We have all been hearing a lot about housing prices falling, and about the effect housing prices have on the economy. The impact to date, while real, is actually overstated. Why? Well, housing markets and their impact are the turtle of economics, they happen very very slowly. Prices have to fall and people have to sell, when they sell they, if they get less than they expected, may not spend as much as they would have if they had reaped a huge profit.
Of course, the lack of higher equity is hurting those home equity lines people were tapping like McCain at an open bar. But ask yourself, honestly, how many people do you actually know who have either been forced to sell or have sold and not made a profit? Not that many — yet. People are still holding out.
Unquestionably the economy is slowing. Consumer debt is massive, companies are cutting jobs, inflation is rising, unemployment is a full percentage point ABOVE where it was a year ago, and with a work force of 200 million plus, that’s 2,000,000 newly unemployed Americans.
Just this morning, we saw that planned July Job Cuts skyrocketed to over 100,000 meaning that unemployment will continue to climb, the economic impact of those layoffs won’t be felt till mid-fall at the earliest when severance packages run out and the reality becomes apparent, new jobs are hard to come by.
But now the time is arriving when we will start to see and feel the real impact of the slowing economy — layoffs will pick up over the next year and the forecast is for increasing and increasing unemployment, it almost surely will be another point or more higher next year than it is now.
Slowing economies manifest themselves in many ways. But the most prominent is in the corresponding fall in housing prices. In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy’s effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it’s the other way around: prices are about to start dropping.
Even Alan Greenspan agrees with us. Greenspan Says Housing Prices Not Yet Near Bottom
Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are “nowhere near the bottom” and the resulting market turmoil isn’t showing signs of abating.
How can this be?
How can prices that have fallen 25% in Los Angeles year over year be about to start falling? Well, because unlike every other real estate boom of the past century, this past boom was, in fact, a boom and a bubble. This numbers below, from the Case-Schiller Housing Index showcase that and how the first bubble may have popped, the excess speculation bubble, but the underlying bubble remains, and now will begin to deflate.
Prices in San Francisco were set to an index of 100.00 in January of 2000.
By January 2004 prices had jumped to 155.93, a massive jump by historical standards. This alone is a real estate bubble.
By January 2007, they had already softened a bit but still were at 211.78. This is the second bubble.
Now the index stands at 162.70. Still up 60% since January 2000.
The prices have lost some of the home equity / no money down madness bubble, but have let to be impacted by the slowing economy. And they will be
How far will they go down? Well, economics is ruled by larger trends and post bubble, prices eventually revert to the historical mean.
For example in the ten years from January 1987 to January 1997, prices increased 22%. And, fyi, that’s after inflation, meaning a house purchased for $400,000 in January 1987 was actually worth less, in real dollar terms, in 1997, ten years later.
That’s not a rant, that’s a fact, all of these prices don’t include inflation.
In real dollar terms, house prices really don’t escalate much. Some studies of ONE HUNDRED YEAR time frames of the US Market show, in real dollar terms, that house prices remain flat.
How can that possibly be?
Well, we’ve been inundated with ten years of powerful powerful advertising messages that tell us, “housing prices always go up.”
We borrowed money and spent it like good Republicans, because housing prices always go up.
We just know we can buy more and more because housing prices always go up.
But they don’t.
So how can you estimate what the actual value of a house in San Francisco really is? How far can they fall? Another 40% to historical norms of growth? More? Well, Dave recently calculated how far prices in the San Francisco Bay Area could fall using three different methods.
The first was the rent to price ratio. With this method you take the average rent and calculate the amount of money you need to put into a decent investment to make the same amount. For example, if you are clearing about $833.33 per month ($10K oer year) from a rental property unit (remember to account for maintenance and property taxes and something for your time…) then the price of the property would be around $100,000 for a 10% return ($10K is 10% of $100K) and $200,000 for a 5% return (sufficiently higher than a CD pays right now).
So if houses in your area are renting for about $1400-1500 per month this is a rough way to tell that similar houses might be worth around $150K at best. If you double that and they rent for $2800-3000 then house prices would be $300K. And those prices assume that rental prices are not dropping.
James lives in a rental house in Boston which at market peak might have sold for $800,000 or $900,000 but now rents for $2,400. What does the landlord clear? Not $28,000 because he pays the taxes so more like $20,000. If you had $400,000 in the bank would you be happy with 5% return? Perhaps. But that’s the highest amount you can estimate the house is worth in the market. And guess what? 10 years ago, the house was worth about $350,000. So it actually is about the right value.
The next method involved the average person in the area’s income affording an average priced property. Look around at prices in your area, and average wages. At what price can the average person (or husband-wife) (or husband-husband/wife-wife in Dave’s California and James’ Massachusetts) buy a house? Right: uh-oh.
The third method is to look at the historic mean plus inflation. When prices triple in a few years, then when they correct they have to fall to 1/3 of the peak (plus inflation). It’s just the way it is.
When Dave calculated these for the Bay Area all three methods came out the same and showed that prices can still fall as much as 30-40%. We say “can” but an economist might say “should.”
If it falls 30% from that index where it is now, it only drops to 112. Can’t happen? Well, remember that 1987 – 1997 DECADE, it was up 22%. Now, after 8 years, it would be up 12% on that index. That’s pretty normal growth to be honest.
And what is cumulative inflation of the past 8 years? Let’s make it easy on ourselves, and we’ll say an average of 3%. The 100 Index goes from 100 to 126 with the combined effect of eight years of Inflation at 3%.
You see, housing is not the perfect “always goes up” investment. And it is clear that the housing prices in San Francisco and many more places could have 30% – 40% to go down from where they are today.
But, you guessed it, the news is actually worse than this. First, there is a huge amount of excess housing inventory on the market. So this needs to be factored into your thinking about where prices can go. On top of the need for prices to revert to the mean, these extra houses have to find buyers before prices can stabilize.
This is supply and demand, nothing more, nothing less.
Next is the effect of gas prices. Many, many housing developments have gone up in areas that are far from city centers and far from non-automobile transportation like light rail or even buses, and buyers are going to be factoring the price of gas now. Along with this, the price to heat and cool the monster homes that developers tended to build will become a consideration and will reduce demand for these houses.
Another factor is that the “boomers” are starting to retire, and will be selling the larger homes in which they raised their families or ended their careers, looking for apartments, condos and even senior facilities. This will also reduce demand.
And, just as the price of energy was not considered when these houses were designed and built but has lately become a factor, one day the implications of global warming will start to sink in. In particular, is the house sufficiently above sea level? Is it located near an area that is experiencing increased fire danger? LOTS of Californians are starting to think about these issues.
