Posted by: Michael Mandel on August 13
I’ve spent a lot of time thinking about the events of the past couple of weeks, and deciding whether I should reassess my view of the credit market. The short answer—I still stand behind this commentary . The mortgage markets are going to be bombed out for quite a while, but I don’t see any reason for a long-lasting impact on the rest of the credit markets.
In fact, back in 2005 I wrote a series of posts and commentaries arguing that the end of the housing bubble could free up capital and real resources for other types of investment, including tech and telecom.
Here’s what I wrote in the McMansions piece (published June 2005):
What happens when the housing boom finally slows? The share of GDP going into housing construction will fall sharply, hurting construction workers, architects, and homebuilders. Homeowners will no longer be able to draw on rising home equity. And what about Americans who borrowed heavily to buy properties for investment, expecting prices to keep climbing? Much like the companies who built miles of now-unused fiber-optic cable during the 1990s, they will be in deep trouble.
Yet even if there are temporary disruptions, the end of the housing boom may be good news for the overall economy. The U.S. doesn’t need to drive growth with ornate new homes and elaborate kitchens with expensive marble counters. Instead, a shift away from housing could free up hundreds of billions of dollars for other, more productive investments
I still believe this today. It’s a mortgage and housing crunch, not a credit and business investment crunch. I’m going to bet that the rate of tech and telecom investment actually accelerates over the next year.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.