The baseball is cracking into Tom Hopps’ glove as he plays catch on the sidewalk.  Terri Reader is playing next door in her backyard, and Mr. Coyle, one of the millworkers in our neighborhood, is walking out front to inspect his freshly mowed lawn.  There is a continuity to these childhood memories that becomes more vivid as time marches across the decades—the 125 steps to Kennedy Park’s ball fields in summer and ice rinks in winter; or bike rides around The Block, a three-tenths of a mile rectangle with thirty houses on two sides and another three, including our own, on “the short end.”

Did academics count the homes in Levittown?  No, they were too busy deconstructing suburbia after World War II.  But one tends to notice such minutiae in real neighborhoods where everyone knows his neighbors, including their strengths and weaknesses—like the family names of childhood friends and old paper-route customers on The Block, as lyrical today as they were when I first heard them pronounced five decades ago.  You never forget the names—Slav, Irish, German, Italian—or the professions of their parents, whether autoworker or steelworker, construction foreman, preacher, police officer, or teamster.  Or the dwellings they lived in and each called home.

Your family home will never be “flipped” like the renovated structures on the popular TV show Flip This House.  Your home and memories of the old neighborhood are not for sale.  They are held close to the heart and cherished.  They remain as solid as the bricks in the small home on the street that dead-ends at the railroad tracks next to the factory where Chrysler Corp. has manufactured parts, including engines, since 1954.  The parades of tricycle “cars” navigating a chalk replica of the King’s Highway 401 (complete with an exit ramp for Trenton, Ontario) after a vacation to Expo ’67 in Montreal, Quebec.  The transistor radio, lovingly tucked away in a drawer, used to listen to the 1968 World Series that the Tigers won from the St. Louis Cardinals in seven games.  The bat from 1969 Bat Day at Tiger Stadium, stored in the garage among the shovels and rakes.  The game our team lost by one run at Hedke Park in 1970 that ended our season prematurely, before we could play “under the lights” for the city-league championship.  The team that went undefeated and won the championship four years later.  The 1974 Plymouth Valiant, with its hometown-built slant-six engine, parked out front after another 4:30 to 6:30 a.m. shift selling the Detroit Free Press outside the Chrysler plant each day before high school.  The occasional wildcat strike in that plant, and the hard-fought elections at UAW Local 372.  The smokestacks of the Edison power plant visible for the first time after the leaves fell from the maple tree in fall.  The first home-cooked meal of holupki and pierogi with fried onions and sour cream after returning home from three stints in Washington, D.C. (none that lasted more than a year).  The photograph of Dad standing with us on the front lawn the day he retired from Chrysler after 43 years.  The woodworking tools that he used to build furniture during 13 years of retirement.  Mom’s joy as she watched her only granddaughter ride a tricycle on the same strip of concrete her father had ridden in youth.  The trips to visit family during Thanksgiving and Christmas holidays.

A libertarian coworker, a policy wonk childless by choice and laboring for years in Rand’s vineyard, once gasped at the sight of this modest house.  “That’s where you grew up?”  One can forgive him for not maturing beyond Dagny Taggart and Howard Roark.  The mistake of the libertarians is reducing life—indeed, human existence—to the marketplace.  They might decide among themselves, why not make a living and a decent one at that, trading in souls with theists?  Or, in the modern adaptation, why not create a market for their securitization?  They might look, for inspiration, to Chichikov, in Gogol’s great novel.  He actually traded in souls.  Chichikov’s poshlost is unrecognizable to American grasshoppers on the lookout for the quick buck, the day trade, the lottery ticket, the house flip.  Many college-educated were easy marks for our modern FIRE (finance, insurance, and real estate) industry sector, backed by the U.S. government, which peddled easy credit (in the form of subprime and Alt-A mortgages) to the tune of champagne wishes and caviar dreams.  Many of the skilled tradesmen in the plant, by contrast, did not have the opportunity to earn a formal education beyond high school.  But they had enough street savvy to avoid the old Mob-run numbers racket, with its bigger payday based on the daily state lottery.  They learned hard economic lessons in their youth during the Great Depression and created families in the postwar era in homes they purchased, and painstakingly acquired, one monthly payment at a time.  (Thirty-year mortgage-burning party anyone?)  Flipping the family home would have appeared as alien to them as 100-percent equity must seem to those DINKs, with mortgages now underwater, trying to stay afloat among us.

How did a housing bubble develop in the United States in the first decade of the 21st century?  The causes, many and complex, are beyond the scope of this article, but they might be summarized in one phrase: a consumer market with ample access to easy credit and flawed reasoning.  One can sketch the outlines of this recipe for disaster.  Start with a central bank (the Federal Reserve) that reasoned, incorrectly, that negative short-term real interest rates, over a multiyear period, would not create the conditions for a financial bubble.  Add government-sponsored enterprises (including Fannie Mae and Freddie Mac) and private enterprises (including commercial and investment banks and hedge funds) engaged in structured finance with financial derivatives.  These enterprises, to generate larger profits, expanded credit in an imprudent manner, assuming that value-at-risk models would perform as well in the real world as in academia.  Mix in rampant fraud in FIRE subsectors.  Top it off with a naive consumer public that reasoned, incorrectly, that housing prices would continue to increase in bubble markets at annual rates of 15-25 percent.  Others were wrong in assuming they could acquire wealth—quickly and infinitely—through such schemes as house flipping.  Using credit, a flipper might buy a house with a small down payment, selling it a short time later at a higher price.  Flipping, in an inflating market, can work for speculators. But it has left millions of Americans underwater on their mortgages as housing prices have deflated.

