The (Possible) Commercial-Mortgage Meltdown

By Kevin D. Williamson

Friday, June 09, 2023

 

Card-carrying pessimists—partisans of the Eeyore Caucus, of which I am a proud member—have been waiting on the commercial-mortgage version of the 2007-08 subprime meltdown for 15 years. That’s a long time to wait for anything, but pessimists are not often disappointed – despair springs eternal. 

 

Here is the issue in brief: This is a terrible time to own office space in most of the country, and a worse time to own it with a big mortgage. Vacancy rates are sky-high, with nearly one-third of commercial space currently unoccupied in once-booming San Francisco, 20 percent empty in Manhattan, etc. There are many reasons for that: organic economic changes, the COVID-driven rise in remote work, the increased crime rates in progressive-run cities around the country, and more. The fight against inflation has required higher interest rates, which is bad news for the holders of the commercial mortgages that are going to have to be refinanced this year—and that includes about one in four of all such mortgages. Move the horizon out to two years from now and you’re talking about more than half of those mortgages. That means that most owners of office buildings are going to see higher mortgage payments at the same time they are suffering lower incomes. 

 

The total amount of outstanding mortgage debt on office buildings at the moment adds up to a little more than $3 trillion—if there are a lot of defaults on those loans, a lot of banks and financial institutions are going to have some gaping wounds in their balance sheets. And, don’t look now, but: Delinquencies are up sharply. 

 

Banks do their accounting in roughly the opposite way their customers do. For you, an outstanding debt is a liability and money in the bank is an asset, but, for a bank, deposits are liabilities and outstanding loans are assets. As with residential mortgages, commercial mortgages end up being “securitized,” meaning sliced and diced and reorganized to create tradable financial instruments. In the 2007-08 mortgage meltdown, securities and investment portfolios were constructed in such a way that everybody would be fine if the default rate never got above a certain point; when the default rate got well above that point, a whole lot of assets that had appeared to be solid gold turned out to be approximately 100 percent iron pyrite.

 

That’s the thing about fool’s gold—a fool can’t tell the difference, even if we are talking about the smartest fools on Wall Street. 

 

Ironically, securitization was supposed to reduce risk in the financial marketplace, mostly by spreading it around. If Bob’s Bank has to hold all of the mortgages that Bob’s Bank writes, then Bob’s Bank has serious exposure to mortgage defaults. But if those mortgages can be turned into securities spread around 10,000 different financial institutions with well-diversified portfolios, then a collapse in those Bob’s Bank mortgages is going to be one small part of the profit-and-loss calculus of a bunch of different firms rather than an apocalyptic crisis event for one of them. The problem, in a way, was that securitization worked too well: The financial engineering that enabled ever-finer slicing and refining of mortgage portfolios meant that securities could be tailor-made for big institutional investors, securities that were inexpensive to hold and that satisfied, at least on paper, the need for such firms to hold low-risk investments. Mortgage-backed securities ended up dominating the portfolios of many financial institutions rather than making up a relatively small part of a well-diversified portfolio. Wall Street investors make the same mistakes as ordinary-schmo investors: They get greedy and lazy, and they fall for fairy-tales about the sure thing. 

 

Don’t assume that anything is foolproof until you’ve met the fool: Delinquencies on commercial-mortgage-backed securities are high and rising. 

 

Because of the Ben Bernanke big bad bogus bank-bailout buffoonery bonanza (you’re welcome, Jonah), the “too big to fail” institutions have generally grown bigger, and the “systemically important” banks … systemically importanter. On top of that, we had been artificially goosing the economy with ultra-low interest rates for years and years on the theory that truly problematic inflation was something we were only going to hear about in Brady Bunch reruns. Oops. When big chunks of your economy—say, Silicon Valley Bank’s business model and the commercial-mortgage market—are based on artificially low interest rates, then raising interest rates is going to cause all sorts of trouble, some of it foreseeable, some of it unexpected. 

 

There are reasons to be worried about all this, but also some reasons to moderate our pessimism. For one thing, there is reason to believe that commercial borrowers are less likely to default than subprime residential borrowers were back in 2007, because underwriters usually are a little more careful about lending somebody $80 million to put up an office building in Houston than all those “Friends of Angelo” were when it came to liars’ loans for homebuyers at the turn of the century. That being said, a lot of those mortgages are loans that look kind of dumb to a flinty-eyed fiscal puritan: lots of interest-only loans out there. 

