Grantham: Biggest Housing Bubble Since 807 A.D. Has Burst

Or Maybe the Biggest of All Time …

Preface: Many claim that housing is currently experiencing a rebound.  Whether or not that ends up being verified, the housing crash which started in 2007 was so massive that it is historic in its significance.

Top economists and economic agencies have recently verified that bubbles cause huge crashes, and are thus bad for the economy.  See this, this and this.

We’ve previously noted that the housing bubble which burst in 2007  was bigger than the Great Depression … and perhaps bigger than any housing bubble in 700 years:

The question is, given the boom we had between 2001-2007, how bad a bust might we have?

Well, in the greatest financial crash of all time – the crash of the 1340s in Italy, which brought on a new dark Age – real estate prices fell by 50 percent by 1349 in Florence when boom became bust.

How does that compare to 2001-2007? The price of Southern California homes is already down 41%, Southern California hasn’t fallen as fast as some other areas, and we’re nowhere near the bottom of the market.

Moreover, the bubble was not confined to the U.S. There was a worldwide bubble in real estate.


Housing bubbles are now bursting in China, France, Spain, Ireland, the United Kingdom, Eastern Europe, and many other regions.

And the bubble in commercial real estate is also bursting world-wide. See this.

Jeremy Grantham just said that our recent bubble was the largest in  1,200 years:

Investors should be wary of a Fed [who] is led by a guy [Bernanke] who couldn’t see a 1-in-1200-year housing bubble!

2007 – when the housing bubble popped – minus 1,200 years brings us to 807 A.D.

To give a sense of how long ago that was, Charlemagne had just  defeated the Saxons – one of the tribes forming the famed Anglo-Saxons – and forcibly converted them to Christianity. England didn’t become a country until hundreds of years later, during the Norman Conquest of 1066 .

But the housing bubble which burst in 2007 was arguably the largest in history … ever.

As we’ve noted:

In “What Goes Up”, I discussed the law of booms and busts. A big boom with easy credit leads to a big bust.


The Economist magazine wrote in 2005 that the worldwide boom in residential real estate prices in this decade was “the biggest bubble in history“. The Economist noted that – at that time – the total value of residential property in developed countries rose by more than $30 trillion, to $70 trillion, over the past five years – an increase equal to the combined GDPs of those nations.


The bigger the boom, the bigger the bust. Because we have likely just lived through the greatest boom in history, we may see the biggest bust in history. (No wonder the guys who predicted this crisis are gloomy about the future. Is this why the big players are selling everything that’s not nailed down to raise cash?)

If true, this is saying something dramatic. Because the bubble in 1340 Italy was so big that its bust helped precipitate a new dark age.

Too bad that the government helped to blow the bubble, and hasn’t done anything meaningful to help homeowners.

We also noted something that is now obvious to all:

The real estate bubble formed the base upon which a series of bubbles in derivatives were built. Specifically, mortgages were packaged in “collateralized debt obligations” (CDOs), which were sold in enormous volumes all over the world. Credit default swaps were then bet against the companies which bought and sold the CDOs.

Now, with housing prices crashing, the CDO bubble is crashing, as is the CDS bubble.

A series of other derivatives bubbles are also crashing. For example, the “collateralized fund obligations” – sort of like CDOs, but where the assets of a hedge fund are the asset being bet on – are getting creamed as hedge funds are forced to sell off many hundreds of billions in assets to cover margin calls.

As everyone knows, the size of the global derivatives bubble was almost 10 times the size of the world economy [Update: It was actually 20 times the world economy]. And many areas of derivatives are still hidden and murky.

So the bust of the derivatives bubble could even be bigger than the bust of the housing bubble.

Too bad the government helped to blow the derivatives bubble, and isn’t doing anything to rein in derivatives now.  See this, this, this and this.

