Capitalism: the worst system except for all the others
Most of us are knowledgeable about the sort of financial information we need to get along in life okay. For example, how to balance a checkbook. We know what Social Security benefits we might be receiving someday, as well as the basics of the stock market and investments. We know we’re supposed to plan for our retirement because pensions are rare these days, and that we can use credit cards to put ourselves in hock up to a point but that if we get too deeply in debt we may have to declare bankruptcy.
Sometimes even prudent people run into trouble. Illness may strike and unexpected expenses mount, or people lose their jobs and can’t sustain what they used to be able to afford. But most people know the basic principles and manage to figure out a way to have a decent enough life for themselves and their families, if their luck holds.
Right now a lot of people are feeling that all bets are off. And they don’t really trust our “experts” to know how to remedy the situation or even to act in good faith to do so. That’s part of the groundswell of antagonism to the bailout plan that members of Congress have reported receiving from their constituents.
How many people understand, truly understand, the current financial crisis and how it works? I submit that the answer is very, very few (perhaps none?), and that includes most members of Congress and even those in the financial business itself.
It’s something like climate change, a system very complex in its interacting variables, some of which initially may not seem all that important but which end up having a huge effect on outcomes.
That’s why intervention is both very tempting and very dangerous. Again, I’ll use the climate change analogy, admittedly not a perfect one. One thing both systems have in common is that there are two general schools of thought on how to handle potential problems within them: (1) to trust that the system, if left alone, is essentially self-regulating; or (2) to trust that we are able to diagnose the problem and its cause, and to figure out how to intervene successfully to fix it—or at least to improve it compared with what would happen if we left it alone.
Such interesting philosophical discussions we can, and do, have on these matters! But unfortunately the whole thing cannot remain in the realm of an abstract debate; it has to be acted on or not acted on in the real world when large problems threaten, and even more urgently when they actually arrive. The consequences of action or inaction can be equally vast and equally catastrophic, and it seems fairly clear that no one really can predict the effects of either.
Advocates of pure laissez-faire captitalism remind me of advocates of socialism (bear with me here; I haven’t lost my mind) in that they tend to believe their system would work very well if it ever were to be implemented correctly. It’s not the theory that’s wrong, you see; it’s the execution.
However, we do have before us the evidence of certain “experiments.” Socialism in the form of Communism has had a wretched history, and even milder forms of socialism don’t seem to be going all that well (talk to a sick Canadian, for example, about how long he or she has to wait for an MRI). Capitalism had its darkest hour—so far—in the 30s, and it’s no coincidence that that era also saw the heady rise of the socialist alternative.
FDR came into office at the nadir of the Depression and brought both hope and a plan and programs. But even today there is argument as to whether the remedies he implemented worked to alleviate the Depression or to prolong it, protecting us from pure market forces that would otherwise have operated more quickly and efficiently. I don’t pretend to know the answer (I’m the one who’s bad at economics, remember?), but I do know reasonable people differ, and that a similar disagreement is at the heart of the brouhaha over how to act to stem the bleeding in the current crisis.
Of course there’s a lot more to it. Politics, for example. Nancy Pelosi would love to get the American people to swallow her current Big Lie that it’s all the fault of Bush, and that the heroic Democrats have been bucking that tide and trying to regulate. Horse manure; Fannie and Freddie and their Congressional mandate to make bad loans to bring “affordable” homes to millions who couldn’t afford them was hardly an example of unbridled market forces at work. The push for regulation of said entities was actually a Republican project. On the other hand, if the twelve Republicans who changed their votes to “no” on the bailout bill really did so because Pelosi called them nasty names, then they are guilty of remarkable stupidity.
I suspect the real reason those votes were changed (and that so many Democrats voted against the bailout as well) was that people are distrustful of the bill itself, and in disagreement over the proper remedy. As far as members of Congress go, the bottom line for way too many is preserving their own seats there.
Once the House Republicans saw the Democrats on Barney Frank’s committee voting against the measure, they knew something was up. Then came Pelosi’s execrable rant and missive, and it was a done deal. She had successfully pulled off something truly Machievellian – and the fact that much of the media and the country cannot see this causes me to attempt to pull out the few remaining hairs on the top of my head. This was all designed to put the blame on the Republicans from the get-go.