But if you think we’re wrong, and the above factors are non factors. Consider the recent decline in the stock market, General Motors and their 15.5 billion dollar quarterly loss, that’s the recession that’s here.
This is the big one: A falling economy always forces housing prices to fall. Even when housing prices are not in a bubble to start with a recession forces prices down. And this hasn’t even started acting on housing prices yet — the falling prices we have seen are not because the economy is slowing, they are causing the economy to slow. The slowing economy will make this worse as people are laid off around the country. The foreclosures we are seeing today are not the result of people losing their jobs, but they are causing people to lose their jobs. THEN the foreclosures that come FROM people losing their jobs will start.
There are no, none, nada, zilch factors that we see driving any hope for a “bottom” in housing prices any time soon.
Thanks Republicans for ignoring the country’s problems for so long, refusing to regulate the financial companies, refusing to address the need to find alternative energy sources, refusing to fund mass transit alternatives and refusing to provide oversight and enforcement of our laws. Thanks for bringing us to where we are today.
They borrowed and spent. We borrowed and spent and drove the housing prices up through a double bubble. One bubble may have popped. The next one will soon.
Post-Script: We worked on this post last week and over the weekend. This morning, The New York Times has this article: Housing Lenders Fear Bigger Wave Of Defaults. It echoes many of our arguments in this piece.
My little brain can’t read all these words and comprehend anything. I did have a few comments though…
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p>Dems have controlled the House and Senate since 2006. Do you want to assign ANY blame to them?
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p>Did I mention Dems have controlled the House and Senate since 2006? The projection for this year is $485 Billion (Another record broken… thanks Sen Kerry and Kennedy).
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p>Did everyone think housing prices could continue to grow at record rates every year? How affordable will housing be for anyone if we have record growth every single year? This market has been in severe need for a correction for a long time. I own 2 homes and they could lose 50% of their value and I would still be making a ton of money compared to what I paid for them (both under 10 years ownership).
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p>But far less than 1983 (10%), 1993(7%) or 2003(6%) and we survived.
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p>I don’t know anyone out of work. But back 7 or 8 years ago I knew a lot of people out of work. How did we survive?
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p>As for all your comments about housing going in the toilet… and that the second bubble has not hit yet… housing prices have remained flat over time 9adjusted for inflation)… SO WHAT? Have you sold your house(s)? Should everyone reading this post sell their houses since prices are going to continue to fall 30-40%? That would make sense to me unless there are some details you missed (remember I have a little brain since I’m a Republican). Other than ranting that Republicans (Did I mention Dems have controlled the House and Senate since 2006?) have wrecked everything, WHAT ARE YOU TELLING US TO DO?
You guys always produce interesting well-sourced stuff. How do you write this stuff bi-coastally?
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p>This essay is a bit long for a blog, but I had no trouble finishing it. You didn’t divide it between above and below the break so it would be difficult for it to get to the front page.
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p>A political comment. It’s not Republicans per se that are the problem here. It’s more been the success of the conservative movement in undermining regulation. This has infected large parts of the Democratic Party as well. Jumping in to regulate the mortgage market when it was helping so many to use their houses as ATM machines could have been political suicide in the late 1990s and 2000s.
… controlling Congress from having a slim majority. Getting anything passed requires appeasing the anti-government folks, among others.
if Democrats simply got to run everything as if people who disagree with them didn’t exist.
JohnD is pretending the Dems have been in control of Congress since 2006. Reality is otherwise.
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p>As to your increasingly shrill anti-Dem posts, I’m not one, nor have I ever been. That said, we’ve dealt with 8 years of “if you aren’t for me you’re against me” crap from GWB and his merry band. You’re really in no position to throw rocks.
Our Democratic state legislature is absolutely blameless. They have no friends or relatives gumming up the state payroll. Only Republicans practice that. Umm ok.
My apologies for the snark, but we’re talking about Congress, not the Mass. State legislature.
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p>Why are the local conservatives hell bent on having arguments with themselves? It’s depressing.
My increasingly shrill anti-Dem posts? You will find that I am certainly no fan of Bush or the Republicans. Indeed, if I am shrilly anti-anything, it is anti-politician, or anti-ideologue.
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p>You both are straining so hard to make everything black-and-white, with your particular side the color of the driven snow, that it makes the discussion absurd.
I suspect but do not know that the regulatory yoke really was somewhat over-heavy and misshapen when the Republicans began disassembling it. My understanding is that there really were some things that needed to be dismantled.
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p>However, the popularity of “Regulation=Bad” really was a conservative triumph. Alas it’s one that Democratic victories alone will not reverse. That doesn’t require mass elimination of Republicans. (Huh, put that guillotine back where you found it!*) It does however require a defeat of their narrative on regulation. To others, I’d say an ideological victory, but I don’t want to scare you.
(Sorry, huh, just kidding. CMD thinks you’re an elminationist. I know you’re not.)
I do think CMD is intellectually dishonest (e.g. ranting about Griswold but not Heller), but my frustration is more about his party than him personally. As you know, I was a Republican in my early twenties and left when it became the party of greed and homophobia.
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p>I could deal with the greed, at least somewhat, but the social conservative movement is far scarier (and far more damaging to liberty and the pursuit of happiness) than the “politically correct” bogymen the GOP keeps trying to conjure up.
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p>For the record, I’ve been a registered independent (unenrolled) for close to 18 years.
I also understand the difference between a clause that limits and one that does not.
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p>Maybe I just understand these things because I learned grammar in a parochial school.
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p>If you want to take “conservative” legal theorists to task for intellectual dishonesty, the 11th Amendment is where its at. In those cases, Scalia and Rehnquist “discovered” constitutional principles in precisely the same manner that Douglas did in Griswold, and likewise achieved the results that can be expected when they just make stuff up out of thin air.
You yourself argued that Griswold is suspect because it has to be discovered in the “penumbras and emanations” of the Constitution. You go on to praise Justices Scalia and Thomas for their opposition to said logic, but completely ignore Scalia’s use of similar logic to find a “right to self-defense” in Heller.
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p>As I’ve said before, such picking and choosing reeks of using judicial “originalism” as a flag of convenience. From where I sit, they’re only activist judges when they disagree with you…
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p>As to your larger points, not only has the GOP held the oval office for the last 8 years, at one point they controlled both legislative branches. There was a time when you might have been able to blame everything wrong with America on Clinton and the Democrats and assign credit for everything good to Reagan. That dog don’t hunt anymore (not that it ever really did).
I thought that you were referring the the 2nd Amendment, individual right/”collective” right issue in Heller, rather than the issue of self defense.
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p>I agree that the self-defense is shakier than the right to bear arms, which is right there in English. You are right, that as written, the self defense holding, if it is a holding, of Heller is somewhat shaky.