 

Also confidence-fortifying: Many developers and lenders have different kinds of properties in their portfolios, and, while office buildings are mostly not doing great, things like industrial facilities and retail space are mostly holding up okay. So are apartment buildings and hotels, with some important exceptions. (San Francisco, man!) The Fed says that the banks it regulates are generally well-positioned to endure a downturn in the commercial-mortgage business, even if that includes a rash of defaults. The majority of commercial-mortgage debt is held by smaller regional banks such as SVB, which have had some problems—but it wasn’t bad mortgages that undid SVB, just incompetent management of interest-rate risk. Unless interest rates go a lot higher, most of that should already have been wrung out of the system. 

 

Bad news: Interest rates might go a lot higher.

 

On the positive side: Outstanding commercial-mortgage debt is only about one-fourth of outstanding residential-mortgage debt, so we are talking about a smaller financial footprint. While there is likely to be some turbulence, there’s a good chance that it won’t be an economy-wide crisis. Rather than a mortgage meltdown, the most likely problem is that good and productive real-estate investments will go unfunded by bankers spooked by dead malls, vacant office buildings, and ghost-town downtowns. Believe it or not, there are some places that still are booming and need new office space, but it might be hard to get money to build it. That is how it is supposed to work, of course: Higher interest rates tamp down inflation by curtailing economic activity. So, this, too, shall pass—like a kidney stone. 

 

There’s no reason to be on the ledge singing “In the Sweet By-and-By” just yet. But the thing about financial crises is, they tend to unfold in ways that nobody was expecting. Every time Jerome Powell tells me that everything is okay, I put another case of beans and another box of ammo in the basement. 

 

Eeyore gonna Eeyore. 

Democrats’ Atrocious Attack on Personal Responsibility

By Noah Rothman

Thursday, April 20, 2023

 

The fallout from the 2008 implosion of the mortgage market was still settling over the American economic landscape in mid February 2009, when Barack Obama’s party passed a massive $787 billion stimulus designed, ostensibly, to staunch the bleeding. Not long after that, the president announced plans to spend $75 billion — $25 billion more than initially advertised — to support monthly mortgage payments for distressed homeowners and forestall a wave of foreclosures. This, treasury secretary Timothy Geithner said, would help shore up the nation’s teetering banking system, keep interest rates low, and prop up the value of America’s housing market. CNBC business reporter Rick Santelli was not convinced.

 

“The government is promoting bad behavior,” he famously boomed from the floor of the Chicago Mercantile Exchange. “Do we really want to subsidize the losers’ mortgages?” he asked the traders by whom he was surrounded. “This is America! How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?” A chorus of boos erupted from the floor. Santelli joked about harnessing the anger he’d channeled into a “Chicago tea party,” but conservatives took him literally, creating the populist movement that fueled a Republican resurgence.

 

Though the moral hazard Santelli raged against was real enough in 2009, so, too, was the threat to the macroeconomy represented by the subprime-mortgage crisis. In 2023, those conditions are no longer present, but the Biden White House is acting like they are.

 

Once again, the administration is prepared to “subsidize the losers’ mortgages,” so to speak, and not in any effort to save the economy or help Americans avoid destitution. The Biden administration’s only goal is to purchase the loyalty of prospective homebuyers who are locked out of the property market by high real-estate prices and rising interest rates — rising interest rates necessitated, in part, by the administration’s reckless spending. And Americans who did everything right are going to suffer, perversely enough, because they did everything right.

 

The administration is set to enforce a new rule that will compel potential homebuyers who spent their lives paying their bills on time and building good credit scores to pay more for their mortgages. Why? To subsidize the loans assumed by higher-risk borrowers. Beginning May 1, prospective homeowners with a credit rating of 680 or more “will pay, for example, about $40 per month more on a home loan of $400,000,” the Washington Times reported this week. “Homebuyers who make down payments of 15% to 20% will get socked with the largest fees.”

 

Federal Housing Finance Agency director Sandra Thompson tried to reassure borrowers that there would be “minimal” fee changes associated with the increased “pricing support for purchase borrowers limited by income or by wealth.” That is cold comfort to the loan officers who expressed their exasperation over this distortion of the real-estate market at a time when low inventory, excess demand, and high borrowing costs have combined to produce a substantial shortage of affordable housing.

