Originally written on November 11, 2007 and, sadly, unpublished until now

because it wasn't funny enough. It's still not that funny.

WHAT'S SO BAD ABOUT falling housing prices? When the price of housing is so inflated that in many areas of the country most homeowners could not buy the house they live in, something is seriously out of kilter in the market for real estate, wouldn't you think? What's the problem if prices get back in line with values?

Back in the middle 1970's, I remember when many decried the disillusionment that swept over the generation that had been caught up in the rampant idealism of the early 1970's. I don't think that the disillusionment was a problem at all. It was the illusionment that preceded it. Since when has reality been a problem? For me, I guess it was the last time the effects of the psychedelic street drug I took wore off. Reality is a bummer, man.

"Irrational exuberance," which Alan Greenspan warned us about in December 1996 in the stock market, which he then helped to foment in the real estate market, can be fun on Saturday night but Sunday morning may not be as pleasant. There's a reason we call crashes crashes.

We can hope for a "soft landing." (That's when you jump off a tall building and come down on an awning then land on your feet, only breaking a couple of bones.) We escaped the Clinton-era stock market bubble with relatively little pain as we traded in the heroin of an inflated high-tech-driven equities market for the cocaine of an inflated real estate market fed by notably stupid lending practices. We just traded one addiction for another. Foolish investors burned by the completely predictable fall of prices of overpriced stocks turned to the "safer venue" of real estate. Which it was, for a while.

What do "day trading of stocks" and "flipping real estate" have in common? They require delusional sellers who can find even more delusional buyers who are willing to collude with them in making nonsensical transactions. Unfortunately, for many, "reality bites," which in addition to being a bad movie starring Winona Ryder as well as a frequently observed Chapel Hill bumper sticker, is also a fundamental principle of the universe.

If you don't believe me, read the latest research on the subject by Charles Mackay, LL.D., "Extraordinary Popular Delusions and the Madness of Crowds" — first printing 1841. If you don't know what "tulipomania" is, reading this book may save your life savings when the next popular delusion comes around. If you don't want to be a greeter at Wal-Mart at age 75, you might consider investing in a copy. (I got mine through the Abebooks.com website.) A precise technical definition of the term "subprime loan" may help clarify this discussion: credit extended to the uncredit worthy. So, now we discover that people with no savings and bad credit histories tend not repay their debts? Who woulda thunk it?

Bundling large numbers of these cheesy loans, often variable rate mortgages with introductory "teaser rates" that mean that these mortgages will automatically go from being bad loans to being horrible loans, which were then sold to people who actually bought them. Guess what? No matter how much you paid for them, they ain't worth much.

But, they would still be worth a lot, if the real estate market just kept inflating forever. Ever blow a soap bubble? Remember what happened — every time? Memorize this fundamental law of nature: Bubbles burst.

Sometimes some people need to be hit over the head with a two by four to wake up to reality. A collapsing house produces lots of falling two by fours. A collapsing housing market produces even more. Welcome to reality.

What's so bad about falling housing prices? The answer is the pain it will cause to innocent people. If only the stupid people making and taking stupid loans were the ones to be hurt by a collapse in the real estate market, it might be good thing.

But, just like every waitress and shoeshine boy benefits from the various booms, whether rational or not, they feel some serious hurt from the busts.

But not everyone who participates in "the madness of crowds" will suffer. One of 2007's Forbes 400 Richest People in America, H. Ty Warner of Illinois, who had an estimated net worth of $4.4 billion, invented the Beanie Baby.

Gary D. Gaddy, who never did any day trading in the 1990's or real estate flipping in the

2000's, will, unlike any of the politicians or business people who watched obliviously while this happened, will take blame for failing to avert it by keeping this column from print.

A version of this story was published in the Chapel Hill Herald on Thursday October 16, 2008.

Copyright 2008 Gary D. Gaddy