by Francis Jock

Created on: November 24, 2008   Last Updated: March 03, 2010

The recent housing bubble, from an economic perspective, came about as a result of the convergence of several economic factors that have been observed to be present in most, if not all, economic bubbles that have occurred over history. While these factors would probably have gone unnoticed by most home buyers, their presence in the marketplace was certainly noted and warnings were issued, and left unheeded as the housing market, normally a haven for long-term investments, suddenly became highly speculative over a span of a few years.

In his book, TrendWatching (HarperCollins, 2002) Ron Insana, a familiar television personality, takes an in-depth look at economic bubbles and provides interesting and rational explanations for these economic phenomena from a historical perspective. Beginning with the well-know tulip-bulb bubble that occurred in Holland between 1634 and 1637, Insana reveals, step-by-step the number of market factors and the governing principles that are present for the creation of a bubble, why the bubble will rise until it reaches critical mass, and the ensuing economic collapse that occurs in aftermath. Investors and students of economic history will find the insights and explanations highly relevant to today's economic collapse and the forthcoming deep economic recession.

So what are the mysterious economic factors that caused the recent housing bubble to collapse, and why weren't we prepared to head it off before the housing market shattered the financial dreams of millions of Americans, and consequentially, the entire global market place?

One way to look at it is consider the housing market, or any other market for that matter, as a house of cards that is built up gradually over a short period of time, and then collapses under its own weight and inherent instability. The builder knows that the house will collapse eventually, but goes on building anyway, only stopping until it does.

In the housing market, there are thousands of such builders, and although they take many different forms, they are still building houses made from flimsy playing cards. They are home buyers and sellers, real estate investors, institutional lenders, market speculators, government regulators, Wall Street traders, quasi-government agencies, and many more all being cheered on by the media and opportunistic, self-serving speculators. If you've paid any attention to the number of television shows dedicated to buying and "flipping" a home, or buying and selling a repossessed

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