There seems to be an increasing consensus that the housing market was riding on a bubble and that the bubble is deflating. Many have been predicting a bubble for decades, some have come around recently, and others still dispute that there is a bubble at all. This entire debate has been of great interest to me because, until recently I was employed by the mortgage industry and my job involved, among other things, pouring over mortgage contracts from all over the country.

I think that there is something to be said for all three positions on the existence or non-existence of a bubble, but from a lot of what I read a lot of people don't understand the dynamics at play, what would cause a crash, and what a crash would look like.

Most comparisons are to the bubble most recent in our memory, the tech bubble. The two, however, are not really comparable at all.

The first problem with the tech stocks is that many of them had no intrinsic value. They were completely a product of hype. You cannot sleep, sit back and watch television, or have dinner in a tech stock. Tech stocks appear nowhere on anybody's hierarchy of needs.

This speaks somewhat optomistically of what a housing bubble burst would feel like. It could be less of a burst and more of a correction. People that own houses would have to wait to sell them if they wanted top dollar. The price of housing would likely stall and fall slightly, but eventually the economic reality that land value goes up with development would bring it right back to and then above its current value. Since most of the overvalued lands are in places of natural scarcity (expansion is blocked by water, mountains, or other development), it probably wouldn't even take that long.

So if that is what the bubble consists of, I believe that we would be very lucky indeed. Unfortunately, my recent professional experience has suggested that something much, much worse could well become of it all.

Day in and day out I looked at contracts. Though I did not have access to specific information about the loans, I knew what kinds of loans the banks were working on and frankly each one of them was more depressing than the last. I could not figure out for the life of me why people would be signing these atrocious documents. There are balloon mortgages (where you make insufficient payments throughout the loan and then pay a lump sum at the end of it), interest-only loans (ten years in and you haven't touched the principal), one-way adjustable rate mortgages (where the interest rate can go up but not back down), and worst of all negative amortization (where each payment you make leaves you further in debt than you were the previous month). By the time I left banks were combining these into an unholy mess of of a loan program where at ten years you own more than you did when you started. And the length of the loans were moving futher and further out, at 50-years by the time I left.

I received several answers to my questions, some of which were benign and others less so. Construction home buyers, for instance, would be interested in making minimal payments because they can't live in it or plan on selling it in short order. A bit more disturbing are the home-flippers, who buy a home with the intent to sell it before the principal is sue. Most disturbing are the increasing number of people that sign these documents because these are the only ones that will let them buy a house. We are all taught that it is better to buy and rent, and they can afford the $800/mo interest-only, but cannot afford much else. By the time the payment comes due they hope to be making the money they need, refinance it again, or be able to sell it and use that money on a down payment on another house.

The problem is, however, that the payment will eventually come due. The real question is not what happens when the market corrects as much as it is what happens when these interest-only and neg-am introductory periods expire? What happens when the interest rate goes up, pushing the ARMs out of reach? What happens when thousands of people are left holding the hot potato, with a buyer's market that won't buy for the money that they need and banks that have been burned too many times to refinance someone into what becomes a lifetime mortgage.

Which brings us to the second main difference between a housing bubble and a tech bubble: the housing bubble depends almost entirely on bank loans, where I don't believe that was the case. As such, a significant portion of the market is dependent not only on future buyers, but also the future willingness of the the banking industry and the government's continued willingness to allow it to operate under increasingly questionable practices.

I'm not sure at what time the introductory periods of the introductory loans (the term I will use for interest-only loans, fixed-period ARM loans, negative amortization loans, balloon loans, and any other loans they may have concocted wherein the first 5-10 years are with payments that are lower than will be expected later) will end, but it is quite possible that it will start a domino effect.

A slight slowdown in sales will cause some people to sell short. Some will succeed and they would drive the housing prices down. Others won't, which if frequent enough will create a secondary foreclosure market. Both cases would lead to at least a temporary surplus of houses on the market, making banks much more reluctant to issue loans for investment properties, which will in turn produce less buyers and increase the surplus of available homes.

The other possible cause for a domino effect is when the government finally puts its foot down on questionable loan practices before we end up in a situation like that in many foreign countries where loans are multi-generational. If the housing market is presently being propped up by an ever-increasing number of buyers that are propped up with ever-creative mortgage loans, once the creativity ends so will the supply of buyers and that, too, would leave a number of people with the hot potato when the buzzer goes off.

Unlike with the tech stock, the threat is not that they are significantly overvalued now -- I don't believe that they are -- it's that they will be undervalued tomorrow. This wouldn't be a problem if the housing market were dominated by people that were buying houses that they could afford to "ride out" when the market inevitably rebounds by correcting upward, but every indication that I have seen suggests that in many markets this is not the case.

