Human beings, as giddy as they are, still are sometimes easy to predict.  Did any reasonably intelligent adult paying attention in the 1970’s not know that bell bottoms and hip huggers would eventually make a return?  As ugly as they were back then, they looked great, like really anything looks great, on slender young women.  So they’re now back.  Thankfully, mainly only for the young women.  I thought men always looked a bit ridiculous in them (present company included).

Bell bottoms took a long time to cycle back.  Or maybe this is the second cycle.  But it was over thirty years ago when they were first came into vogue.

It didn’t take so long for the Fed to cycle back to mortgage bond buying.  It was only three years ago when the Fed embarked on its first mortgage bond buying spree, ostensibly to keep the housing market from completely evaporating. Now, according to Bloomberg, Bernanke claims it’s time to buy some more mortgage bonds.  Maybe in order to prop up the housing market again?  The first round didn’t work so well at propping up prices, unless you calibrate the results according to what might have happened had there not been all that mortgage bond buying, like the Obama Administration does in calculating the net effect of its first stimulus on employment.  From the FRED database, here’s what the bond buying has done for housing prices thus far:

Graph of S&P Case-Shiller 20-City Home Price Index

At best, it may have forestalled further declines. 

But allowing prices to fall to, and even through, their market-supported prices would have quickly resolved the financial system crisis so far as the housing market in the US was its cause, and suffered from its effects.  There would have been pain, sharp and excruciating pain, but only briefly.  Things would by now be sustainably turning around.  Pain delayed is not pain denied. 

I’ve been saying for over a year now that the US is headed towards zero percent financing for homes, particularly for newly-constructed homes, similar to how new vehicles are financed.  If the Fed starts buying mortgage bonds again, it’ll get us there that much quicker.