Future historians might ponder how it came to pass that the so-called best-educated generation in American history ignored so many lessons learned by their “lesser-educated” elders.  The latter knew some history, acquired through personal experience in the Depression or independent reading.  The former, apparently, have little or no historical comprehension.  The Bible is one source of wisdom.  Proverbs 22:7 tells us that “The rich ruleth over the poor: and the borrower is servant to him that lendeth.”  Matthew 7 teaches that a wise man will build his house upon a rock, and a foolish man will build his house upon the sand.  Fewer Americans would have been caught up in the late housing bubble if they had meditated on a few biblical lessons.

“Men, it has been well said,” Charles Mackay observed, “think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one!”  Mackay’s 1841 history, Extraordinary Popular Delusions and the Madness of Crowds, examines three of the more remarkable financial manias in history: the Dutch tulip mania (17th century), and the Mississippi and South Sea bubbles in the 18th century.

Scottish financier John Law (1671-1729) played the key role in the Mississippi Bubble.  The Mississippi Historical Society’s Jon Moen writes that Law was “a colorful character who has been described as tall, handsome, and vain.  He had a passion for women and gambling.”  Law’s association with the Duc d’Orléans—the nephew of King Louis XIV—ensured his place in financial history:

In 1716 Law convinced the French government to let him open a bank, the Bank Generale, that could issue paper money, or bank notes.  The paper notes would be supported by the bank’s assets of gold and silver and would circulate as a medium of exchange.  Paper money was a new concept for the French; money to them was silver and gold.  Law believed that paper notes would increase the money in circulation, which, in turn, would increase commerce.


Law’s sales pitch included the lure of gold and silver, and attracted an eager mob to his Mississippi Company.  Moen continues:

Law paid for these activities and privileges by issuing additional shares in the company.  These shares could be paid for with bank notes (from his bank) or with government debt.  The value of shares in the Mississippi Company rose dramatically as Law’s empire expanded.  Investors from across France and Europe eagerly played in this new market.  The financial district in Paris became so agitated at times with investors that soldiers would be sent in at night to maintain order.  Shares in the Mississippi Company started at around 500 livres tournois (the French unit of account at the time) per share in January 1719.  By December 1719, share prices had reached 10,000 livres . . . The market became so seductive that people from the working class began investing whatever small sums they could scrape together.  New millionaires were commonplace.


Law’s scheme collapsed when he issued more bank notes to fund stock purchases in his company.  Some speculators sold shares to convert them to coin, putting downward pressure on the Mississippi Company’s share price.  Law tried to force people to accept paper notes rather than gold, leading to inflation in France, continued declines in the firm’s share price, and Law’s ultimate loss of control in the firm he launched.

The rise and fall of the Mississippi Company became known as the Mississippi Bubble.  Indeed, Law is most famous, or perhaps infamous, for his involvement in this prominent financial disaster.  A “bubble” in the world of finance is a term applied to an unusually rapid increase in stock prices or the value of some other asset like real estate.  The increase is then followed by an equally rapid collapse in prices.  The wild fluctuations in prices are usually viewed as irrational and the product of uncontrolled speculation rather than sensible investment practices.


Another lesson is that easy access to credit can be imprudent.  The greater-fool theory is at play: Buy high and sell higher.  One characteristic of bubbles is that speculator returns in additional asset clauses tend to be leveraged with or without the protection of principal.  Examples in the United States in the 20th century include the Dow Jones Industrial Average in the mid-to-late 1920’s and the NASDAQ in the mid-to-late 1990’s.  The NASDAQ bubble burst in 2000, and the index has declined 70 percent.  Credit-induced bubbles also occur in real estate.  The Florida real-estate bubble of the 1920’s is perhaps the best American example presaging the current debacle.  Yale economist Robert Shiller, an expert on bubbles, terms the current crash “the biggest bubble in U.S. history and possibly even in world history.”  The Standard & Poor’s Case-Shiller Home Price Index provides a sober monthly assessment of house prices and is widely followed in financial markets.  But more Americans may be tuned in to Flip This House, a production of the A&E Network in its fourth season.  Each episode features the purchase, renovation, and flipping of a housing unit.  The show declares breathlessly that flipping houses “is the most tried-and-true way to make a fortune in real estate.”  Participants in house flipping, at its speculative peak in 2006, ranged from Las Vegas busboys to Washington congressional staffers.

One lesson unlearned by many Republicans is that government tends to intervene in the market after bubbles collapse.  It is better to administer preventive medicine to the patient before he ends up in the emergency room on life support.  Contrary to Fed Chairman Alan Greenspan’s repeated claims, it is possible to identify an asset-price bubble in the making when it deviates in a significant manner from the long-term trend.

A home is for living, not for flipping.  This is simple wisdom that should be passed down from generation to generation.  Dad’s father settled in a small home in the lush, verdant hills of western Pennsylvania more than a century ago.  Grandpa Kaza had been dead for nearly 60 years before some of his offspring, on their first trip to the old country after the Soviet Union’s collapse, realized he chose his new town for its physical resemblance to his native village.  Mom’s father, in the months before his death, reconstructed the native villages he and his wife hailed from along the Ukrainian frontier.  Geede was in his mid-80’s but still remembered the family homes, churches, stores, parks, and other features, recording them in colorful detail on large pieces of cardboard.  Mom’s family purchased their modest home in the New World after World War I.  The neighborhood is an interesting mix of Roman Catholic and Orthodox churches, and Ford, General Motors, and Chrysler plants.  The family, nine decades later, still owns the home.  My aunt, an octogenarian, guided me on a walk around the neighborhood, reciting the names of families who lived there in the 1940’s as if it were yesterday.  She has her own list of neighbors.  They are treasured heirlooms and serve as reminders that these houses are homes.  They were never investments, and they will not be flipped.