Right now, the mark to market rule depresses the value of some banks’ assets, thereby reducing its capital. If the capital falls below a certain percentage of assets, then by law the bank is forbidden to make loans. But this does not affect every bank in the country. And very few banks actually hold the real Fannie Mae and Freddie Mac mortgages. They sell them to the government afterwards, and then the government issues bonds on the open market, securitizing these loans.
Very few right now know what value to assign this paper. It even is affecting how perfectly solvent financial institutions perceive the kind of environment we are in, and this means many are becoming risk-averse. It means some businesses can’t have their lines of credit sustained, which means they have to go to 100% self financing their working capital needs. It means that to get to 100% self financing they have to contract. Loss of jobs. New lines of business or products don’t come to market.
I’m in the middle in terms of my thinking. But, more specifically, I advocate that the government low-income housing programs put into place more sustainable underwriting standards. Without this, eventually the whole program gets in trouble again and holds our financial system and economy hostage once again.
I am recently intrigued by the Cloward-Piven Crisis Strategy which might underlay a lot of the Left’s actions on our economy over the long run. Look it up, neo. Even Obama is part of the network which (there is actually an organizational chart of how this works) extends its tentacles into all facets of our society.
Neo,
Twelve Democrats in Chris Dodd’s own committee voted no for this bill yesterday.
If Chris Dodd talked to his own committee members and asked them to vote yes it could’ve passed.
The media spin works because they are working together with the Democrats. John Kerry was NAILED yesterday by O’Reilly on this very point. Kerry wanted to blame 12 Republicans as did Barney Frank with is, “I’ll talk super nice to them” comment.
Pelosi’s comments sure weren’t “helpful” and diversion is a tactic that they are using at this point to shift responsibility for those comments away from her.
It would be big of her to just say sorry.
If even two Republicans changed their votes because of those comments I’d be surprised.
Why?
Because if you watch C-SPAN like I do you see Nancy makes those kinds of blame Republican and blame Bush comments EVERY day!
She is partisan by nature. She couldn’t take 10 minutes off of that to work together with Republicans.
They know the deal because they work with her.
I’m sort of glad the bills wasn’t passed.
JP Morgan and Citigroup are buying bargains of banks at this moment. Buy low and sell high.
Investors in Wamu or Wachovia are not happy if they weren’t diversified but there are lessons to go around here for people:
1) Diversify
2) Do not buy loans that have teaser rates that will only go up with nothing down and at your limit of affordibility
3) Lenders will not succeed in these kinds of tactics again and we should not ‘reward’ companies that took part with bailouts.
Our economy IS resilient and we will come out of this with people choosing who gets what resources (the definition of capitalism).
The best way for the government to help actually is to lower the capital gains tax rates very low to get capital flowing so that people CAN choose who gets what resources.
Also business tax rates should be lowered.
Also energy taxes should be lowered.
And if government has to reduce spending because revenues drop a little in the interim – – – then consider that the cost of the bailout !!!
🙂
Baklava,
Much as I agree with your suggestions, it will never come to pass because of who is going to occupy the White House and control Congress in January. We are looking at at least four years of crisis and disaster. Hopefully only four.
The female vote is going to screw this country royally. I wish more of them would vote the way my wife and two sisters are going to vote.
When will they ever learn?
🙂 I have more faith!
We need the grown ups in Congress and the White House now !
I have high hopes that McCain / Palin will have coat tails and a change of “leadership” comes to Washington.
1) no more earmarks – yes I know that is less than 1% of the budget
2) much less of an increase in spending than Obama’s proposed large increases.
3) the bully pulpit will shed light on what got us into this mess in the first place – (consumers and lenders alike)
4) Lower capital gains taxes – on McCain’s website
5) Lower business taxes – on his website
6) Increase ‘every’ possible source of energy
I don’t see evidence that the female vote will do what you say. Additionally, I see great excitement and large crowds of supporters for McCain / Palin.
We need a positive attitude from you and everyone. This is our time. We have a calling to keep this nation prosperous and able to defend ourselves.