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p>But it also makes sense that if the right conferred by the Amendment is to be remotely meaningful, then self defense must be implied.
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p>Which is why the new DC proposals are absurd: well, you may own the firearm, but you may not use it, and must ensure that at all times it is rendered inoperable.
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p>(You assume that I am a lover of “originalism” which I am not; I merely dislike it when they make things up out of whole cloth) In the same sense, the constitutional right to burn a flag might be considered shaky, because the 1st Amendment refers only to the press and speech, and not to expression, generally. Again, the latter is rather plainly implicit in the former.
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p>These arguments are text-based, but not “originalism” in the sense that the text must only mean what it did in 1789, as Justice Thomas views things. (This “internet” thing is not the “press” and can therefore be censored)
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p>Anyway, contrast these arguments with the one made in Griswold: that a general right to privacy, and a specific right to buy and use contraceptives, is implicit in the constitutional right against self-incrimination, and the right not to have one’s property searched without a warrant. Which is bunk.
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p>Political activists on both sides have a tendency to want their dearly-held policy preferences to become politically immutable by making them into constitutional requirements. Conservatives do this as well: see the raft of sovereign immunity jurisprudence springing from the 11th Amendment, which has nothing to do with sovereign immunity. It is harder for media people to understand, and therefore gets no coverage, but is bunk just like all of the loved-by-liberals privacy cases.
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p>It would be beneficial for the republic if the courts would refrain from such things, so that political issues can be debated in the political arena where they belong, rather than sub rosa and in code, in judicial nominations.
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p>As to the larger points regarding the political branches, you are 100% correct that Republican control of Congress and the executive was an unmitigated disaster, for a host of reasons. I don’t necessarily think that it therefore follows that Democratic control of both branches will be an improvement, except to the extent that the removal of Republican members of Congress that forgot the function of the Congress will be a good thing. In my opinion, divided government is the best restraint on the wings of both parties, and is therefore corresponds to the periods of better governance.
and drop its opposition to gay marriage you might cast your lot in with the captains of industry and warmongers? That would be a shame.
The Rovian genius was combining big business with big religion. In embracing that philosophy, the GOP lost any appeal it had for me.
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p>I did like the post-Goldwater “fiscal conservative, social liberal” vision espoused by Bill Weld, among others. Unfortunately, judging from his endorsement of Mitt Romney, even Weld seems to have abandoned it.
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p>I also find the new GOP rhetorical style off putting. The demonization of homosexuals hits me personally, but my dislike of their “if you’re not for us, you’re not American” tactics runs far deeper than that. At some point, someone has to admit the policies put in place by this administration have failed wildly.
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p>Note to CMD, JohnD, Pater Familias, et al. Yes, I realize you hate Democrats. I also realize you think you’re brighter than everyone else (God knows you’ve told us that enough times). I just don’t care. I’m not a Democrat and your gigantic intellects don’t help any of you communicate effectively.
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And the last few decades have demonstrated that much well-meaning regulation would have been better left unenacted.
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p>Does this mean that all regulation is bad? Of course not, Atlas can shrug all he wants, but that is pure ideological nonsense.
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p>It does mean, however, that proponents of this or that regulation should have to make a very strong case that their pet reg will do less harm than good (yes, cost benefit analysis). It does mean that a healthy skepticism of the vaunted benefits of this or that scheme is warranted. It does mean that big new programs should be extensively test-driven before being enacted at scale (lucky that we have a nice federal system to facilitate this).
I was in Texas for the whole mess and blame a lot of it on Lloyd Bentsen and his obsession with deregulation. (You may recall that Lloyd was pro-choice, pro-ERA, and pro-civil rights, but also strongly for public school prayer, capital punishment, tax cuts, and deregulation). Developers were building condos, borrowing against the claimed value, building more condos, borrowing against THEM, and so on…
Though cheapened by what is, in my view, inept political finger pointing.
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p>To the extent that the present problem has been exacerbated by the market activity of Fannie Mae and Freddie Mac, a Congress full of Democrats just conspicuously failed to fix the fundamental problems with those institutions, doubtless at the urging of their former colleagues turned highly compensated executives at such institutions.
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p>The rent/value calculation seems like something of an approximation of P/E ratios for housing, which is an interesting way of looking at things.
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p>I guess that you are suggesting that presently-performing mortgages will become non-performing as a recessionary economy exacts its toll on employment. And that, to the extent high fuel prices lead to higher interest rates, that presently performing mortgages become non-performing after their rates adjust.
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p>All of this assumes that we are indeed in a recession. I’m not sure that this has moved beyond Democratic campaign material into the realm of fact yet.
our economy has been craptastic for, oh, say 8 years… and the past few have been the worst. What more evidence do you need? We’re on the verge of an economic collapse.
… the Financial Times quoted at Altercation:
’81-’82, now that was a recession. Late 70s with stagflation (try making the mortgage with an 18% APR for your loan), coupled with 12% unemployment; that was an economy in collapse. I’ll go with CentralMassDad on this one.
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p>I do consulting work for a ton of small businesses in the area and have for 25 years. Don’t see too much evidence so far of anything approaching past bad economic times (although we are seeing an uptick right now in participant 401k loans, which isn’t a good sign).
in my life time. I’m 24. I wasn’t alive in ’81 or the 70s. I guess you can say that’s ‘showing my age,’ but I fail to see how that’s actually a bad thing (rather than something out of my hands). The economy is likely to get worse before it gets better, so I hope I won’t be alive to see anything like those times you referenced, but I fear it will happen soon.
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p>-Employment at 95%;
-Record month of July for Mass tax collections;
-Low interest rates;
-Positive GDP growth;
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p>BTW, that is positive GDP growth in the face of an enormous downturn in housing plus record oil. That shows us what a resilient economy the US has.
when and if you get a chance.
July, 2008 unemployment rate is 5.7%. So 94.3% rather than 95%.
we stop counting when people have been umemployed for significant periods of time, under the guise that they don’t want work or something. So it’s really probably closer to 90%… which doesn’t really look very good. Even 5.7% is high – that means more than 1 in 20 people who are eligible and seeking work currently have no job. 1 in 20 people is a lot.
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p>And, yes, it’s going to get worse. The very nature of this post bears that out: the housing market will hurt a great many more families and if the weakening economy’s many layoffs could lead to a whole second round of foreclosures, which will only exacerbate the problem.
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p>My parents, as kids, went through the depression. They and their parents survived. I survived Richard Nixon’s & Jimmy Carter’s economic policies (rampant inflation, wage and price controls, 2-hour gas lines!) Everyone survived.
