Bartlett says, "A key underpinning of the housing price surge is the lenders' belief risks have fallen."

So, lenders get the idea risks have fallen--from where?--so they make more easy credit, driving prices up. Does anyone else find this wanting in a certain logic?

It makes as much sense--more, in fact--to argue that "a key underpinning of lenders' willingness to take on more risk is the housing price surge." The lenders, after all, have been and still are holding out hard against the "bubble" case. If one views house price appreciation as justified by the fundamentals, why would one see much risk in making 100% interest only loans? Rising prices will bail you out in the event of default, and those healthy fundamentals will limit your defaults in any event. Why on god's green earth would Bartlett think that a coming credit crunch will cause prices to fall, rather than the other way around?

Perhaps Bartlett means that years of historically low interest rates, courtesy of the Fed and our friends at the Asian central banks, have resulted in lenders awash in fee income from refinancing--refinancing that masks the usual delinquency and default curves you would normally expect in a "jobless recovery" and that has so far offset loan losses. Maybe that and the old Greenspan prediction that surpluses would threaten to overwhelm the budget unless we cut taxes--remember that?--have put lenders in the position of sustaining price appreciation. Or maybe they're just being patriotic: I do remember that it was laid down as our duty as lenders to god and country to make sure everyone could get to the mall on 9/12/01 and thereafter. If it took a few 100% HELOCs, well, we had to fight those terrists with the loans we had, not the loans we wished we had.

So at some point the cycle has become too vicious even for the Washington Times. I suppose you could say this is good news--the kool aid seems to be wearing off in some quarters--but it's not good enough for me. I no longer want to hear tepid, circular, and oversimplified lender-blaming from people who wrote the Bush economic plan in the first place and are now just a little uncomfortable that all those Republican bankers took them at their word. Until they admit that the apotheosis of "Risk? What Risk?" lives in the White House when he isn't vacationing in Texas, they can tell it to the Marines. Well, maybe not the Marines . . .