One of my deepest concerns is that the next time John McCain and Barack Obama meet to debate, McCain will not be able to cogently explain to people exactly what is happening and why we need to be patient. Any plan to fix the problem must address the extremely lax lending standards at the heart of the 1995 mandate to interpret the 1977 Community Reinvestment Act liberally and expansively. Also, there are other ways to tackle the problem of affordable housing in the U.S. I’ve long been an advocate of the idea that we need to use both private and government efforts to expand the supply of more affordable RENTAL housing. Let me explain.
Putting 20% down, having a good credit history, and reliable employment stabilize the mortgage market and housing industry. That 20% down protects both the lender and the borrower from extreme downward valuations of the home. To get to that 20% down payment takes people years of saving. I speak from personal experience of this, as my wife and I went that route. We could have done a VA Loan with no money down, but we chose to get a traditional, prime rate, 30 year fixed rate mortgage. We rented for years. Fortunately, our income, between the two of us, enabled us to save plenty so we could put 20% down and buy all our appliances not on credit.
But the cost of rental housing is high in this country. In many places for a lot of people it is 50% of their take home pay. When my parents first married, rental housing cost them 1/4 of the take home pay. My Dad was able to save up enough for a down payment in five years. They bought a fixer-upper house. Things were tight, but we did it.
Owning your own home is not a right. You have to earn it, but also we have to make it so that people have opportunity to do this, which means the real problem has always been affordable rental housing, of which there is not enough supply. Now, if this were fixed and people still cannot do it (because they don’t save money), then it’s their fault. Not ours.
Make this country a land of liberty and opportunity. Not a land of entitlement. Give people a hand up so they can help themselves, not make them dependent upon the government for everything.
Many people who borrowed under Freddie Mac and Fannie Mae had no business doing so. But I don’t want to be a hard ass and hard hearted towards the poor. Let’s have better lending standards and also get private and government interests together to go right at the heart of the problem. Make it economically feasible for people to invest in apartments and other multi-family dwellings. Increase the supply to bring rental costs more in line with where they were when my parents were young and starting out.
Neo, your analogue of the climate system and financial market is flawed (as, admittedly, all analogues are). For free market theory conditions of efficent self-regulation are known, and this is not a “philosophy”, but a mathematically rigorous theory. It is not applicable to financial markets, though, because rational customer choice in crisis situation is taking money out of the bank, so here we have obviously instable system that can not cure itself. Money leakage from financial system is alike profuse haemorrhage, which need to be stopped by external measures, including infusion of money into system and temporal cancelling of bank operations. If these mesures are not applied immediately, the full collapse is inevitable.
FredHjr wrote, “Any plan to fix the problem must address the extremely lax lending standards at the heart of the 1995 mandate to interpret the 1977 Community Reinvestment Act liberally and expansively.”
I agree.
On your next point, I am here in Sacramento. There are communities all around here like the people’s republic of Davis who have stopped new developments. Home prices have artificially risen in Davis because of this lack of supply (lack of building there).
So while the left leaning Davis supervisors make their community unaffordable – lower income people have to reside elsewhere. There is no right for us all to have affordable housing in beautiful climates and areas like San Francisco.
There are plenty of affordable areas to ‘rent’. It may not be where people’s parents lived but then again people can live with their parents until they save enough and get enough education if that’s what it takes.
To take from some Americans who make ‘good’ choices to give to other Americans who continue to make ‘poor’ choices is a reward program which subsidizes stupidity.
Mind you – I am very caring and compassionate.
It would STRENGTHEN our safety net programs for the elderly and non-able bodied if we stopped diluting the safety net programs with spending for so many other things. That other spending takes away from our ability to protect this nation, provide for veterans, elderly and non-able bodied and invest in our children.
This government simply should not get involved to the extent it has with housing, health care, energy, etc. This government has removed market forces, created artificially high prices with it’s involvement in housing, health care and energy and then acts like it’ll step in to ‘fix’ the problems it has created……
Go John GO ! 🙂
Sergey says, “which need to be stopped by external measures”
I agree.
But what are the measures.