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p>So stop being a whiny wimp. Grow up. Get a job. Stop the theatrics … “I hope I won’t be alive…” What are you going to do, commit suicide if the Fed interbank rate gets too high?
… is that a lot of people committed suicide during the depression. Many others took dangerous jobs that took their lives.
-Employment at 95%
Depends how you measure it. If you measure it the same way they did in the 70s and 80s, you get a much uglier number.
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p>-Low interest rates
Leading to high inflation.
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p>-Positive GDP growth
Q4 was initially positive too, and it was recently revised to negative. Expect more revisions.
Robert Reich and the Clinton Administration back in ’94. Fun with numbers…
Ryan, appreciate your opinions, but age does bring perspective to observations and comments. I was on the phone a month ago with some “kid” (29) at a brokerage house and he was going on about June being the end of the world from his perspective. Of course he was about 7 watching cartoons when we had the October ’87 25% Dow loss in one day. Now that was the “end of the world”.
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p>Funny thing though about the ’87 crash. If you sold in panic, you certainly cemented your losses; if you basically did about nothing and waited a year, your portfolio was back to pre-crash levels.
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p>Bring your ideas and enthusiasm, but don’t take it personally when those of us who’ve been through this (and a lot worse) before don’t panic for the exits.
I was only referencing the fact that I was comparing it to things in my life, not things that happened before. I’m not saying those were worse or better; I’m not saying anything about them at all. I’m just saying that, during my life, this is the worst economic period I can remember – which would roughly be the past 20 years. That’s pretty bad.
Ryan. What you have right now is certainly going to be a correction (and probably not all that bad around here – all bets are off for Florida, CA, AZ, and Nevada – from a fundamental standpoint, there really isn’t much new construction in NE to speak of since we’ve been here almost 400 years), you should remember that you are in an election year, and the Democratic party has every motivation in the world to say the sky is falling. Couple that with the fact that the print media industry is collapsing, and you may uncover some bias in economic reporting (if you work fo th Globe/NY Times/WA Post et al, and you see the end of your business model, that may tend to influence your coverage. The world ain’t gonna end; we’ll sort these excesses out in the credit markets and move on. The danger is overreacting.
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p>If I may suggest a book to read, try and track down Charles Kindleberger’s “Manias, Panics, and Crashes.” A classic and may add some perspective to events.
… worried about the long term overall stance of the economy than any particular market correction. I’m not an economist, but the lesson my layman brain took away from the 90s is that if taking a serious stab at the deficit was a necessary component to improve the overall health of the national economy, then we’re in deep s**t. My understanding is that when Clinton took office, there was an internal debate about the appropriateness of deficit spending to address slowdown at the end of Bush I. On one side was Rubin and on the other side was Reich. Rubin won out and it appears to have been fortunate for us. I remember wondering “How on earth could I ever hope to reach my Dad’s income levels in this country after two GOP presidents just spent more money than anyone ever has in the history of the planet by bankrolling my future?” The budget fights of the 90’s were large, but with the application of Rubinomics and the fortuitous contemporaneous push from the growth of the tech sector, by god it worked… even if my taxes went up, my economic situation was improved in a way that only a healthy economy that can create opportunity for individuals can. Without the growth of the 90’s and the relative strength of the labor market, I don’t know if I’d have been able to improve my situation much.
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p>Trouble is, once again we are coming out of a situation where the damage that has been done is mind-blowing. Nothing equivalent to the internet’s impact on tech sector growth looks likely on the horizon. And we have even more GOPers intent on ‘starve the beast’ policy plans that would see the collapse of the revenue stream of the government as having silver lining in that it makes it that much easier to ‘drown it in a bathtub’. These people are conveniently assisted by the ‘tax cuts create revenue’ true-believers who will happily enact policies that drive toward a cliff while happily delusional that any cliff exists.
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p>Certainly, surviving a market correction is hardly a herculean effort, but it seems to me that beyond the correction of the market there are much darker clouds further away.
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p>’50s: Oh yeah. Pent up consumer demand, widespread spread of autos, tvs.
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p>’60s: US export strength from its big auto, big steel, big manufacturing and domestic housing.
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p>And they didn’t. Butter and guns, poor fed policy tanked the 70s.
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p>80’s: Roaring back. Deregulation of interest rates, expansion of housing, expansion of financial markets, invention of personal computer.
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p>90’s: Dot com.
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p>00’s: Who knows. Housing has boomed in his century with greater home ownership than ever in history. U.S. service goods (i.e. smart people selling abroad) is enormous, financial services continue…
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… but should I bank on ‘who knows?’ or be confident in ‘who knows?.
Absent a soothsayer, you have a better idea? In the early 90s, I was fiddling around with intranets, and, even though intimately involved with networks, had no clue or imagination that the next ten years would so expand connectivity.
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p>Right now, the $100+ cost of oil has opened up any number of oil-alternative energy sources.
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p>I’m just saying that thoughout the decades each generation has been better off than the one before, and there’s no objective reason to believe the trend will discontinue. Right? If a variable has gone up, say 90 times of 100 times, what will that variable likely do on #101.
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p>Yet, chicken littles in this thread have forcast gloom and doom when history and current economic data simply don’t support it.
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p>I can paint the perfect storm where sub-prime default continues and Alt-A loans follow suit; where student loans default at greater than historic rates; where the current low rates create record inflation.
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p>BUT, the current data simply doesn’t support that conclusion. It’s possible, but not likely.
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p>Employment IS high; interest rates ARE low; GDP is either expanding or if contracting, it’s contracting very slowly. US manufacturing is rising, large scale US manufacturing never shrank. The state just closed the books on July with a record tax collection, exceeding that of July 2007.
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p>Your pessimism seems nothing less than faith based.
… I guess is that all I’m saying is that absent a meteorologist, I’ll look at the sky, and it seems dark to me.
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p>Precisely the point. Eshcew the science; rely on faith.
The 90s looked sunnier than they were, at the time. “It’s different now, the internet has changed everything! Dow 36,000! Lets buy Pets.com at $50 per share and get rich!” Then the conventional wisdom turned out to be wrong
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p>The 70s, though bad, looked worse at the time.
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p>”Oil will be $150/barrell forever, and we’re all going to be hungry, poor, and cold. Then oil was at $25 per barrell for 25 years, and the economy took off like a rocket.
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p>Now, things look bad, and everyone thiks they will be bad forever again.
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p>History shows that is unlikely to be the case.
And I certainly don’t think we’re in “economic collapse” territory.
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p>In my view, the 90s economy chugged along on momentum through at least 2004, and since then, we have seen a slowdown, but have avoided actual recession.