 

Those conditions will be exacerbated in August, when the FHFA is set to impose a new upfront fee on certain borrowers with a debt-to-income ratio over 40 percent, which one financial-services consultant said was also designed to hurt “better credit quality borrowers” to “subsidize the fee reductions for lesser credit borrowers.”

 

It’s difficult to understate the perverse incentives this act of bribery will encourage. You’ve spent your adult life borrowing responsibly and paying your bills on time. You’ve saved for years to acquire enough money for a down payment on a home that approaches the rate at which you can avoid a Federal Housing Administration–subsidized loan and the premium it imposes on your mortgage insurance. For all your diligence and hard work, the Biden administration will now punish you only so that consumers who were not similarly conscientious can have access to better mortgage rates and lower down payments. Knowing that, why on earth would you devote yourself to an unrewarding enterprise like thrift when someone, somewhere will foot your bill regardless?

 

Even more grotesque is the fact that this political payoff to what Democrats regard as core constituencies is designed to mitigate the effects of an orgy of spending that was itself little more than a political payoff to core Democratic constituencies.

 

In January, the publication Clever Real Estate surveyed millennials looking to purchase a home and found that over 90 percent of those polled said inflation had become an obstacle to buying a home, eclipsing buyer competition. Nearly half cited high interest rates as their primary concern, and a quarter of prospective homebuyers had put off purchasing property. The stress associated with saving to purchase a home in this environment led more than half the millennials surveyed to confess that they were “reduced to tears” by the process.

 

The interest rates that dissolved these young adults into puddles of anxiety were rendered necessary not just by the cash the federal government hemorrhaged as a response to Covid but also by the Democratic Party’s effort to use Covid as cover in pursuit of more parochial goals.

 

The party in power spent billions of taxpayer dollars bailing out union pension funds, backstopping the budgets of Planned Parenthood and the National Endowment for the Humanities, and helping profligate municipalities like San Francisco bridge their budget gaps. It spent over a trillion on “infrastructure,” which provided a “tremendous boost” to the law firms that represent developers, lenders, investors, environmental-impact specialists, and private-equity funds. It subsidized billions in child-care costs for Americans struggling through school closures at the tail end of the Covid pandemic, which it had encouraged by allowing recalcitrant teachers’ unions to set the bar for what constitutes a “safe” reopening inordinately high. And when all this spending overheated the economy, the party passed the “biggest piece of climate legislation in history” under the assumption that the cure for the ills of too much spending was even more spending.

 

Now, as the Fed seeks to raise the costs of borrowing and restore price stability, the consequences of the Democrats’ spending binge are being felt most acutely by a demographic that disproportionately votes Democratic. So, what do Democrats do? Complicate the Fed’s work further and make it illogical to devote yourself to sound financial habits.

 

It is a profound irony that the supposedly populist iteration of the GOP is not nearly as well positioned to take advantage of this catalyst for a populist revolt as the GOP of 2009 was. Maybe Republicans can summon the enthusiasm to craft and sustain a messaging campaign against this attack on personal responsibility; after all, they’ve done it before. But if they can’t take this ball and run with it, they should get off the field.

Back to Reality

By Kevin D. Williamson

Wednesday, March 01, 2017

In California, you hear the same lament, constantly: The people who live there cannot afford to live there.

There are taxes, sure, but that isn’t what Californians complain about, mostly. And if you’re not in technology or entertainment, there might be more opportunity elsewhere: The gentleman sitting next to me on the flight home from Los Angeles to Houston had left his native California to take a position in Texas, and like many Californian refugees, he has been plotting his return ever since.

What Californians complain most about is housing.

It is a pretty straightforward supply-and-demand proposition: Lots of people want to live in California. Many of those people are very rich people, and a large share of them come from other countries with tax rates and horrifying misgovernment that make California look perfectly reasonable. Demand is strong, and supply is constricted. Part of the constrain on supply is geography — a mobile home in Malibu was on the market for $1 million a few years back; there is only so much Pacific waterfront — but mostly it is politics, crazy planning-and-zoning regulations, and super-aggressive environmental regimes that make it hard to build housing and very hard to build affordable housing.