I suggested the ones above because I think they would inspire confidence, a release of capital, investment, opportunity to succeed and realize the success in business, etc.
There are times when large reductions in fees, taxes, burden should be enacted. It doesn’t always have to be government choosing who gets what resources. It can be people choosing who gets what resources.
I do realize that some specific areas may need government spending if the area is very economically depressed.
Baklava,
I would compile a study done extensively around the country to find out why there is an artificial shortage of affordable rental housing. And address the causes of that. I have a niece who just recently took a job at UC Davis in the veterinary medical school (her father and I counseled her to keep her conservative views deeply buried) and she noticed how outrageous rents were in the area. And everyone knows about what the Bay Area is like in terms of housing. BTW, I live in the southern rim of central New Hampshire and housing is not cheap here. But it’s a lot more affordable than California is.
I hope you people do realise we have time left in this election for at least four more nation threatening crisisees. Basically it appears to be a game of musical chairs where your team only need be on the upswing come November 4th.
I’ve always thought a good spine stiffener for the House would be modest term limits (6 terms) plus a decent severance package (2 years ). The current system really is set up to allow only lawyers (for which both campaigning and service are career enhancement) or secure big city machine hacks to enter.
For anyone else to run would require allowing at least 2+ years away from their current career. You would need to be reeelected to avoid a big loss of earning.
Putting 20% down, having a good credit history, and reliable employment stabilize the mortgage market and housing industry.
How many years ago was that, Fred? That would doom the mortgage/housing industry:
It’s a different world now. Look at the cost of housing compared to real wage today, now add in full tax burden and FICA, and you will see that is an impossibility for Gen-X and later generations….
To get to that 20% down payment takes people years of saving.
That’s an impossibility with median home prices vs median wages now.
I speak from personal experience of this, as my wife and I went that route. We could have done a VA Loan with no money down, but we chose to get a traditional, prime rate, 30 year fixed rate mortgage.
It’s a different world now…. If you work in Tech, or defense, you can expect to be laid off multiple times, how many times have you been laid off?
We rented for years. Fortunately, our income, between the two of us…
What if your wife doesn’t work and you both don’t want her to work while you have young children? Then what?
How will you both save up 20% of a 200K home and afford day-care while she works? Oh, and contribute to yours and hers 401k’s ‘cuz there are no pensions now? Now what?
There simply aren’t enough young people able to pay current mortgages for current housing to keep the mortgage business afloat at the baby-boomer level
Gray,
Make different personal choices. Nobody owes anybody else anything.
We do owe compassion to children, elderly and non-able bodied.
You can rent if you can’t buy. Risk and subprime loans is NOT the solution to the problems you state. Risk is the cause of the situation we are in – and the subsequent call for a taxpayer bailout….
You wrote, “There simply aren’t enough young people able to pay current mortgages for current housing to keep the mortgage business afloat at the baby-boomer level”
This kind of statement lends me to know that you don’t understand supply and demand.
WE consumers drove prices up. We consumers would have lower prices if there was less demand. There will be ENOUGH mortgage lenders to supply the demand of borrowing. Why does there need to be MORE mortgage lending than demand????
The people employed in that sector do not need to be there for life bud ! 🙂
To get the insight of an expert on economics who is a libertarian (reluctantly) voting for Obama and who believes some form of bailout and regulation is needed here, check out Megan McArdle’s blog — she’s had a lot of posts on this, and has probably taken the most balanced approach of anyone I’ve seen.
It’s all above my head, but she makes as much sense to me as anyone.
Gray,
Make different personal choices. Nobody owes anybody else anything.
Of course not. I don’t have to have a wife or kids, and rent indefinitely as a metrosexual–then America becomes Europe both economically and culturally….
You can rent if you can’t buy. Risk and subprime loans is NOT the solution to the problems you state. Risk is the cause of the situation we are in – and the subsequent call for a taxpayer bailout….
Right, but we were talking in terms of what was good for the mortgage industry.
You wrote, “There simply aren’t enough young people able to pay current mortgages for current housing to keep the mortgage business afloat at the baby-boomer level”
This kind of statement lends me to know that you don’t understand supply and demand.
