Posted by on Sep 20, 2014 in Blog, Posts |

Image credit: Wikipedia Creative Commons


By Jason Zweig

6:00 am ET  Sept. 17, 2014


At a conference Friday at Yale University in honor of newly minted Nobel laureate Robert Shiller, economist Karl Case of Wellesley College paid tribute to his long-time research partner with an original poem on the lessons of the real-estate bubble and its aftermath. In the 1980s, after many years of research, Case and Shiller together created what are now known as the S&P/Case-Shiller residential real-estate price indexes—the measures that led Shiller, in 2005 through 2007, to predict that home prices would collapse.

While economics professors are not known for their appreciation of rhyme and meter, Case’s poetic tribute received a warm round of applause from the academic audience. We reprint the full text of the poem here, with Case’s permission, a few tiny tweaks and without further commentary.


Reflection on the Housing Market: Seven Years After the Fall
By Karl E. Case

For the last dozen years we have shed many tears

Living through a recession

The world was broke and it was not a joke

When we talked of another depression

Fifteen million without a job

Foreclosures and banks that fail

401k’s became 201k’s

And everything’s up for sale

How could it be? What didn’t we see

That led to all of this trouble?

There is little doubt that the proximal cause

Was a bursting housing bubble

But other than that who can we blame?

And what do they lament?

Millions of people contributed to

This hundred year event


For me it began in ’76

With a house on Cleveland Road

At 54 thousand, I thought it a lot,

For a small three-bedroom abode

But 10 years later that very same house

Would sell for five times the price

I was glad that I bought … I remember the thought

“This may not be fair but it’s nice”


In Boston alone, that boom created

100 billion in wealth

We spent more, saved less, and I have to confess

It was good for our mental health

We had to know that it couldn’t go on

Someday prices would fall

We knew there were risks – to ourselves and our fiscs

If those prices were ever to stall


It all began in 2001

911 … the bubble

The Fed had to act because of the fact

A recession would mean big trouble

So the Fed Funds Rate, sitting just below eight

Was cut to under two

And you had to know with rates so low

That a refi boom would ensue


The volume of mortgages written back then

Stunned imaginations

In a single quarter in 2003

A trillion in originations!

But something happened late that year

That caused long rates to rise

And that was the end of the refi boom

It came as quite a surprise


With refi’s gone so were big fees

But banks still had money to lend

And the search for buyers to fill the gap

Seemingly had no end

The Fed kept pumping through 2005

To keep short rates very low

With no sight of inflation across the nation

The target was simply to grow


Of course the key for all to see

Was a robust housing market

Buyers could borrow lots of cash

And a house was a good place to park it

A summer home … a new big house

No one seemed to care

Homes were made of bricks and land

The value would always be there


It didn’t matter what rate you paid

Or what you made in a year

For a while liquidity led to stupidity

“Just sign and see the cashier”

High LTV’s and Option ARMs

Negative Am’s and more

2-28’s with teaser rates

And ridiculous Fico scores


Competition was the force

That made the music play

As long as prices didn’t fall

Everything was OK

People could always sell their homes

For more than they had paid

That kept foreclosures and defaults low

And lots of money was made


Fannie and Fred were always ahead

Then Countrywide got in the fray

Then Lehman and Merrill and Goldman Sachs

Couldn’t be kept away

You can guess that MBS

Helped make the trading brisk

Investors, thought that the paper they bought

Was traunched with well measured risk


To that add leverage and default swaps

And then house prices fell

The intercept shift was very swift

And that was the closing bell

The very first city to see the drop

Was Boston in 2006

Then one by one they began to slip

Leaving us in a fix


We tried the tax credit which seemed to work

For a few months the markets came back

But when it expired the markets got mired

Resuming their downward track

The inventory of unsold homes

Still continued to grow

And we’re hardly building any new homes

With starts at a 50-year low


A number of problems remained as risks

As we wait for markets to turn:

The number of loans that still need to be marked

Is making stomachs churn

Twelve million who want to work

Don’t have jobs today

And slow is the pipeline of loans in default

Since no one wants to pay


In the longer run a lot depends

On the rate of household formation

That depends in part of course

On the rate of immigration

It also matters what kids do

Like living with Mom and Dad

Or doubling up till they get a job

To pay for their very own pad


For a while there was talk of a double dip

The recovery was in a stall

Consumers were down and beginning to frown

Jobs hadn’t come back at all

The Euro was falling, the banks were appalling

As we wallowed in bad sovereign debt

Europeans were asking aloud

Really … how bad can it get?


The guys at the Fed have repeatedly said

That their mandate includes employment

But with rates at zero no one’s a hero

No weapons are left for deployment

QE1 was lots of fun

Then along came QE2

We did the “twist” and we took on more risk

Not knowing just what they would do


So now we come to the end of this ode

Without much to say for certain

I hate to say, that’s where we are

Not beginning nor final curtain

The truth of the matter at the end of the day

Is that markets will make you humble

Just when you think that it’s time for a drink

They will turn and fortunes will crumble


That free markets work to provide what we want

Is a notion that’s not in dispute

The problem is that once in a while

Markets overshoot

And when they do in a market so large

A lot of people feel pain

In the blink of an eye many gave back

What it took 10 years to gain


Among those who are getting the blame

A few deserve to be flayed

But a forecast can only be judged against

What we knew at the time it was made

Sometimes the future is like the past

And sometimes it is not

But when it comes to what we know

The past is all we’ve got


Of course there is greed and there is a need

For moral hazard and rules

And for figuring out the effectiveness

Of the new financial tools

Politicians, of course, are starting to shout

That they want more retribution

It’s better, I think, if they used their time

Helping to find a solution.



Source:, Real Time Economics blog