State governments have their own affordable-housing programs, but the big player in housing policy for years has been the federal government, which has approached the question of housing indirectly, through financial services. Basically, Washington’s answer has been to make it easier and less expensive to get a mortgage. That has not always worked out very well — there was a big hiccup in 2008–09, you may recall — but the general theory is defensible: Spur demand for housing with easy money, and the market will respond with building, development, and redevelopment. That has happened in a lot of places, but not in California. Instead, California has seen growing demand for housing in its most desirable areas amplified by relatively high-income immigration (domestic and international) and empowered by cheap-money mortgage banking. More money chasing the same supply of goods means higher prices.

Indeed, while the people at the Academy Awards (and the people protesting outside) were talking about the president, refugees, immigration, and the like, the political conversation in Los Angeles among the non-celebrities who live there was all about the March 7 vote on Measure S, which would add new barriers to construction projects — opponents call it a “housing ban.”

Financial regulation is no substitute for bricks and mortar.

You’d think that President Donald Trump, who has been involved in the development of housing over the years, would understand that. But he does not seem to. A few days ago, he tweeted about having a “great meeting with CEOs of leading U.S. health-insurance companies, who provide great health care to the American people.”

But health-insurance companies do not provide great health care to the American people. They do not provide health care to the American people at all. Doctors, nurses, pharmacists, physical therapists, drug researchers, and nerds who design superior artificial joints provide great health care to the American people. Insurance companies provide financial services. That’s what insurance companies are: financial-services companies.

In the same way that Washington has tried to manage housing by regulating and subsidizing mortgages, politicians have long tried to manage health care by regulating and subsidizing health insurance. It does not work. It has not worked, and it is not going to work.

Insurance companies estimate risk and charge a fee for insuring against it. They are awfully good at what they do. Bob the Actuary doesn’t know whether you are going to have a heart attack this year, but give him a little bit of information about 1 million people and he can tell you to a high degree of accuracy how many of them will have a heart attack this year. Building large pools allows us to average out the probabilities and handle them in a more orderly fashion. That’s what insurance is good for.

Government misunderstands insurance. Politicians believe that creating large pools of health-care consumers will make health care more affordable for individuals and families. It doesn’t. If Smith can’t afford his medical expenses and Jones can’t afford his medical expenses and Brown can’t afford his medical expenses, then Smith + Jones + Brown can’t afford their collective medical expenses, either. The large pools built by insurance companies help with this by exploiting the fact that not everybody is going to get sick at the same time; the payment of benefits out of insurance premiums can reduce the amount of financial disruption illness or accident causes to an individual or family at any given time, but insurance does not make the medical services they consume less expensive. In fact, medical benefits may make those services more expensive, for instance by creating new record-keeping costs for medical practices, or by simply driving up demand by pumping money into the market through poorly managed, low-accountability entitlement programs such as Medicaid.

Easy mortgage money helps keep housing prices high. Easy medical money probably helps keep medical prices high.

The Affordable Care Act made this worse, for example by limiting “price discrimination,” by which is meant the practice of charging those more likely to have heavy medical expenses higher premiums than those less likely to have them. The ACA replacement bill being developed in the House addresses some of that, for example by loosening the rule governing how much more older insurance customers can be charged than younger ones.

But nothing under serious consideration by Republicans or Democrats gets much beyond trying to manage medicine through insurance regulation; no proposal deals with the underlying question of why it is that medical care — as opposed to medical insurance — is so expensive. There is no proposal under serious consideration that would return to treating insurance as what it is: a financial service.

You can play with mortgage rates all you like, but if you don’t build new houses in Los Angeles and San Francisco, housing is going to be scarce and expensive. Likewise, if you have only so many hospital beds, pharmaceutical factories, physicians, nurses, dentists, and medical-device manufacturers, the underlying physical realities of health care are not going to change very much, irrespective of what sorts of carrots and sticks you use on financial-services companies.

Critics on the left, especially those who support British-style government monopolies on health care, insist that because demand for medical services is relatively inelastic — because you aren’t comparison shopping after a traumatic car accident — ordinary market operations cannot handle health care. But demand for food is inelastic, too, at the hungry margin. It’s just that we rarely get to that margin because food is plentiful, thanks to massive investment in its production, distribution, and improvement. Ultimately, that is what has to happen with health care, too.

But first we’ll have to liberate ourselves from the superstition that we can trick or bully the financial-services sector into solving the problem for us.