WE consumers drove prices up. We consumers would have lower prices if there was less demand.
That statement leads me to think you don’t understand financial markets. The demand wasn’t for borrowing, the demand was for Rate of Return on Investments!
Financial markets exist to match up older people with assets to invest with younger people with time and ideas. Rate of return on the invested assets is based on risk. With less young people with time and ideas, to get the same rate of return retirees demand, the mortgage industry must deliver more borrowers–now with more risk.
There will be ENOUGH mortgage lenders to supply the demand of borrowing. Why does there need to be MORE mortgage lending than demand????
To allow the boomers to retire on their invested assets.
The people employed in that sector do not need to be there for life bud !
No, but what happens when the boomers can’t make a rate of return to stay retired, get too old to work and their aren’t enough younger people to support their SS and other entitlements?
Then What is to be Done?
their = there….
Gray asked, “No, but what happens when the boomers can’t make a rate of return to stay retired,”
Spend less during life. Invest in less riskier investments. Diversify.
You present problems where there is COMMON SENSE answers.
The value of homes increasing nationally at 200% was NOT sustainable and NOT a PLAN for “Retirement” as you seem to suggest.
GEEZ ! 🙂
As you get older in life you should have most of your money in CD’s, government bonds and the like. Expecting a non-diversified asset like your home to be your retirement plan is the wrong approach.
Spend less during life. Invest in less riskier investments. Diversify.
OK, the boomers didn’t do that, now what?
The value of homes increasing nationally at 200% was NOT sustainable and NOT a PLAN for “Retirement” as you seem to suggest.
True, but that is what our economy was based on and what impecunious boomers were counting on.
As you get older in life you should have most of your money in CD’s, government bonds and the like. Expecting a non-diversified asset like your home to be your retirement plan is the wrong approach.
OK, that’s what I’m doing. A majority of boomers didn’t do that. Now what.
You saw all the dopes who got wiped out when Enron tanked and all of their retirement was there.
BTW, I’m nowhere near retirement: 25–30 years from now.
I’m happy to see the market tank so I can continue to dollar-cost-average into it for my 401k. I am diversified, but I invest more aggressively than some one nearing retirement.
I don’t really live in your world. Your solutions are correct, but not right for me now. I’m happy to see no bail-out!
Whatever the root causes of the bill’s failure were, I’m very glad it didn’t pass. An authoritarian financial takeover is not what we need. We need to destroy and then rebuild our failed financial system, not make it even worse and legitimize it.
I’m ambivalent on the bailout plan. If they can conjure up something meaningful that will not result in simply more pain and suffering, then I’m happy with that. Unfortunately, effective and non-bloated legislation is not the forte of democracies, so I’m not holding out too much hope.
Ronald Hayden: I peruse Megan McArdle’s blog here and there, and I think she’s got a level head. Which is especially important at a time like this.
Gray wrote, “OK, the boomers didn’t do that, now what?”
They have programs. Do not dilute safety net programs for the elderly and non-able bodied with more programs during life and/or advising people to take risky investments later in life. Medicare, Prescription drugs, social security on top of what they saved. Were you proposing a new program or is personal responsibility during life not ‘cool’?
Gray wrote, “True, but that is what our economy was based on and what impecunious boomers were counting on.”
If they were, they weren’t following the advice of seasoned financial advisors. They might have to work a few more years and retire at 57 instead of 54 (being funny). Again, was there more than savings + Social Security + savings + Medicare + savings that you were recommending as a government program for retirement or during life?
Gray wrote, “OK, that’s what I’m doing. A majority of boomers didn’t do that. Now what.
Turn off the big TV, find a friend to live with and cohabitate, and read the above that I wrote. 🙂
Gray wrote, “You saw all the dopes who got wiped out when Enron tanked and all of their retirement was there.”
Diversify. Diversify. Diversify.
The best thing about the PEOPLE choosing who gets what resources (definition of capitalism) is the lessons are learned and nobody is to blame but ourselves… Companies will fail. Do not put your eggs in one basket. Period. Don’t be risky people !!! 🙂
Gray, I’m in the same boat as you–I only wish I could do more than my current piddling contributions. There will probably never again in my lifetime be such a great time to buy as we are currently in. All I can think about every day is how I should get a second job and put all those earnings into the market.
