Commercial Real Estate Collapses Suggests CW about Residential Bubble May Be Wrong

More

My latest column for the Atlantic looks at the commercial real estate crash and comes to the conclusion that it effectively undermines the major narratives that many people have adopted to explain the residential bubble.   Though the commercial real estate bubble was smaller in scope than the residential one, it was characterized by essentially the same pathologies:  rising prices, stupid banks, and stupid borrowers.

Yet we can't blame this on predatory lenders tricking the unsophisticated into unwise loans, because these were basically all professionals.  Nor can we argue that banks were willing to write toxic loans because they were just going to sell the garbage off to investors; a much smaller percentage of commercial mortgages were securitized (though that percentage did increase as the bubble inflated).  And we certainly cannot blame them because they "should have known better" than their borrwers, who usually had more experience than the banks in pricing commercial real estate. 

Somehow, everyone got stupid all at once.

To see just how tightly linked the bubbles were, look at this graphic posted by Paul Krugman:

cre.png
Krugman points out that this also gives the lie to the theory that the gubmint dunnit with some combination of the CRA and implicit guarantees to Fannie and Freddie.  Everyone went crazy all at once, for reasons that aren't entirely clear, but neither the "evil banks" or "evil government" theory has much explanatory power when you look at the residential and commercial trends together.
Jump to comments
Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

Get Today's Top Stories in Your Inbox (preview)

A Technicolor Time-Lapse of Alaska's Northern Lights

The beauty of aurora borealis, as seen from America's last frontier


Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

A Time-Lapse of Alaska's Northern Lights

The beauty of aurora borealis, as seen from America's last frontier

Video

What Do You Wish You Learned in College?

Ivy League academics reveal their undergrad regrets

Video

Famous Movies, Reimagined

From Apocalypse Now to The Lord of the Rings, this clever video puts a new spin on Hollywood's greatest hits.

Video

What Is a City?

Cities are like nothing else on Earth.

Video

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity

Video

In Online Dating, Everyone's a Little Bit Racist

The co-founder of OKCupid shares findings from his analysis of millions of users' data.

Writers

Up
Down

More in Business

Just In