Grantham: Biggest Housing Bubble Since 807 A.D. Has Burst was originally published on Washington’s Blog


4 Responses to “Grantham: Biggest Housing Bubble Since 807 A.D. Has Burst”
  1. withament says:

    It seems quit ALARMING that Willard AKA Mittens Romney’s Main Financiers and main Campaign Staff OWN Select Portfolio Services …… It also SMELLS PRETTY Bad that Credit Suisse and their Biggest Investors that OWN Credit Suisse is being pursued for many many many many Hundreds of Billions in Fraudulent Transactions and They Own Select Portfolio Services …. Does This Information Pass The SMELL TEST TO YOU ???? Oh and the Whole House of Cards is a Mormon Run LDS Church Business to boot ???? The Biggest Banks on Earth OWN Select Portfolio Services and Mittens was their Boy. How much Money did VAIN CAPITAL have in these Crooked Companies and SPS Mortgage Related Investments That’s a BIG Question considering the FBI, DOJ and SEC and hundreds and hundreds of Law firms are SUING SPS as did the FTC….

    The People RUNNING Willard Romney’s Campaign OWN and Operate SPS and many others. YUP Mitt Romney’s Biggest Supporters and Fact is ROMNEY HIMSELF.

    Jud Witham EARNEST PARTNERS owns 3.26M shares worth $69.01M
    Thornburg Investment Management owns 2.81M shares worth $59.40M
    Wellington Management Company owns 1.36M shares worth $28.76M
    First Trust Advisors owns 1.24M shares worth $26.23M
    Sound Shore Management owns 1.22M shares worth $25.75M
    Johnston Asset Management owns 1.21M shares worth $25.57M
    Manulife Asset Management owns 1.12M shares worth $23.68M
    GOLDMAN SACHS owns 1.04M shares worth $21.93M
    Citi owns 1.01M shares worth $23.61M
    Masters Capital Mgmt owns 1000000 shares worth $21.15M
    Franklin Resources owns 906953 shares worth $19.62M
    Tradewinds Global Investors owns 903618 shares worth $16.43M
    Alydar Partners owns 880000 shares worth $20.66M
    Renaissance Technologies owns 830000 shares worth $15.21M
    Discovery Capital Management owns 809000 shares worth $17.11M
    Frank Russell Company owns 555700 shares worth $11.68M
    Ulys owns 550000 shares worth $15.68M
    Barclays owns 424400 shares worth $8.98M
    Leuthold Weeden Capital Management owns 392124 shares worth $11.18M
    Neuberger Berman owns 372065 shares worth $7.87M
    Hutchin Hill Capital owns 348000 shares worth $7.36M
    Bank of America Corporation owns 327334 shares worth $6.91M
    Glenrock owns 310000 shares worth $7.28M
    CITADEL ADVISORS owns 300656 shares worth $7.06M
    Rabobank Nederland / FI owns 265149 shares worth $4.86M
    Carlson Capital owns 265100 shares worth $4.86M
    GETCO Holding Company owns 253246 shares worth $5.36M
    Natixis Asset Management Advisors owns 249526 shares worth $5.28M
    PEAK6 Investments owns 247363 shares worth $5.25M
    Allianz Global Investors of America owns 225870 shares worth $6.44M
    Parametric Portfolio Associates owns 220504 shares worth $4.66M

    Prominent Mormons including David G. Neeleman, the JetBlue founder, and Eric Varvel, the chief executive officer of the banking division at Credit Suisse, are on his finance team.

    Descendants of Mormons who made the great trek to Utah in the 1840s have turned out in strength to back Mitt Romney.
    Correction: July 18, 2012
    An article on Tuesday about prominent Mormons who are supporting Mitt Romney this year misidentified the position at Credit Suisse held by Eric Varvel, one of the supporters. Mr. Varvel is the chief executive officer of Credit Suisse’s banking division; he is not the chief executive of the company. (That position is held by Brady W. Dougan.)

  2. Biggest crash in 700 years pretty much says it all.To those of you still in your homes I applaud you hopefully you won’t end up like so many of us have.To those of us who have lost our homes I’m sorry any of us ever trusted those in power to do the right thing.To everybody no matter where you are or what has happened Happy Thanksgiving.

    • lies is all they tell says:

      thank you pamela , after being scammed by wells fargo by losing my paper work throughout 2009 and the dual tracking to foreclosure everyday we have in our home is a blessing. thanks to my great law team i beleive i will win and i will be in my house next year as well.

      • My hope is that you and everyone else can save your homes and stay where you are.I was not one of those but tomorrow is always another day.Be blessed one and all.

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