On a different note, I second David Moelling’s motion of term limits…
The chavette* … sorry, young lady… above is the daughter of Omar Bakri Mohammed, the founder of al-Muhajiroon in the UK and other idiotic groups of spotty oiks in turbans who prance around with banners calling for beheadings.
Just wonder if there is a real crisis in US what about this big sale out in this HARD time US economy?
Is it a real crisis?
U.S., Israel seal deal for missile radar defense system.
Defense Department Looks to Sell
Joint Strike Fighters to Israel
“Gray” composed a critique of my approval of the traditional route to getting your first home. It was a cynical, immoral lambasting of what I think is the right way to go about it. It mocks thrift and sound financial practice. It says, “Grab all you can on everyone else’s dime, because I’m gonna screw you before you screw me!” I don’t live in Californicate, so what our home cost is probably a third of what it would have cost in Californicate back in 1999. Our home is a cape with 1800 square feet living space. It cost us $120K back in 1999. We put the $24K down and had been saving since 1988 when we got married. I was in graduate school then. Eventually I got into my currently good paying job as an analyst. We bought a home that cost 50K less than we qualified for, and we did it that way because of two reasons.
One, we want to leave a margin of safety by having lower, rather than higher monthly payments. In New Hampshire this is essential because property taxes are extremely high and keep going higher every year.
Two, we actually do not view our home as our primary investment. We invest a lot of money in stocks and mutual funds for retirement. BTW, I don’t mind market pull backs like this. Dollar cost averaging. Buy good stuff cheap. Diversification. Etc. I do my own research, which dovetails with my current occupation as a stock analyst.
I would never buy a home with no money down. I think that kind of financing puts the economy and the housing market at greater risk. It also leverages the market too much, making your home’s value more vulnerable to greater swings in value in both directions. I prefer slow and steady.
In recent years it was the flippers and the no money down people who pushed the housing market into dangerous and unsustainable territory. The same kind of momentum type players were doing this in housing who were doing it in the tech and dot.com bubble in the late nineties.
Housing was more affordable in the 20% down days more than twenty years ago.
I like my remedy a lot more than yours, “Gray.”
Baklava – You made some good points – but I need to point out that in your first comment post here you said 12 members of Dodd’s committee voted against it. Well, I think you meant Barney Frank’s committee since only the house voted and Dodd is the chairman of the senate committee on banking. that being said apparently Pelosi told 16 members of the freshman class who are facing stringent re-election contests that they “could” vote no on the bill so they could take that back to their constituents.
Let’s face it – if the democrats wanted to pass this bill they had plenty of votes on their own and no matter what Pelosi or Frank or any of them say – there is no way they can blame the republicans – and the American people (well most of them anyway) know it.
Thanks Dane !
The media continues on though… People I work with who watched MSNBC last night said after listening to the news last night, “I could never vote for McCain now”.
That’s what they do.
they tend to believe their system would work very well if it ever were to be implemented correctly.
what they tend to mean is if we removed the controls we think are part of it that we wont remove. so whatever we do now, its still not anything near laissez-faire. its over regulated and strangled with arcane regulations and more.
unfortunately the whole thing cannot remain in the realm of an abstract debate; it has to be acted on or not acted on in the real world when large problems threaten
well, the truth is that capitalism wont care either way. it will just act differently. the depression was made worse and extended by state policies. (cohen in daily news claims the depression created the totalitarians, which is absurd given when they took power (except maybe hitler))
the best way i can explain it is that this is a self organizing system. since we all act as free and competent agents, the system reorganizes based on what we each do whats best for ourselves. put whatever variance you want on it, we are going to look out mostly after ourselves on the downs, be more generous on the ups.
the system in normal operation seeks lowest energy states. this is what corrections and other shifts are. the network shifting to occupy a lower state, or some flow pumping something up.
the point is that its normal state is to seek that more stable area no matter what. if you think of now as a time of a really heavy shift because behavior was modified from the norm by rules created by the state.