From Subprime to Sub-Subprime

By Kevin D. Williamson

Monday, January 11, 2016

In lieu of the usual complex regulation larded with special-interest favoritism, here is a simple mortgage rule that could and probably should be adopted: No federally regulated financial institution shall make a mortgage loan without the borrower’s making a down payment of at least 20 percent derived from his own savings.

Period, paragraph, next subject.

Instead of doing that, we are sprinting flat-out in the opposite direction, with government-sponsored mortgage giant Fannie Mae rolling out a daft new mortgage proposal that would allow borrowers without enough income to qualify for a mortgage to count income that isn’t theirs on their mortgage application.

The Committee to Re-Inflate the Bubble strikes again: We’ve just legalized mortgage fraud.

Claiming that the money you are using for a down payment is yours when it has been lent to you by a family member or a friend was a crime, too. (A felony, in fact; a whole subplot in The Wire was based on that crime.) There is a reason for this: People who have saved up enough for a down payment on a house are very different kinds of borrowers from people who haven’t, and people whose mortgage debt is two times their annual income are different kinds of borrowers from those with mortgages that are eight times their income. One sort of borrower is a great deal more likely to default than the other sort — and, as we learned a few years back, mortgage default can, under certain circumstances, turn out to be everybody’s problem rather than a problem limited to the jackasses who write low-quality mortgages.

But Fannie Mae, the organized-crime syndicate masquerading as a quasi-governmental entity, has other ideas. Under its new and cynically misnamed “HomeReady” program, borrowers with subprime credit don’t need to show that they have enough income to qualify for the mortgage they’re after — they simply have to show that all the people residing in their household put together have enough income to qualify for that mortgage. We’re not talking just about husbands and wives here, but any group of people who happen to share a roof and a mailing address. And some non-residents can be added, too, such as your parents.

That would be one thing if all these people were applying for a mortgage together, and were jointly on the hook for the mortgage payments. But that isn’t the case. HomeReady will permit borrowers to claim other people’s income for the purpose for qualifying for a mortgage, but will not give mortgage lenders any actual claim against that additional income.

This is madness.

But mortgage madness is very much the order of the day. Groups such as the National Association of Realtors — the ninth-largest campaign donor, second-largest spender on lobbying, and 13th-largest source of outside spending dollars — have a strong economic interest in seeing as many house sales as possible — that’s where commissions come from — and that means insanely easy mortgage terms, regardless of the consequences.

In this case, there is also an immigration angle. As Investors Business Daily reports: “It’s all part of a government campaign to ease access to home loans for Hispanic immigrants, who tend to live in groups and pool finances. . . . The National Association of Hispanic Real Estate Professionals, a liberal trade group, is praising the move, arguing it will bring tens of thousands of Hispanic families into the home market who have been ‘skipped over’ by stingy (meaning prudent and responsible) lenders.”

And the down payments? Try 3 percent — i.e., squat.

Homeownership isn’t right for everybody. For one thing, enormous debt isn’t right for everybody, and homeownership without equity (3 percent, indeed) is nothing more than that. What’s more, as National Review’s Reihan Salam has shown, the social benefits associated with homeownership — stability, civic engagement, etc. — are present only when there is significant equity held. As Salam and co-author Christopher Papagianis put it: “The traits that enabled households to build up the savings necessary for significant down payments — hard work and the deferral of gratification — were misattributed to homeownership itself.”

Which is to say: Getting people without a ceramic vessel in which to engage in regular micturition nor the down payment and good credit to finance said vessel does not magically turn them into Ward and June Cleaver: It just makes them people who have added a huge new debt to their already-terrible finances. That isn’t so bad at times when house prices increase at a rate that outpaces the return on other investments, but that can go on for only so long. In reality — the reality that bit us on the hindquarters back in 2008 — the prices of houses, like the prices of widgets and lawn furniture and Picassos and aviation fuel and everything else, go up and down.

And when they go down, who is going to default? The guy who has put up 20 percent on a house that costs two times what he makes in a year, or the guy who has put up 3 percent on a house that costs 2.5 times what he, his wife, his parents, his uncle, his three spinster aunts, his son with the part-time job at Burger King, and that weird guy Bob who sometimes sleeps in the basement — all of them together — earn in a year?

All these years after the mortgage meltdown, we still don’t have sensible regulation of mortgage lending. We desperately need that. We also need to kill Fannie Mae and Freddie Mac, the Axis of Subprime Evil. And we need to do that before the next financial crisis is upon us, not in the middle of a new financial crisis.