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p>The last few years have been volatile, which ratchets up the anxiety level, but hasn’t pitched us into negative growth territory yet, at least not on a sustained basis.
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p>I do think there are plenty of reasons to be worried. Anxiety and volatility aren’t going anywhere soon (perhaps not until the liklihood of a shooting war closing the straits of Hormuz recedes), and won’t be on sound footing until the credit markets are functioning smoothly again. I don’t have much theory about how to make the latter happen sooner, except to get the government from smothering that market with bond offerings. This, in turn, probably means declaring victory, getting the heck out of Iraq as soon as it can be done, and scheduling the parade. It also means cutting many of the domestic subsidies tossed around so profligately during the last eight years, as well as scaling down the ambitions for big expensive health care entitlement programs.
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p>In any event, “we’re in a recession, on the verge of economic collapse” is campaign schtick.
One is the global reach now of most major corporations have balanced their out put internationally wih the fall in the dollar also componant production overseas has still lagged in cost shifting to this point mainly as a result of the broad China expansion and race for market share.
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p>How about the growing shortage of real liguidity in all aspects of the market for how long can thisbe sustained with out causing sever damage? to all reas not just housing. This broader weakness seems to have tossed a new demention into the current model.
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p>Last point with the US economy shifting away from manufacturing what effect will the near collapse of the auto industry produce through out the economy not just the mid west? GM as with Crysler are already pulling out of the loan businessthe profit or more likely working capital is no longer being used to fuel consumption as it was over the last 15 years this will eventually have an effect on the broader markets what then?
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p>As Usual Just my Opinions
Yes, increased exports (because of the cheap dollar) have helped ease the situation somewhat. Ultimately, though, the cheap dollar is worse because it drives up interest rates and has made the increase in oil prices more painful.
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p>Yes, the credit crunch in commercial lending is probably more ominous than the decline in mortgage lending, even if it gets less press.
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p>Not sure about the effect of the imminent end of one or more of the big three. Each have, for some time, made and sold cars for the primary purpose of financing the sale, and made their money with interest on the loan. Selling the finance arm, for them, was a sign that not all of them are likely to survive.
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p>No. But, that’s like asking if a man of median income can really afford to buy a median-value tuxedo every time he’s going to be in another wedding.
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p>There’s a rental market, and not everybody is in a financial position to ignore the rental market and limit oneself to just the buyers market. Home ownership isn’t for everyone, and there’s no reason to expect that 100% of families should be in a position to buy their own home, even if 100% of families even wanted to own their own home. So, perhaps ask the question: can a family of median income really afford the monthly payments [rent or mortgage] of the median priced monthly payment for housing?
… but I think our public policy goals have generally been to increase homeownership as broadly as possible.
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p>And my point is simply to point out the distance between those numbers. I dare say it’s still practically beyond a median-income family to pony up $70k for a 20% down payment (considered a normal, safe, conservative “prime loan” DP) for a $350,000 “starter” house in Greater Boston.
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p>I seem to remember getting told a few years ago by a certain blogging real estate agent about how easy it was to get into a nice condo with a 5-10% down payment. That’s a joke now. It should have been then. That kind of thinking — borrowing and lending — is one of the reasons why prices got and stayed so high, and why even the current valuations are untenable, IMO.
but surely you can agree that there are large groups for whom buying might not make sense. Those people include:
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p>Young unmarried professionals
Young unmarried (un?!)professionals
Pensioners
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p>For the young, uncertainty about marriage, employment, and children might mean it makes sense to defer buying, especially if it means a few young people can live in one home, sharing utilities but also needing only one kitchen, etc.
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p>For seniors, renting may provide far more financial security. They know they won’t get stuck paying for a leaky roof or new boiler, and they don’t have to mow the lawn for that matter.
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p>Both of those groups have lower income than the median. So, you’ve got huge skew: a population in which (i) public policy goals might include more rentals for this demographic and (ii) they are lowering your median income number.
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p>Take out unmarried under 30 and those seniors who no longer live in the house in which they raised their children from the median income statistics, and you might find that home ownership is far more affordable than otherwise indicated, because $64k includes many low income families for which home ownership simply doesn’t make financial sense. I’m not arguing that home ownership is sufficiently affordable, merely that there’s a pretty big bias in the number $64k because of young people and seniors for whom home ownership simply may not make sense.
I already knew much of what you described, but you did a really nice job of bringing it all together in one place. Well done! Thanks for doing it.
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p>Does anybody have an recommendations for sites that contain similar information with a similar perspective?
The discussion of fiscal policy at the National level looks to have degraded into a simple partisan dispute. The facts are that it is far more complicated then that and one thing that should be looked at is the mind set and policy shifts we have seen over the entire time since 1960.
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p>In 1950 the average house hold income in the USA was $39,929 while the average home price was $44,600
Income was approximately 90% of housing costs across the USA
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p>In the year 2000, in the USA again, we have income (1998 figure) for the average household at $71,551 with the average home cost in the USA at $119,600. Income is 60% of housing costs. This is then a shift of 30%, which increases the borrowing for housing and reduces disposable income by 20% annually.
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p>Here are the US Census Sites I have to confirm this data
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p> http://www.census.gov/hhes/www…
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p>http://www.allcountries.org/us…
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p>This shift of 20% has occurred at the same time as shifts in Federal Taxation and an increase in all the supporting costs associated with Families and Home ownership which by the way also translate into the rental market as well. Please review the Data in Massachusetts for determining affordability under the 40B guidelines a 2 Bedroom in Woburn qualifies at $1400.00 Per Month which even by today’s standards with Property taxes held in Escrow would just about qualify for a 200,000 dollar Mortgage.
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p>Key to this discussion is that our economy is driven by Consumption. This being the case it does appear that we have been squeezing the consumer to the point that the Patient is nearing the need for life support. The statement of all we have left is luck I think is a bold overstatement; I don’t feel we even have luck.
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p>What is needed is one of two things and one I feel from the numbers would be catastrophic.
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p>Choice One: we need costs to come down to X on housing and the CPI this would include energy not just housing this drop would produce a ratio of earned income to expenses that would allow the consumer some breathing space and allow spending that would start the economy moving forward. Unfortunately that roll back in prices would put a lion share of homeowners into a flip side situation of owing more then the value of the asset and this would kick in greater strain on the financial markets.
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p>Choice Two: would be a reallocation of wealth to increase substantially the average income which here again would shrink the ration of costs to a manageable level. For Had core Republicans of today they call this socialism, I call it sound fiscal policy because those who are making won’t be able to make it if the patient is not revived and the down ward spiral of Economic stagnation will continue and yes it will slowly and surely consume more and more of the economy and maybe even you who currently feels they are relatively untouched by what is currently occurring.
