Time flies
It's been nearly a year since I noted that the National Association of Realtors, or as I like to call 'em, the "six-percenters," began stumping for government policy makers to give them their bubble back. (How on earth could all those real estate brokers pad their incomes ... er ... help others achieve the American dream, if the Feds didn't help feed the mania?)

Since then, the housing market has only gotten worse, and it's not just the six-percenters feeling the pinch. Many mortgage holders now increasing find themselves unable to make their payments (especially in ostensibly non-bubble states like Ohio and Michigan). And when mortgage holders can't pay their bills, neither can mortgage bankers. So, it was with no real surprise, but great amusement, that I read the following lines from the Mortgage Bankers Association's latest dismal news release.

"We would continue to caution policymakers to avoid any regulatory or legislative actions that would impede the ability of the market to respond to changes in underlying economic conditions. An important role of public policy should be to facilitate efficient markets, as these will ultimately benefit consumers."

Sounds fair
In the abstract, that seems like a logical request. But to me it really sounds like "We want our bubble back" part two, having been delivered right on the heels of government efforts to crack down on crummy lending.

That alone ought to be cause for suspicion. And the confirmation is the plain history right over our shoulders. The current ugly trend in delinquencies, non-performing loans, and foreclosures -- the very trend illustrated in that MBA report -- was enabled by none other than the hyper-"efficient" credit markets of the past few years.

The liquid alchemy of the derivatives market hid the risks in subprime lending -- yes, the risk was hidden, not eliminated -- as Wall Street peddled increasingly lousy paper from the likes of New Century Financial, NovaStar Financial (NYSE:NFI), and Accredited Home Lenders (NYSE:LEND). And the well-orchestrated masking of that risk caused so many iffy loans to be written. But now that investors are less willing to take on those risks, the credit to these loan shops is drying up -- and the shops with them.

The great evaporation
So forget all that real estate industry pabulum about interest rates, wage growth, or a strong economy having created a healthy increase in housing values. The U.S. economy has been plenty strong in the past, and interest rates low. Nothing has ever pumped up housing like the last few years of easy money have.

With hindsight, it's easy to see the reasons. Easy money feeds demand. Demand makes prices rise. (Even the kids who stumbled into my Saturday morning econ 101 class drunk from the night before were able to grasp this concept.)

Now that the easy money is taking a vacation, what do you think will happen to that demand? Factor in current levels of housing supply (huge by historical standards) and you'd have to have a pretty warped take on the basics not to see that things are going to get uglier in real estate.

When efficiency bites
While people were worrying about the bloat in subprime for months, it's only more recently that anyone has begun to notice the potential for problems in the "not subprime" "Alt-A" market, where "liar loans" were the flavor of the year. Before too long, I expect to see serious pain at Impac Mortgage Holdings (NYSE:IMH), Countrywide Financial (NYSE:CFC), and many others. And we already know that tightened lending will reduce sales, even though only a couple of homebuilders, Hovnanian Enterprises (NYSE:HOV) and D.R. Horton (NYSE:DHI), have had the guts to admit it.

Efficient markets do ultimately benefit consumers, but only over the long run. In the short term, they can be brutal, especially to those who bet against them. In the upcoming months, those homeowners who overleveraged themselves to take part in the Great U.S. Housing Ponzi Scheme are going to find out just how much it stings when the market gets back to its business of being efficient.

In the meantime, the squealing from those with a vested interest in the prior status quo should be studied carefully. The way out of a bubble is not another bubble, no matter what Greenspan and Co. may have engineered in 2001. "Efficient" is not equal to "loose." And efficient markets can only be fooled for so long.

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At the time of publication, Seth Jayson had no positions in any company mentioned here. See his Cassandra act at his Motley Fool Caps blog here. View his stock holdings and Fool profile here. Fool rules are here.