Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options. HOMEPAGE

Economist Karl Case Composed A Lovely Poem About The Housing Bubble For Robert Shiller

Wellesley College economist Karl Case wrote a lovely, albeit lengthy, poem about the housing bubble to his long-time research partner and Nobel Prize winner, Robert Shiller.

Advertisement

The poem was presented at a conference honoring Shiller at Yale University.

In the past, Shiller and Case worked together to create the S&P/Case-Shiller Home Price Indexes, which track the changes in US home prices. Using these indexes, Shiller was able to predict that home prices would collapse.

robert shiller
Robert Shiller REUTERS/Michelle McLoughlin

The poem was originally reprinted in the Wall Street Journal.

We have reprinted the poem here with Professor Case's permission.

Advertisement

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

Advertisement

When we talked of another depression

Fifteen million without a job

Foreclosures and banks that fail

401k’s became 201k’s

Advertisement

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

Advertisement

Was a bursting housing bubble

But other than that who can we blame?

And what do they lament?

Millions of people contributed to

Advertisement

This hundred year event

 

For me it began in ’76

With a house on Cleveland Road

At 54 thousand, I thought it a lot,

Advertisement

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

Advertisement

“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

Advertisement

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

Advertisement

If those prices were ever to stall

 

It all began in 2001

911 … the dot.com bubble

The Fed had to act because of the fact

Advertisement

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

Advertisement

That a refi boom would ensue

 

The volume of mortgages written back then

Stunned imaginations

In a single quarter in 2003

Advertisement

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

Advertisement

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

Advertisement

Seemingly had no end

The Fed kept pumping through 2005

To keep short rates very low

With no sight of inflation across the nation

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

“Just sign and see the cashier”

High LTV’s and Option ARMs

Negative Am’s and more

2-28’s with teaser rates

Advertisement

And ridiculous Fico scores

 

Competition was the force

That made the music play

As long as prices didn’t fall

Advertisement

Everything was OK

People could always sell their homes

For more than they had paid

That kept foreclosures and defaults low

Advertisement

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

Advertisement

Couldn’t be kept away

You can guess that MBS

Helped make the trading brisk

Investors, thought that the paper they bought

Advertisement

Was traunched with well measured risk

 

To that add leverage and default swaps

And then house prices fell

The intercept shift was very swift

Advertisement

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

Advertisement

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

Advertisement

Resuming their downward track

The inventory of unsold homes

Still continued to grow

And we’re hardly building any new homes

Advertisement

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

Advertisement

Is making stomachs churn

Twelve million who want to work

Don’t have jobs today

And slow is the pipeline of loans in default

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

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

Advertisement

Helping to find a solution.

 

Advertisement
Close icon Two crossed lines that form an 'X'. It indicates a way to close an interaction, or dismiss a notification.

Jump to

  1. Main content
  2. Search
  3. Account