Housing Bubble 2: Freddie’s Revenge

By Kevin D. Williamson

Tuesday, August 04, 2015

People complain about high prices when they’re buying, not when they’re selling, and that’s why housing bubbles are always politically popular: The sort of people who own homes are the sort of people who vote and volunteer on political campaigns and make donations. And the fact that tax revenue tends to increase as housing prices rise doesn’t go unnoticed by the nation’s mayors and governors. Renters tend to have more sensible views — you’ll never hear a renter say, “Hey, my rent is doubling this year — that’s awesome! The economy must be doing great!” But nobody listens to them.

And that’s why we’ve inflated a second housing bubble.

In some ways, the current housing bubble is even more bonkers than the last one — which, if you’ll recall, sorta-kinda almost destroyed the world’s financial system.

As of this writing, the median U.S. home price is just 3 percent shy of its 2007 peak. (Existing-home prices already are at a record high.) But that does not even begin to capture the story. In San Francisco, the median price of a single-family home has doubled since 2012. The median San Francisco home is now nearly $1.4 million, or 50 percent higher than it was at the peak of the last bubble. The median household income in San Francisco is about $77,000. Put another way: The median home price in San Francisco is now 18 times the median household income.

Does that sound like a stable position to you?

Elsewhere in California, a less dramatic version of the same situation can be found. In a dozen or more Los Angeles–area ZIP codes, housing prices today exceed their levels during the bubble, mostly in high-income areas such as Irvine and Los Feliz.

It isn’t just California. Prices in Austin are up 13 percent in one year; central-Florida prices are up 28 percent in a year; Chicago prices climbed 11 percent in six months; in Texas, prices are up 8 percent for the year; in greater Seattle, prices are up 10 percent for the year, the median crossing the half-million-dollar mark for the first time.

If the value of your home has improved dramatically, take a momentary break from dreaming about what you’ll do with that money once you cash in and ask yourself: Why? Why is my house today worth twice as much as it was five or six years ago? It’s five or six years older, for one thing, and unless you are in possession of a charming New England stone colonial, houses are not like wine, growing better with age. Maybe home prices are up because of good ol’ supply and demand, with housing construction failing to keep up with population growth. No, that’s not it, either: Housing construction is soaring, up 26 percent since last summer; needless to say, the number of U.S. households is not up 26 percent since last summer, executive amnesty be damned. It’s not like a bunch of old houses disappear from the market in a flash — SMOD 16 doesn’t arrive for a while yet. It’s not like we’ve all put in Snaidero kitchens and saltwater pools; most of us haven’t done much of anything to our houses (and some of you really need to).

So, why the high prices?

There are local forces at work: San Francisco, having been governed exclusively by progressives for a generation, has been transformed into precisely the sort of place that progressives say they fear: The one in which the multimillionaires and billionaires effectively run everything, a city in which a family of ordinary means has practically no hope of achieving such a small thing as owning a house with a little yard for the children to play in. California urban anthropology is a fascinating subject, a grand collision of big technology paydays, liberal self-segregation (“Welcome To West Los Angeles: Poor People, Please Make the First U-Turn”), geographic realities, epic NIMBYism, etc. It is probably going to end badly — it is difficult to see how the difference between median income and median home prices in San Francisco, or in California generally, can be sustained — but we probably don’t need to worry too much about mid-level Google employees defaulting on their mortgages.

But most of the country isn’t very much like the Bay Area, and when house prices are rising at 6 percent or 7 percent a year (and rents rising even faster) while U.S. incomes are growing at their slowest rate at any time since Beyoncé Knowles has been walking the Earth (NB: Beyoncé’s income is doing just fine, thanks: She just spent $300,000 on a pair of diamond-encrusted stilettos from House of Borgezie) it isn’t supply and demand at work.

Instead, housing prices are going up for the same reason that college tuitions are: because the government facilitates lending people money at concessionary rates to purchase them. The Fed has, despite the occasional sobering gander in the direction of reality, been keeping the cheap-money sluices pretty much wide open. The federal regulators have loosened their grip over Fannie Mae and Freddie Mac’s lending activities, and, according to a Fed report released Monday, banks are once again loosening up their lending standards.

This ended badly the last time. It’ll end badly this time, too.