The good news is that even in a worst-case scenario, a number of markets will remain relatively untouched. Houston, for instance, is probably pretty safe since few need to take out particularly questionable loans in order to afford a house. Even the pricier Austin is likely to be just fine. However, there are a lot of hotspots that are presently being propped up by speculators with no intention of paying the tab and I would strongly advise against real estate investments in those areas (California coast, Las Vegas, Phoenix, Denver, the northeast) or taking out a loan that you cannot afford to assume yourself to term, if need-be.

And it's quite possible that it will simply be a matter of various bubbles deflating than any popping or any dominoes being knocked over. I would say the chances are 50/50 that it will be a relatively smooth correction. I certainly hope that it is.

I shouldn't have to say this, but I will anyway: the opinions expressed in this post are mine and mine alone. They should not reflect on my former employer or any of the coworkers and friends that I had there.

I saw the comment on Brothers Judd somewhere, but couldn't track it down, but it came down to this:

You can't make divorce too difficult because it will trap battered spouses, but if you make marriage too difficult it will encourage commonlaw marriage and cohabitation.

These things are true.

Much moreso than gay marriage or even polygamy, I consider divorce to be the biggest threat to marriage. After all, what hurts a marriage more than frequent de-marriaging. The problem is that there are many cases where it is extremely important that a battered or abused spouse be able to get out of a marriage with their limbs and sanity in tact. On the other hand, the doorway that is open for special cases tends to get rushed with convenient passers-through.

But an idea occured to me: instead of attacking marriage or divorce, attack re-marriage. What if a divorce were easy enough to get, but that it came with a penalty: You can't remarry for five years. Or maybe ten. It seems to me that this would attack the idea that marriage is something that you can get in and out of without trapping someone (being unable to remarry would presumably not prevent a battered spouse from getting out) and without weakening the institution of marriage itself by having large numbers forego the process. Of course, divorced people would have to forego the process at least for some time, but they are generally "off the rails" anyway, from a social standpoint. By getting married and divorced, they have already gone outside the proscribed path that is expected of us.

Their penalty for de-valuing marriage is limited access to it in the future. That seems pretty fair to me.

I have at least two concerns with this:

First, there are many cases where the couple got married too young, didn't know what they were getting in to, and are being somewhat unfairly held into account for youthful indiscretions. While that holds some merit, we're reaching the point where "youthful indiscretions" continue into someone's mid-to-late twenties. Thirty, when the mother has only a limited time to produce children and will likely not see grandchildren until she well over sixty, is considered a good time to get married. Because we spend a good part of our twenties being stupid. That actions have consequences that you can't just send away is an important lesson that is missed amount younger people (particularly teenagers, but even up to people my age or a little younger). As a culture, we need to push people to grow up faster, not clear the way for them to grow up slower.

Second, If an divorced person meets and falls in love with someone that has never been married, it's the unmarried person that is paying the price for the actions of the loved one before they even met. This sort of thing already happens with debt and the like, but from a cultural standpoint it could be problematic because it throws otherwise track-bound people off the rails. Girl meets divorced man, girl can't marry divorced man, girl moves in with divorced man instead, girl breaks up with divorced man, girl sets herself up on a cycle of pseudomarriages that do not need a divorce. Of course, some of this is contingent on publically discouraging premarital cohabitation which seems to be of increasingly less concern. However, add a baby born out of wedlock to the above timeline, and the marriage becomes more important.

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One idea that has made the rounds more recently is that of a "Covenant Marriage," in which a prospective couple agree to undergo more counselling and set up barriers against a future divorce. The common complaint I have heard about this one is that the couples that are most likely to get a Covenant Marriage are least likely to need it.

That may be true, but I think the purpose that it would serve would be to get a couple to seriously think and talk about what marriage means to them. If neither want the roadblocks to be there, I might personally ask what the point of getting married in the first place is, but it does give couples a certain lattitude if both are practical-thinking, post-modern types that have resigned themselves to "the way things are nowadays." If both want a covenant marriage, that provides a way for couples that are probably unlikely to get divorced anyway to make a statement, of sorts, to themselves and others that their marriage is distinct from Elvis-officiated ones in Vegas.

But where I think that covenant marriages would be most helpful are when one half of a partnership wants one and the other half does not. That's when the conversation about marriage becomes all the more important. It takes two to marry, but it only takes one to cause a divorce. That's why it's very important that you know as much as possible about the person that you're marrying. One of the reasons I married Camille was that I found that she and I both had very idealistic views on what a marriage should be along with very realistic ideas on how a marriage should be.

Had Covenant Marriage been a possibility for us, and had one of us wanted one and the other not, that would have been a red flag. Not necessarily indicative of future disaster or anything, but something to talk our way through. The issue of whether or not she would take my last name became a flashpoint of discussion between us because it emphasized some of the differences she and I do have when it comes to marriage and we had to work our way through them. The Covenant Marriage could easily serve a similar role. If two people have differing ideas on the nature of marriage, it needs to be worked through before the marriage actually happens.

