It helps not to think of this as a real estate bubble. Think of it as a debt bubble. There has been a lot of explanation for the debt bubble.
Some say that foreign countries contributed money to our treasury via the savings of their citizens.
Some say that the United States Treasury printed fiat money to finance programs that our government and our citizens could not afford. Please note the increase in the currency supply since the United States abandoned the gold standard in 1971.
Still others say that this money was pulled straight out of thin air, having been produced in the form of loans to real estate buyers, which never really leaves the system (people almost never buy a house with a briefcase full of cash). The truth is all three, with most of the debt coming from loan origination.
The amount of money that people are permitted to borrow is a multiple of the amount of money that banks are supposed to have in cash reserves. Banks and Government Sponsored Enterprises like Fannie Mae and Freddie Mac originated loans, and it seems that this was the primary source of debt during the real estate run up.
One point that is clearly evident, this debt was not financed from the savings of our citizens. Click on “download” in the top left hand corner to see the chart.
When a financial planner tries to convince you to save for retirement, they show you a graph of money growth, where the horizontal axis is time, and the vertical axis is money. The curve on the graph goes up.
The yield of a debt instrument can be demonstrated the same way. The expectation being that over time, the yield on a debt instrument will rise like the yield on any other investment. This is particularly true when investors expect inflation or they expect the economy to grow.
When we see government bonds or T bills tracing an “inverted yield curve,” it is smart money investors betting on deflation.
You will note in the attached graph that inverted yield curves occurred during the Great Depression, during the economically tumultuous 1970s, preceding the double digit inflation of the early 1980s, during the real estate crash of 1987, during the dot com crash of 1999, and here we go again circa 2005; and it is the steepest inverted yield curve since 1977.
So, I don’t think that the financial crisis or the debt bubble is fabricated. Having said that, I agree with the spirit of your post. I believe that there are people who are overjoyed about the financial problems because it gives corrupt people the opportunity to capitalize on the chaos. Like the wolf guarding the henhouse, we are being told that the only way out is to write a blank check, at taxpayer’s expense, to finance the wealth of our banks and our government. The plans they develop may or may not work, may or may not have the interest of the taxpayer in mind, and may or may not serve the interest of our economy. It is increasingly difficult to trust the intent of these programs when the first 350 billion was so opaque in its character, so indiscriminate in its use, and so apparently ineffective.