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p>Downward trends are the hardest to predict and even harder to stop and reverse. IN the last 100 years we can all point to dips and shocks to our economy and the ability for the ship to right itself, at least over the last 50 years. Now do not think I am suggesting what I am about to say but have you looked long and hard at the Depression and the cause/effect and outcomes. How about the role the federal government played and WWII in pulling us out of that situation. How about the level of national debt before and after the great depression look at those numbers and how they can translate into the current trends..
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p>In my opinion with the level of Debt we currently have with the outstanding obligations we currently owe if such a dramatic downturn occurred we would not have the resources with out raising substantial taxes on those left standing with Income which right now stands as the top 10-20 % of the population if 50% the average (look up) are unable to afford Housing at current tax rates and lets figure another 10-30% are now holding their own. That will require the top income earners and the top wealth holders to pay for the clean up. Much of tax policy in the late 40’s post war and through the mid 50’s relied on this very tax structure with the rise in average income to cost that we have been bleeding out since.
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p>Best to all
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p>As Usual just my opinions
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p>There’s some other shifts too.
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p>The average number of children has shifted downward, pointing to people “needing” less house than in 1950.
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p>The average square foot of housing has shifted upward, pointing to people “wanting” more house than in 1950.
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p>
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p>Sure, houses are more expensive relative to income now. They’re also much bigger. The post WWII houses had a kitchen, DR, LR, and BRs. Few had master baths (or even more than one tub/shower in the house), and even fewer had bonus rooms, home offices, play rooms, etc. The WWII era home I grew up in was a 1200 sq ft split level, which meant my parents, my brother, and I each had our own bedroom. 1.5 bathrooms, and sufficient rooms which would be small by modern standards. Nowadays its illegal to build single family homes that small in many parts of the country [though not in MA due to snob housing laws IIRC].
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p>Getting back to building smaller houses would be good for America — lower sticker price, lower heating and cooling bills, reduced propensity to buy stuff made in China to fill the house, and increased density resulting in a reduced average distance to work, shop, and play, yielding lower gasoline consumption.
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p>There’s some other shifts too.
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p>The average number of children has shifted downward, pointing to people “needing” less house than in 1950.
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p>The average square foot of housing has shifted upward, pointing to people “wanting” more house than in 1950.
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p>
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p>Sure, houses are more expensive relative to income now. They’re also much bigger. The post WWII houses had a kitchen, DR, LR, and BRs. Few had master baths (or even more than one tub/shower in the house), and even fewer had bonus rooms, home offices, play rooms, etc. The WWII era home I grew up in was a 1200 sq ft split level, which meant my parents, my brother, and I each had our own bedroom. 1.5 bathrooms, and sufficient rooms which would be small by modern standards. Nowadays its illegal to build single family homes that small in many parts of the country [though not in MA due to snob housing laws IIRC].
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p>Getting back to building smaller houses would be good for America — lower sticker price, lower heating and cooling bills, reduced propensity to buy stuff made in China to fill the house, and increased density resulting in a reduced average distance to work, shop, and play, yielding lower gasoline consumption.
Maybe former Sen Phil Graham had it right by calling us a bunch of whiners. Times are bad, but as I’ve commented and other agreed, we have been through much worse. As I said, I don’t know anyone who has lost their job OR anyone who has lost their house… yet. I don’t see any reduction in people buying things or services. I am halfway through building an addition to my house and when I put it out to bid 10 weeks ago I fully expected hoards of “hungry” builders to be low balling each other to death to get he job, but that never happened. I would say none of the people who responded (6 out of 9) were very aggressive and most had a fair amount of ongoing work.
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p>I have been thinking about following “Old man Potter” from Pottersville and maybe buying during these turbulent times in real estate, but guess what, there aren’t a lot of bargains out there, just marginal reductions.
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p>Again, I can remember a decade ago when houses were plummeting, auctions were happening in every town in the state, unemployment checks were everywhere and the Feds had to give multiple 13 week extensions of those unemployment checks, cars were dirt cheap, mortgages were 12% and inflation was double digit… AND WE SURVIVED. We whined far less then than we do know, even though things are much better now than then! Our leaders back then had he “we can do it” and now we hear that the sky is falling. And much like the Chicken little story, thinking the sky is falling and altering your life with this fear may in fact have deleterious effects.
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p>I am sorry for getting into the “Dems control Congress now“… but the original post put the blame for this mess squarely on the shoulders of Republicans and that is both wrong AND counterproductive at this point. I also asked about how to fix it and did not hear many ideas. I asked if houses are going down 30-40% should we all be selling our houses (including the orignal posters) now and save the equity… no comments??? I know I am not selling and I’ll bet most here aren’t either.
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p>Lastly, I think this “pessimistic analysis” is based on certain things (bad) happening and others (good) not happening. Any number of these events (oil $$$ goes down, economy goes up…) shifting and maybe we dodge the bullet.
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p>Either way, with all these events in play it makes even more sense for us to be using every single tax dollar as efficiently as possible. The disability claims, pensions increases, Pike retirements, Admin pay raises, contracts with state unions… and yes costs of the war in Iraq all have to examined keenly to make sure no money is being wasted. But IMO, key to the turnaround we all seek are keeping American dollars in the US (OIL, OIL, OIL…) and reinventing American technology and manufacturing (Why can Toyota and Honda make such great cars and Detroit pukes all over itself?).
“I don’t know anyone who has lost their job OR anyone who has lost their house… yet. I don’t see any reduction in people buying things or services.”
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p>The plural of anecdote is not data.
Each anecdote would be a datum. More than one would be data. But I assume your point is that this “data” is not conclusive with such a small sample and with that I agree, but inconclusive doesn’t mean false.
Anecdotal evidence isn’t useful in this context.
One problem is sampling bias. JohnD is not systematically visiting all corners of our economy.
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p>Another problem is bias due to salience. People tend to overweight what is salient. Example: I’ve noticed a number of people overestimate how long it takes the subway to arrive. That’s because a late train burns itself into your memory; it’s very salient. One hardly notices the many trains that arrive without delay. We remember anecdotes, after all, because they’re salient.
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p>A third problem is the weakness of data collection (this is related to salience). Five hundred people milling about a mall look like a lot of buyers but they may buy a lot less than one hundred people who go in, pick something, buy it, and leave. Casual observers are not inspecting cash register receipts. The data being collected are not the data that have bearing on the discussion.
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p>Or take the addition to JohnD’s no doubt lovely home. Shorn of context, this is not a useful datum. JohnD is comparing it to his expectations, but the more useful comparison might be to 5 and 10 years ago. Even then, it’s not exactly a controlled experiment. (A dormer a year?)
