Housing Bubble and Current Bust Are Not Unique--We Have Been Here Before
Letter to the Editor

Resident Fellow Alex J. Pollock
Resident Fellow
Alex J. Pollock
Sir, Katrina vanden Heuvel (Letters, March 31) quotes Nicholas von Hoffman, following the purchase of Bear Stearns, that "we are in unknown territory facing situations that have never arisen before."

Well, no. In fact, our most recent housing bubble and current bust display all the classic patterns of recurring credit over-expansions and their painful aftermaths, as colourfully described by Walter Bagehot, Charles Kindleberger and Hyman Minsky. These include a funding panic, government interventions, the fall of the previously esteemed, the search for the guilty, and the inevitable political over-reactions.

In booms it is proclaimed that we are in a "new era"--in busts that we have "unprecedented problems". This is merely the egocentricity of the present. It can be corrected, although it usually isn't, by observing the patterns of financial history. As James Grant said in Money of the Mind: "Progress is cumulative in science and engineering, but cyclical in finance." The tendency of financial markets to have to relearn the same lessons about once a decade is one of the most intriguing things about them.

Alex J. Pollock is resident fellow at AEI.

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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