[Bill,
December 11, 2007]
Housing Bubble
1,000 times yes.
As you know, I went through a home-buying exercise during the insane real-estate bubble. There was a twofold problem -- cheap Chinese money and people paying outrageous prices. I had to look around, decided that the Philadelphia suburbs had a critical mass of idiots who were paying way more than they could afford -- and bought a reasonably priced house on one acre in the Lehigh Valley. As a writer, I can, at the end of the day, work from home. Still, I do a long commute -- but I don't have to do it.
Anyway, my point in all this was my simmering resentment of two things -- one, the lack of regulation in the mortgage industry (Btw, where were the Democrats -- seriously, guys, this is exactly what you are for. This is your bread and butter -- preventing irresponsible business oeople from distorting markets and creating boom-and-bust situations. And the negative amortization loans, and interest-only loans, distorted the hell out of the market. And also btw, this is what I mean when I say I am an economic liberal. Markets need referees. Hell, a football game consists of 22 players and SEVEN regulators to make sure the game doesn't get distorted into something unrecognizable.)
In the above link, Arnold Kling explains the obvious, which apparently, escaped lots of people (who bid up the price of houses -- hence my resentment):
As you know, I went through a home-buying exercise during the insane real-estate bubble. There was a twofold problem -- cheap Chinese money and people paying outrageous prices. I had to look around, decided that the Philadelphia suburbs had a critical mass of idiots who were paying way more than they could afford -- and bought a reasonably priced house on one acre in the Lehigh Valley. As a writer, I can, at the end of the day, work from home. Still, I do a long commute -- but I don't have to do it.
Anyway, my point in all this was my simmering resentment of two things -- one, the lack of regulation in the mortgage industry (Btw, where were the Democrats -- seriously, guys, this is exactly what you are for. This is your bread and butter -- preventing irresponsible business oeople from distorting markets and creating boom-and-bust situations. And the negative amortization loans, and interest-only loans, distorted the hell out of the market. And also btw, this is what I mean when I say I am an economic liberal. Markets need referees. Hell, a football game consists of 22 players and SEVEN regulators to make sure the game doesn't get distorted into something unrecognizable.)
In the above link, Arnold Kling explains the obvious, which apparently, escaped lots of people (who bid up the price of houses -- hence my resentment):
In my opinion, the number one priority in resolving today's mortgage crisis is to bring the housing market back to equilibrium. Equilibrium means prices that are in line with incomes, with supply and demand in balance. With equilibrium prices, houses could be readily bought and sold. When houses can be readily bought and sold, mortgage loans are backed by valid collateral. When mortgage loans are backed by valid collateral, investors will once again be able to trust securities backed by pools of mortgages. Only when we reach that point will the "subprime crisis" be behind us.
The market would self-correct in the sense that these bad investments would lose their homes, the loan companies would go out of business, and everyone who invested in mortgage-backed securities would lose their shirts. Sure, lesson learned. Problem is, in 20 years, everyone will forget the lesson and do it again, especially since different people will be involved.
I believe in markets that are as free as possible, but there still needs to be regulators who insist on common sense. I also believe that usury laws should be reinstated.
Imagine a football game where no one called holding, and cheap shots were allowed. Sooner or later, you might get an equilibrium, but in the meantime, there's gonna be a lot of bloody football players.
As a friend of mine once said, the market is not the Holy Spirit.
I do think you can hold the financial institutions at fault, since they now have multi-billion dollar write-offs to deal with. That clearly means they were lending too aggressively. They were building their own houses of cards Granted they will survive, where individuals might well end up on the street for borrowing outside of their means. But, aside from truth in lending, what regulation do you want to throw on individuals when it comes to taking risks?
I do think you can partly blame the Chinese as I think they have unfair trade practices and a government with its hand in economy in a way that is detrimental to the US. But the Chinese money is also a result of huge trade deficits and huge government debt that require the Chinese to buy up our dollars (to support the dollar we keep trying to devalue).
Blaming the Chinese doesn't solve any problems however. Controlling government debt, working through energy consumption, and trying to even trade will make for long term security of the country.
One thing that I don't think gets enough play is the way in which multi-national corporations have no need to have loyalty to the US. The security of the US is less important to them than it probably is to me or you as they are really stateless and can make money where it is to be had. Big corporations are the main reason we are on the way to a "new world order."
More importantly, are you really mad at Democrats for not regulating more? If so, you might want to consider if that makes up a small case of projection or something. Of course, sometimes you are damned if you do and damned if you don't.
I'm not really angry at the Democrats. I just wish they hadn't followed the Republicans down the road to so-called globalization (which essentially means capital crosses boundaries, but people can't).
As far as capitalism, I am of course a capitalism and believe in free markets -- if they're free and regulated in a way to be orderly.
What regulations would I propose?
Tighten credit practices -- ban high interest rates and excessive fees.
I would ban zero interest loans and negative amortization loans, and require banks to have adequate collateral for loans. In other words, all the stuff we did post-Depression until the past few years.
I'd also bring back the Glass-Steagell (sp?) Act, and other such things that discourage excessive speculation.
I don't blame the Chinese for anything except stealing intellectual property.
And I agree with you that the debt needs to get under control.
BTW. one big reason I left the Democratic Party is because Bill Clinton signed NAFTA. That was a WTF, over, kind of thing? I mean, if the Democrats are not going to protect the working class, who will? The answer is the Republicans, which is pretty dangerous.
Anyway, SuperG, I appreciate the thoughts ...
If the guy over at Classical values is correct, 'the manufacturing decline' there actually has been no manufacturing 'decline' only increased efficiencies.
I'm advocating a little more balance, not a command economy. (That is, you're saying, "it's a slippery slope," and I'm saying, "Agreed, but we still can come up with more sound regulations." I'm against excessive regulation, but also against known, speculative financial practices that hurt the economoy.
The "labor arbitrage" argument is basically that capital crosses boundaries, people can't, so corporations take advantage of the differences in wage rates by selling to people with greater purchasing power, but not by contributing to that economy because they're paying lower wages in another economy.
Another part of the equation is the idea that this purchasing power is a "commons." Global free trade exploits the commons. I freely admit that I don't know, however, the solution.
It reminds me some what of the article in either the Philly weekly or the City paper last summer about people who were going to only buy food grown or produced within 100 miles of Philadelphia and forgot to account for the fact that neither sugar or salt or several various spices like pepper are actually produced with in 100 miles of Philadelphia.
So that argument about arbitrage could be applied (and will be applied) to both states and regions within a country.
The disaster of whatever that tariff act was in the 30's ought to be a lesson to people, but I guess it isn't.
Purchasing power isn't a 'commons' and whoever came up with that is blowing smoke.