Europe are powerless and not so smart like real devils.
I tell you not to be afraid of them; but read EEE Reporter.
SECTION II: A JAPANESE PROFESSIONAL OPINION
Mr. Yoshio Suzuki, a notable veteran economist from the Bank of Japan and former lawmaker of Japan, has a positive view on future of the subprime loan problem.
He predicts that the subprime loan problem will take a favorable turn to solution rather smoothly between this June and the following summer, due to the following factors:
(1) The disclosure of related information being made thoroughly.
(2) Huge influx of money and funds into Wall Street from overseas funds.
(3) The Election Year 2008 forcing President Bush and FRB Chairman Bernanke to take active measures to defend the dollar and the stock market.
(4) Many US economists of the Nobel-Prize winner class who have well studied the Japanese Bubble Economy and its Burst in early 1990’s being prepared to join reconstruction work.
( http://www.st.rim.or.jp/~success/subpraime_ye.html)
SECTION III: Japanese Bubble Economy and its Burst
In April 1990, Japanese Finance Ministry issued to banks an executive letter of ruling intended to suppress the land bubble. It worked and the prices of land began to decline drastically and continuously for successive years.
In 1990, the total amount of land prices all over Japan reached $24 trillion (which surpassed the then total value of the US land).
In 1997, the total amount of land prices all over Japan fell to $17 trillion.
This sudden fall of land prices has been long regarded, even today, as the greatest cause for a decade-long economic slump in Japan.
Hence, the head of the Banking Bureau who issued the executive letter was later severely blamed by the media and the general public for his lack of insight and far-seeing wisdom.
I was also then watching the proceeding of these economic incidents from late 1980's, the age of the Japanese bubble economy, to early 2000’s when the aftermath of the land bubble was somehow settled down.
But, I did seldom encounter direct and honest comments from insiders of the Ministry of Finance on the decision made by the head of the Banking Bureau in 1990 who was and is still severely blamed for having triggered the deep slump of the Japanese economy in 1990’s.
Yet, recently, Ms. Satsuki Katayam, a ruling-party lawmaker and former executive of Ministry of Finance, wrote concisely some on this issue in her blog.
She wrote that the head of the Banking Bureau had made a courageous decision to suppress the Japanese land bubble unflinchingly, though the media and a majority of Japanese public did not yet praise the already-deceased notable bureaucrat.
She also wondered how much Mr. Ben Shalom Bernanke of FRB could do against the US housing bubble, while presenting her forecast that things would not change decisively until this autumn.
Yet, Ms. Satsuki Katayama, a very popular lawmaker in Japan, wrote: “The bubble is from the nature of mankind; thus we cannot avoid it. But the issue is how to suppress and conquer it when it occurs”; however I have another idea.
SECTION IV: PARADIGM CHANGE REQUESTED
The most important lesson yet to learn from the Japanese land bubble and its aftermath in 1990’s is the need for a paradigm change when leaving the bubble economy.
The deep slump of the Japanese economy in 1990’s should not be ascribed to one decision made by a certain high-ranking official of the Ministry of Finance.
Indeed, some reasonable economists in Japan today argue that it is not the single executive letter from the head of the Banking Bureau to restrain lending to land buyers but the limit of the economic framework and infrastructure of Japan for sustaining the bubble economy and fixing it appropriately or, in other word, people's mind set to try to enjoy an excessively bountiful material life unlike pious Buddhists of the Japanese version.
Nonetheless, my opinion is that it is the lack of paradigm change in viewing economy and money that forced the Japanese economy to evolve into a serious mess in 1990’s.
Likewise, what the US needs is a paradigm change in dealing with the subprime loan problem.
One example of a paradigm change in Japan, good or bad, is found in a certain political strategy former Prime Minister Mr. Jyunichiro Kizumi pursued, which has made him so popular among voters and citizens in Japan.
But, Mr. Koizumi apparently was critically influenced by the 9/11 Terror and subsequent incidents, which can be confirmed in his adventurous visits to North Korea in 2002 and 2004 (which I cannot help but take into consideration when assessing the Koizumi Administration, though I do not think he looks like a certain US actor, since several Japanese and one American were actually rescued from North Korea regardless of detailed proceeding of the very rare diplomatic incident).
Good or bad, Americans must admit that the 9/11 Terror was an incident that requested US citizens to change their paradigm on politics, economy, and their society as well as their leaders.
As such a paradigm change has not been fully pursued, the U.S. has to suffer the prolonged War on Terror and the subprime loan problem, in my view.
The “Obama” boom can be also judged in terms of the paradigm change; but the answer is yet to be obtained.
(Indeed it took 20 days for the Japanese Government and the Diet to appoint and authorize the Governor of the Bank of Japan, due to balanced strengths between the ruling parties and the Oppositions.
But, everything is difficult before it is easy as having been proven by Mr. Koizumi’s visits to North Korea, though not resulted in complete solution of the Japanese abductee problem
Anyway, it is nice to remind the audience of the significance of leaving vacant the post the Governor of the Bank of Japan even for a few weeks, since Japan is so important in the world with precious experiences on the bubble economy the US must be learning now.
[By the way, which do you like, Chinese noodles of the Japanese version or French bread with cheese or cream in? Jesus Christ said that the body is so great and holy as not to be influenced by any foods. So, I took the both yesterday...])
