Housing markets will continue to go sideways, on average, during 2012, then they will begin their cyclical recovery in 2013.

The banking industry suffered credit crises in the 1970s, 1980s, 1990s, and 2000s. An unavoidable conclusion is that its loan loss reserves were in all cases too small. 

In order to overcome the subprime mortgage bust, we must help borrowers to become more competent and informed.

In the wake of the burst tech stock bubble and the shock of the terrorist attacks, the Greenspan Gamble was to purposefully ignite a housing boom. Ex ante, it was a reasonable gamble, and it almost worked.

As the debt hangover works its way through the system, the outlook is for housing to continue along an extended rocky and bumpy bottom, generally moving sideways in nominal terms.

The major cause of the financial crisis in the U.S. was the collapse of housing and mortgage markets resulting from an accumulation of an unprecedented number of weak and risky Non-Traditional Mortgages.

Unlike in the United States, any losses from property market lending are likely to be absorbed by the state. And they will be done so in a manner that will not impair the Chinese banking system's ability to extend credit as was the case in the United States.

Reform focused on sustainable lending would have FHA target a projected average claim rate of 5 per 100 insured loans under normal circumstances and 10 per 100 insured loans under stress circumstances.  This rate is about five times the normal default level for prime loans and about half the FHA's traditional default level under normal circumstances.