That Housing Bubble? Bursting Faster Than You Think

Paul Krugman, whose new blog I am enjoying, notes that statistical analysis is masking the depth of the housing slump.

Reading various stories on the latest grim housing news, I notice that almost all of them talk about the decline in sales over the past year – which is, to be sure, pretty grim. For example, August 2007 new home sales were off 21% from a year earlier.

But the reality is even grimmer, since the housing bust was already well underway in 2006. And you don’t have to do a lot of digging to make the right comparison. The same Census release (warning, pdf) that gives you that 21% figure also reports average sales data from 2005, back when Alan Greenspan was assuring us that there was no housing bubble, just a bit of local “froth”. And comparing the seasonally adjusted August 2007 numbers with the average rate of sales in 2005 tells us that home sales are off 38%.

We forget more than we remember when it comes to statistics like this. He's right, this is at least a two-year trend. But it was propped up just enough for the CEO of Countrywide, a leader in the subprime mortgage industry, to make a killing in the market.

Countrywide Financial Corp. Chairman and CEO Angelo Mozilo cashed in $138 million in stock options over the last year, switching his trading plans as the mortgage company went into a tailspin, it was reported Saturday.

Between November 2006 and August, Mozilo changed the plans outlining how many of his shares would be sold monthly, the Los Angeles Times reported.

Mozilo unloaded 4.9 million Countrywide shares, most of which he bought through exercising options.

Hundreds of executives use similar trading plans, approved by federal regulators in 2000 as a way to defend against insider trading allegations. While not illegal, it is highly unusual for the plans to be changed so often in a short period, experts said.

I believe they call that insider trading, and this guy should go to jail. Krugman, in a non-blog column, has more on Mozilo and Countrywide, and it's shocking. The company was pushing people into bad loans to maximize their commissions. They are reluctant to work out any deals that would let people keep their homes. And they are CASHING IN on foreclosure fees, incented to force people onto the street. Krugman calls them "Enron's second coming." He may be right.