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p>That brings up another problem when N = 1. One cannot rule out the effects of other factors, like sales in malls or large construction projects in JohnDsburg.
But it wasn’t as pithy as mine 😉
I prefer reading Atrios to the long-winded front-pagers on dKos, but sometimes you gotta spell it out.
… the challenges I face in posting eloquently. I can’t tell you how often I’ll start a comment and then decide, “I don’t have time to get into this.”
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p>heh 😉
I’ll continue to increase my sampling of your William F. Buckley style posts (style, not content), but I think I hate you.
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p>BTW, don’t undervalue salience as this more than anything will decide how people vote in November. That is my opinion only and no I don’t have empirical data to back it up, nor do I have links to surveys or studies asking that question.
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p>I will stand by my data collection of local business and how those businesses have historically done to decide how I feel about the economy. So let me ask you a question fartbreadth, if you had friends losing their jobs and losing their homes, or if you were to do some work in your studio apartment and contractors were falling all over themselves to get the business dropping their drawers faster than a prom date to get the lowest price… would that effect your opinion of the economic situation or would you simply dismiss it as anecdotal? Sometimes local minima (and maxima) are in fact Global minima and maxima. Maybe in my sampling, that is exactly what is happening. Does every single thought in your brain have to be backed up by facts before you state them. Isn’t there such a thing as “opinions” or “thoughts”. Do you have to run a generic algorithm to come up with numbers for Mass Millions?
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p>It will be a cold day in hell before I visit all the corners of the economy before rendering an opinion on it and I would assume nobody else does either (but you).
(citations to George Lakoff excepted)
then he sticks a red hot poker up my butt (that’s for you KBusch). BTW, I write this way because I talk this way, except to customers.
call people “fartbreath” in everyday conversation?
But KBusch’s incessant comments about ANY Vulgarities I write, especially use of guttural words like shit, balls… make me go over the top and write like Dennis Leary talks. Fartbreadth would not be used in everyday conversation, unless I was good friends with that person.
Don’t you want to comment on my use of BOLD or italics? Are you being Obtuse? Why not comment on my questions of “Are you selling your house now because of this doom and gloom post?”…
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p>Rather than be so SNARKY why don’t you engage or refute my comments?
I think you misunderstand how that was an answer to your post — and a good one. Talk about obtuse.
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p>But if you want to talk about style: Let me point out that your not snarky comment began by rejoicing in not name calling and then moved immediately to an embrace of Phil Gramm’s name calling.
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p>Also no post of yours is complete without bodily effusions, usually poopy. But this time, for variety, we get vomit.
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p>Delightful reading.
I think we have become a nation of whiners, he was right.
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p>And I still have not heard anyone comment on selling their homes because after all, we are all doomed!!!!
Right now your posts are like cheap sausage – a dubious mix of filler and what my grandmother called “the bits that went over the fence last.” There may be some nuggets worth discussing in there, but I, for one, don’t have the stomach to wade through the insults, whining, and canned replies to your own questions. The “gotcha” routine is really tiresome.
I know first hand how you feel. I read some blogs here and I can’t stomach a response because the blogger is right, so I want to verbally assault them instead of the issue… like you are doing.
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p>So are you selling your house Huh before the value drops 30-40%? Are you unemployed, one of the 2,000,000? I am trying to increase my sample size… Is your house in foreclosure? I am trying to get info from people outside JohnDsburg.
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p>You don’t want to read my insults and whining, but you just insulted me and are whining about my posts… maybe we’re twins separated at birth!
…to reduce complex issues to “have you stopped beating your wife” questions. I still refuse to answer them, especially when they’re buried in the middle of stream of consciousness rant.
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p>Foreclosure rates are easy to find. Look them up.
Ya there are many complex issues which we could debate ad infinitum but many of these boil down to irreducible choices.
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p>I made my opinion clear on the original posts and asks some very simple questions. There is no gotcha, just asking. I am NOT selling my house because I don’t think the value of it (them) is going to drop 30-40%. I also believe most people, including the genii posting here will also NOT be selling their houses. So I was asking the simple question, are you going to sell your house based on this data or is the data wrong. I have the balls to answer and defend my answer (not selling, original post about sky falling is over the top). Not a tough question.
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p>You? KBusch? Anybody??
I don’t mean to be blunt but choice one is the most ridiculous idea I have ever heard.
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p>Of course I will leave my idea to be judged as well.
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p>How about what has always worked and helped us become such a prosperous nation…… choice 3?
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p>supply and demand determine prices
regulate the industry so there’s no predatory lending
educate people (erhaps through regulation) so that they are fully aware what they are getting into. (maybe more government assistance in the form of home buying education)
regulations on sustainable development and incentives for “green” developing and affordable houing.
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p>In all seriousness, you’re choice one is perhaps the worst thing we can do. People wouldn’t build new houses if they could only sell them at a fixed rate. Who builds affordable housing on their own rather than because they have to in order to get permits for the luxury condos? If you stop people from building luxury condos, there will be zero affordable housing. even when government agencies and quasi’s build affordable housing they also include market priced units with it as well to subsidize the costs.
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p>There would be no more new building, so forget green buildings, and keep those inefficient old houses.
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p>The fact is t cost of construction is more than the sale price of affordable units. Plus the construction industry, not the most wealthy individuals, would suffer severely as well as everyone whose retirement is the equity in their house.
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p>There is one key factor missing from your choice that really needs to be considered and that is Financing
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p>Financing for the builder to build and the buyer to buy currently the market is so tight that not only falling prices are heading off sales but also the lack of candidates who can qualify for mortgages that borrow at 70-80% of value. This is a direct consequence of the short liquidity that exists in all markets today.
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p>People need to realize that looking at Fannie Mae and Freddie Mac as becoming unstable is not just related to the foreclosure issue, although it is likely to be the result but the critical element that may have been missed is their ability to raise money through their bond offers that raise the capital that they then in turn use to make loans. These are the warning signs I see, and can play a key role in slowing and potentially bringing this economy to a grinding halt. Sector downturns were related to principally one major industry. True the effects of the loss of spending power from those sectors did send shock waves through the entire economy, yet the point is that this down turn to a great extent is a loss in faith in the financial sector which you must realize then affects every sector. Unlike the Dot Com melt down in the 90’s and the S&L/ PC implosion of the 80’s we are seeing a destabilization of our foundation industry. Which is why it is concerning me especially when we are seeing it shifting focus to various sectors with in the foundation week after week. Then throw in run away inflation in most all energy sectors that is draining capital from and already stressed system and I think your prospects of a soft landing are little more then pie in the sky. I think JohnD’s assessment is missing the calls for help and the groans of the economy now and the real risk we are facing. Sort of like being on a bridge and betting will it collapse or will it hold. I think we need to repair the bridge sooner then later.
