Are the US and other global economies experiencing renewed asset bubbles? During an AEI event on Thursday, AEI’s own Alex Pollock suggested that considering long-term house price trends, it is time for the Fed to stop trying to further increase house prices.
Housing finance consultant Jay Brinkmann pointed to Fannie Mae’s stock price bubble in 2013, highlighting that the stockholders have added zero economic value to Fannie Mae. Mark Fogarty of SourceMedia Mortgage Group addressed the possibility of a bubble in the farm mortgage market, which has grown 20 percent since 2010.
AEI’s Desmond Lachman focused on how the Fed’s quantitative easing policies have distorted the emerging-market economies and discussed what might occur as the Fed continues on the path of tapering. He said that today’s market fundamentals — which are better than they were in the emerging-markets crisis of the 1990s — will ensure that any financial problems should be difficult but manageable.
Mark Carey of the Federal Reserve Board agreed there is now another farmland bubble, as in the 1980s. He proposed improving the governance structures of cooperative lenders such as the Farm Credit Banks. Lastly, Christopher Whalen stated that recent home-price market appreciation will slow this year and that the painful deflation of the housing bubble is still here.
Has money creation and bond-buying by the major central banks, intended to address the effects of old bubbles, now induced new bubbles? As Fed Chairman Janet Yellen recently told Congress, “It is fair to say that our monetary policy has had the effect of boosting asset prices.” Is the asset price boosting too much or no problem?
US house prices in major cities were up 13 percent in 2013 and are already back above their long-term inflation-adjusted trend, and global markets have been marked by a risk-increasing thirst for yield. According to the Bundesbank, German houses are overpriced. Furthermore, there are house price bubbles in Brazil and Canada, and foreign debt expansions make the Fragile Five large emerging markets — Brazil, India, Indonesia, South Africa, and Turkey — more fragile.
So are there new bubbles or not? What are we to make of the current asset price inflations? Our expert panel will discuss.
If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.
Alex J. Pollock, AEI
Jay Brinkmann, Former Chief Economist of the Mortgage Bankers Association
Mark Carey, Federal Reserve Board
Mark Fogarty, National Mortgage News
Desmond Lachman, AEI
Chris Whalen, Indiana State University’s Networks Financial Institute
Alex J. Pollock, AEI
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Jay Brinkmann is former chief economist and senior vice president of research and education for the Mortgage Bankers Association (MBA). He joined MBA in 2001 as the head of its research group after having worked in the portfolio strategy group of Fannie Mae. He began his career as a Capitol Hill press secretary and served as the deputy chief of staff to the governor of Louisiana. He has worked in commercial banking and was on the business school faculty at the University of Houston, where he specialized in financial institution regulation.
Mark Carey is a senior adviser in the Division of International Finance at the Board of Governors of the Federal Reserve System, leading some of the board’s work on issues related to financial stability. He is also codirector of the National Bureau of Economic Research’s Risks of Financial Institutions Working Group. His recent work includes employee compensation practices in the financial services industry and issues related to systemic risk and the 2007–08 financial crisis. Though he is a research economist, he has often worked closely with bank examiners. A founding father of Basel II, Carey has authored many technical papers about credit risk, corporate debt, and corporate finance.
Mark Fogarty is editor at large of SourceMedia’s Mortgage Group. He has covered the mortgage business since 1984, meaning he is on his fifth real-estate cycle. He directed the news team that won the George Polk Award for Financial Journalism, and his editorials have won awards from the American Society of Business Press Editors and the Native American Journalists Association. Fogarty has also worked for the Jersey Journal in Jersey City, NJ, and the South Bergenite in Rutherford, NJ.
Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund’s (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Lachman has written extensively on the global economic crisis, the US housing market bust, the US dollar, and the strains in the euro area. At AEI, Lachman focuses on the global macroeconomy, global currency issues, and multilateral lending agencies.
Alex J. Pollock joined AEI in 2004 after 35 years in banking. He was formerly president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is also the author of numerous articles on financial systems and the organizer of the Living in the Post-Bubble World series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is the lead director of CME Group, a director of Great Lakes Higher Education Corporation, a past president of the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.
Christopher Whalen is an investment banker and author. Over the past three decades he has worked for financial firms such as Bear Stearns, Prudential Securities, Tangent Capital Partners, and Carrington Financial Services. He was a cofounder and principal of Institutional Risk Analytics from 2003 to 2013, when the firm was acquired by Total Bank Solutions. He is the author of “Inflated: How Money and Debt Built the American Dream” (John Wiley & Sons, 2010) and is currently coauthoring “Financial Stability: Fraud, Confidence & the Wealth of Nations” (John Wiley & Sons, forthcoming 2014). Whalen is a member of the advisory board of Weiss Residential Research; the advisory council of the Finance Department at the Villanova School of Business; the Economic Advisory Committee of the Financial Industry Regulatory Authority; the National Association of Business Economics; and the Professional Risk Managers’ International Association, where he served as regional director of the Washington, DC, chapter from 2006 to 2010. He is also a fellow of the Networks Financial Institute at Indiana State University. He currently writes the twice-weekly Breitbart.com column Washington & Wall Street and contributes articles to Zero Hedge, American Banker, Housing Wire, and The National Interest. Whalen has testified before Congress, the US Securities and Exchange Commission, and the Federal Deposit Insurance Corporation on a range of financial, economic, and political issues. He appears regularly in such media outlets as CNBC, Bloomberg, Fox News, and Business News Network.