"We have reached the antithesis of the asceticism of the Middle Ages. There is no tendency now to despise self-gratification or to hold what we call practical affairs in contempt. To adjust the balance of this age we must seek another remedy. We do not need more material development, we need more spiritual development. We do not need more intellectual power, we need more moral power. We do not need more knowledge, we need more character. We do not need more government, we need more culture. We do not need more law, we need more religion. We do not need more of the things that are seen, we need more of the things that are unseen. It is on that side of life that it is desirable to put the emphasis at the present time. If that side be strengthened, the other side will take care of itself…. The success or failure of liberal education, the justification of its protection and encouragement by the government, and of its support by society, will be measured by its ability to minister to this great cause, to perform the necessary services, to make the required redeeming sacrifices." -President Calvin Coolidge, 1923

This question is going to sound somewhat snarky, but I don't really mean it to. I am genuinely curious if there is something I am missing.

In a 2002 New Jersey senate race, Senator Robert Torricelli dropped out of his senate race, creating a vacancy. As Democrats lined up to replace him on the ballot, Republicans pointed out that the deadline for that had passed. It went to the courts and the Democrats won both the case and the race.

In a 2006 Houston congressional race, Congressman Tom DeLay drppped out of his congressional race, creating a vacancy. As Republicans lined up to replace him on the ballot, Democrats point out that the deadline for that had passed. It went to the courts and the Democrats won the case.

These two cases are not identical. I can understand logical reasons why the Republicans can take the two differing positions that they did:

1) New Jersey 2002 changed the rules. The courts ruled that it was more important that each party that made the ballot have a nominee than it was specific election statutes were followed. They may have been wrong in 2002, but what's good for the goose is good for the gander.

2) Tom DeLay did not only drop out of the race, he legally changed his residence from Texas to Virginia, making himself ineligable to serve, thus ineligable to run, thus technically not dropping out and replaceable.

For what it's worth, I don't buy it. I can understand the justification in the first difference, but ideologically it was wrong in 2002 and therefore was wrong in 2006. I also agree with the ruling of the courts, as I understand it, regarding DeLay's residency change: If DeLay wants to serve, he is welcome to move back to Texas. Since he does have the option to do that, his leaving the race (via leaving the state) was voluntary. That sounds about right as DeLay took advantage of what was little more than a loophole.

But while I disagree, I understand the argument being made.

So my question is what differences exist between Jersey 2002 and Houston 2006 that justify the change of heart on the part of the Democrats? Was the New Jersey law particularly unfair?

Don't get me wrong, I'm not naive. From a purely partisan level, parties will do what parties have to in order to achieve their primary function of winning power. But members of political parties often have to justify this to themselves. I imagine that Republicans use the justifications above (or maybe one/some that I missed?).

What justifications are Democrats using?

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As for my feelings on the matter, I was rather upset that the Democrats sued not because they weren't right (cause I think they were) but because it meant that DeLay could come back and win. DeLay was never in as much trouble as Torricelli, from what I recall. Even despite all the problems he had, he still had an (R) by his name and that is quite possibly enough to get anyone elected in TX CD-22. But Democrats were willing to take that chance in order to have a shot at the seat (which they likely wouldn't have had if DeLay had been replaced on the ballot). The gamble paid off, but the whole maneuver suggests to me that for all their posturing on how DeLay was so uniquely corrupt, his biggest sin was the fact that he was a Republican.

But... it's over now. Due to the GOP's monumental mishandling of the situation, DeLay's very Republican district will almost certainly vote in a Democrat. I have no more sympathy for the GOP here than I did the New Jersey Democrats. Parties that don't ditch corrupt candidates until it's evident that they may lose deserve to lose. I'm sorry that didn't happen in 2002, but I am definitely not sorry that it's going to happen in Texas in 2006.

All of this reminds me... I need to register to vote and find out who my congressman is.

"The young student loves to be informal because he feels uncomfortable with his limited knowledge of social customs and because he still clings to an impromptu adolescent chumminess. He behaves strangely and defies conventions mainly because he is insecure – his great dreams and great ambitions and general aura of impending great greatness are not quite matched by circumstances (and never will be); he still has to work at places like Virgin Megastore and Starbucks. Hence, the need to flout rules to show that they must be wrong about him. (His influence is seen especially in the workplace, where business casual is the leading indicator of a sloppy, immature, indulgent business culture, which reached its lowest point in the 90s at dot-coms staffed by people who spent most of the day running up and down the halls playing tag.)" -Udolpho

This is a particularly good quote if you just got finished reading Nation of Rebels.