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Entry: The Diversity Recession, or How Affirmative Action Helped Cause the Housing Crisis Link: http://www.takimag.com/site/article/the_diversity_recession_or_how_affirmative_action_helped_cause_the_housing#31099 Post contents: Partly to blame as well are the nonsensical loans some of these borrowers took out: loans which were interest-only for the first five years, and "negative amortization" loans. In the first of these cases, borrowers were betting that property prices would increase faster than their interest rates, so they could flip the real-estate after the five years were up. In the second case, they were betting that property prices would increase faster than their interest rate plus the negative-am rate. Property prices were fated for a correction; in many areas they were overvalued by as much as 200%. The problem with this sort of expectation is that real-estate was a speculative bubble the way stocks were in the 1990s. Speculative bubbles always collapse. The same speculation that bid up stocks in the 1990s and real-estate in the last eight years is now driving up commodities prices, hence the increase in price of everything from corn and rice to meat to oil and copper. It's apt to get worse, too. When the Federal Reserve Bank talks about "increasing the money supply", what they're realling saying is that they're going to print more money. More money in circulation means the commodities speculative boom will be even more dramatic than the real-estate and stock booms. Sent at: 2008 11 20