The New Boom-Bust Cycle

The housing and finance sectors caused the economic mess. Here's why they can't fix it.

By Daniel Gross
Posted Tuesday, June 16, 2009, at 5:32 PM ET

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The financial media are desperate to find good news in the troubled finance and housing sectors, the very industries that got us into this mess. This quest for green shoots is frequently comical. Today, the Wall Street Journal featured a piece about new jobs in the financial services industry. Why, JPMorgan hired 950 new loan counselors, and a former Morgan Stanley guy found a job with an asset-management company! But given that financial services firms have shed 600,000 jobs since December 2006, that hardly seems like a triumph.

On Tuesday, Bloomberg noted that housing starts were "soaring," in May, up 17.2 percent from April. That's up three straight months, the Journal chimed in. But housing is an extremely seasonal business. The CEO of a large bank once told me that his bank's mortgage business all but disappeared in the fall because men in the Northeast wouldn't look at houses on Sundays during the football season. So noting that housing starts or sales rose sequentially in the spring months is a little like saying traffic at the train station next to Yankee Stadium was up hugely in April, when 20 games were played, from March, when no games were played. What really matters is the comparison with the previous year. And the news is horrid on that front. "Year over year, housing starts were 45.2 percent lower than the pace of construction in May 2008," the Journal noted.