Jim Surowiecki says that past banking bubbles have set the stage for economic expansion. Now the bad news:

The same can’t be said, though, of the boom of the past decade. The housing bubble was unique, and uniquely awful. Each of the previous waves had come in response to a profound shift in the real economy. With the housing bubble, by contrast, there was no meaningful development in the real economy that could explain why homes were suddenly so much more attractive or valuable. The only thing that had changed, really, was that banks were flinging cheap money at would-be homeowners, essentially conjuring up profits out of nowhere. And while previous booms (at least, those of the twenties and the nineties) did end in tears, along the way they made the economy more productive and more innovative in a lasting way. That’s not true of the past decade. Banking grew bigger and more profitable. But all we got in exchange was acres of empty houses in Phoenix.

Ryan Avent adds his own two cents. I have to say that in trying to get a mortgage these past eleven months myself (I'm trying to buy a distressed property in a short sale and it's taken for ever), the process is getting more and more difficult, not less. From my data point, the banks are still retracting. They don't want to do anything, lend any money or take even solid risks. They seem as irrationally risk-averse now as they were insanely risk-happy not so long ago. Zombies is a good term for them. They seem to have no brain.

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