Finance and Housing can't save the game

The last two recessions were precipitated by collapsing bubbles—technology/dot-com in 2001 and housing/finance in 2007. And in both instances, there was an expectation and hope that the sectors that had started the party would revive it. Back in 2000 and 2001, stock analysts and executives continually warned that the second half of the year would see a huge comeback for Cisco, or for WorldCom, or for Webvan. Instead, the economy revived because of heavy borrowing, cheap credit, and a housing boom. Things never imagined in 1999—zero percent financing and negative-amortization loans, mortgage-equity withdrawal—helped propel the economy into its next growth stage. Between November 2001 and the spring of 2005, housing-related industries accounted for more than 40 percent of private sector job growth. Today, we see that same misplaced hope in finance and housing. During bubbles, leading sectors get so irrationally big that they can drive a $14 trillion economy. After they pop, they shrink rapidly and lose their capacity for leadership. When it comes, a recovery in housing and credit will be good for the stock of homebuilders and banks, but it will be a modest revival. It won’t bring back the freewheeling, easy-money days of 2006.

http://www.slate.com/id/2220601/

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