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p>Even as you suggest we focus on Alternative and Green systems getting them up to speed will require huge amounts of capital to make such shifts meaningful, here again I go back to without that capital and it’s availability a shrinking minority will only be able to take advantage and that group shrinks weekly. As values continue to drop more and more people will find them selves unable to reach out and make changes but will be forced into sitting and holding on hoping they can out last the cycle. I think we are seeing evidence that this group is shrinking at an alarming rate. If this is the case and my read is correct then this could be the worst downturn since the Great Depression and has the potential to be as bad.
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p>I am also not going to say nor should it be interpreted that I am suggesting it, that this is going to happen, so bet the farm on it. What I have been saying is these signs are very troubling and I think it calls for a Proactive approach that is a combination of new regulation, where appropriate, and some form of stimulus directed at the housing market. Waiting to react to the next tremor to our economy, we run the risk of seeing more sectors weaken. The straw is bending in my opinion, you may not share that view but, left to it’s own the risk is a collapse. Doing nothing only risks relying on the Luck quote above. I would rather see a bad decision trying to shore up the system we have then a collapse and then our trying to repair it. Trying to put it all back together if the worse case occurs maybe far tougher and far longer in the making.
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p>As Usual Just my Opinions
I don’t think everything is wonderful in the economy by a long shot. The recent sub-prime snafu has taken its toll on the lower end of the market, and that toll in and of itself may take a toll on the next tier of the market. I blame the mortgage industry for “giving” far too much money to people who never should have gotten it. The inner cities are getting whacked now because they never should have been given loans in the first place, and now they are suffering. Many of them must have missed the classes in Economics in High School.
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p>I guess I have a feeling (only a feeling) that the economy has strong legs that can take a pounding. I know I have been criticized for giving my opinion based on my first hand data but the national data available is conflicting AND many times this data is NOT indicative of how things really are. We have months of growth as measured by one metric while another metric will have very sour news. There are also so many different metrics (GDP, GNP, Unemployment, Inflation, Imports/exports…) that trying to understand which combinations of good/bad is not intuitive. And thus far I have not found anyone who I believe can interpret these different metrics and come up with a proper conclusion.
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p>As you replied, “am ready to bet the farm on this bad news” and the answer is no. While many people seem to be agreeing with this original post’s message, my question to many was the same which I will repeat here… If you believe this post that Real estate is going to continue to drop 30-40% more, then any logical person would “get out” and sell their house while they can. Even if this news was almost right and housing drops 10-20%, it still would be logical to sell their houses. I wanted to know if people really felt this way, but only got attacks, condescending pretentious smirks and snide remarks.
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p>Lastly, I will agree that we had better do something or while I don’t agree with “all” of the original post, I do believe things can get far worse before they get better.
One factor that hasn’t been mentioned before is the cost to build. (the old buy below replacement cost theme for real estate investors). In Massachusetts there are extremely high barriers to new development including permitting, available land, regulations, union labor, and “linkage fees”. As long as there’s many people in Massachusetts needing housing and not enough new housing being built to meet the demand because the costs are high, then prices in MA won’t be dropping too much more. Unfortunately, this is only an overall prediction. Communities like Lawrence, Dorchestor, and Brockton will drop precipitously and communities like Weston and Beacon Hill will have prices continuing to rise.
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p>Prices went up because there has been a lot of new demand for housing and little new supply. The new demand came from the niagara of capital flooding the mortgage market and being disbursed and underwritten by commission based middle men and eventually being bought up by municipalities, pension funds, etc. because the rating agencies were rating them highly. People were able to borrow more and in a lot of cases non buyers (traditionally, ones with no money for a deposit to put in as equity in a purchase) became buyers. All these new buyers bidded the prices up and in many cases bought multiple properties while the media both TV and print constantaly glorified real estate as an investment and promoted fipping. Homes are to live in and if you’re buying properties as an investment it has to be because you’re putting in equity to receive cash flow back that is acceptable based on the risk. We got a lot of “investors” buying properties with no equity regardless of the cash flow the properties produced only hoping it would appreciate.
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p>The mortgage industry obviously couldn’t regulate themselves and people made many common sense mistakes while buying properties. This really was neither a Republican nor a Democrat fault. Everyone needs to learn from it and figure out a better way for the industry to work.
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p>The ironic thing is now the government will introduce many new regulations now that there not needed nearly as much anymore. The lenders,the cmbs buyers, and the consumers are learning a very painful lesson. Lenders aren’t lending unless its almost zero risk, there is almost no market for mortgage backed securities, and people aren’t mesmerized by the idea of quick easy real estate riches.
Does it seem that we have deregulation only when the corporatists want deregulation? When their Ponzi schemes fail, as all Ponzi schemes do, they announce that they are “too big to be allowed to fail” and need a bailout by Mr. & Mrs. Taxpayer and their kids. The backs of the taxpayers bend again to support the corporatists. So it becomes time for “regulation” again to bail out the corporatists. (Gee, the SECTREAS was formally of Goldman? –What a surprise!)
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p>While it is true the Republicans share a good deal of blame, there is enough blame to share with their Democrat allies. Both the House and Senate share large numbers of villains with the Executive.
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p>Does anyone else hear the echos of the Founders? They warned us of the growth of political parties. They warned that party allegiances would overshadow those to the country and the best interests of the people. Has it come to pass?
it wasn’t a ponzi scheme by any means..
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p>in fact a great innovation happened that allowed many more people to buy homes. Banks and insurance companies can only lend so much but by bundling up mortgages and selling them off as bonds, you create a whole new market of lenders and also lenders who can give you money much much cheaper because there’s less risk in buying a bond backed by hundreds of homes as opposed to lending on one home.
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p>More money and cheaper money and money lent to people who were not able to borrow money from banks ( a lot of them being minorities in less desirable communities).
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p>The problem now is people still don’t really grasp what happened.
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p>The problem with this great idea was the participants. The rating agencies rated them wrong because they didn’t understand the underwriting. The buyers of the mortgages never fully understood the risks and what they were buying (party based on the rating agencies), the originators were commissioned based and did real aweful underwriting (a lot of times on purpose), and the consumers didn’t understand the risks and structure of the loans.
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p>Same thing with REITS. At first they were abused and screwed up because the incentives were misaligned. But REITS were still a great idea. Helping the common man buy and invest in very large real estate that they normally could never invest in was always a great idea. It just took a little while to figure out the correct way to run the industry. Now REITS are considered a popular asset to have a portion of one’s retirement savings in.
…you’ve got an earmark of the Ponzi scheme.