some time in the future, it will enter a stable state, and forward progress will resume. in this case, having spit out the whole of the crap tha was built around bad practice (capitalism it seems is self cleaning. not nice to us as people, but ulitmately good for the body of the economy)
what we want is for the beast to move from the unstable state to the more stable state we prefer later.
anything that the state may do that is artificial will tune the beast to a wrong stable state, and if that change cant be maintained it will THEN start to proceed to a stable state it was seeking before the twiddling.
so in essence, not doing anything is the shortest line to recovery the way a line is the shortest route between two points. when the state twiddles it changes the landscape artificially and the system then tries to seek a false minima. when they let go, it snaps again. if they do succeed in stabilizing it, its just storing its energy like a spring, as that stable point is not the same stable point the system would find without the external assistance.
we are better off if we do nothing to help things. everything else is a pipe dream that puts off ejecting the bad from the system that cant take it.
the best second thing might be to remove the rules that created this (they havent yet!), and remove the change in book keeping as an arbitrary bad rule that has no bearing on how things work in the real world.
there is no way to handle the problem without creating a new beuracracy that would seek to perpetuate its existence… so somoene may get the idea to use this as a redistributive system rather than recovery system and disband it.
the cure may be worse than the desease given the size and the desire for oversite (and the years the thing would operate).
“Gray” composed a critique of my approval of the traditional route to getting your first home. It was a cynical, immoral lambasting of what I think is the right way to go about it. It mocks thrift and sound financial practice.
You’re kidding, right? Immoral lambasting?
Does ‘the traditional route’ require a working spouse? Not so ‘traditional’, is it?
BTW, I don’t mind market pull backs like this. Dollar cost averaging. Buy good stuff cheap. Diversification. Etc. I do my own research, which dovetails with my current occupation as a stock analyst.
Precisely what I said in the rest of my posts…..
It also leverages the market too much, making your home’s value more vulnerable to greater swings in value in both directions.
Yes, it did….
I prefer slow and steady.
The market doesn’t care for your preferences. I prefer my wife not to work. The market doesn’t care about that either…..
In recent years it was the flippers and the no money down people who pushed the housing market into dangerous and unsustainable territory.
Yes, and that is what has made a mockery of thrift and sound financial practices, not me.
Housing was more affordable in the 20% down days more than twenty years ago.
Yeah, those days are over, now what?
I like my remedy a lot more than yours, “Gray.”
I didn’t offer a remedy, other than urging you to quit longing for the past and look at the market and economy as it is rather than how you prefer it.
‘Sides, saying I ‘mock thrift and sound financial practices’ is a laugh:
My family and I live in a 1500 sq ft adobe house my father built that I grew up in on 5 acres of unsubdivided land in the hottest land market in the US. I won’t sell even though it’s worth a fortune ‘cuz I could never afford anything like it, and neither could you nowadays.
Now that I’ve got a new kid, I’m adding on to it, out of adobe, on my own, on weekends and after work, when I don’t have National Guard drill.
I ride a motorcycle to save gas money; I pay off my credit cards every month and I own my truck and car….
I’m surrounded by multimillion dollar “McMansions” owned by wretched childless boomer couples who sold a f’in bungalow in The Bay Area for 2.1 mil and moved here to pester me.
We are the youngest couple here, where I grew up–and I’m not that young! I’m just trying to stay ahead of the rising property taxes and when I finish my addition, I’m going to get boned:
If I can’t afford the taxes ‘cuz I added on to the house I grew up in ‘cuz I have kids, I’m going to dig in and they are going to have to go Waco on me to get me out.
God help me, I work in defense, on a program Barry Obama said he would cancel first thing when he gets elected. It’s nothing new, I’ve worked on four different defense programs that were cancelled under Clinton.
When I look around at the million dollar McMansions (fake adobe, made out of crackerboard), I wonder who can afford those monstrosities; as it turns out: nobody.
My consolation is that after the childless boomer newcomers drop dead, I will live in a ghost town again and maybe the kids I grew up with can come back in their dotage.
Cynical? Mocking Thrift and sound financial practices? I have two words for you: you can guess what they are…
On the Cloward-Piven Crisis Strategy….Go To: http://www.americanthinker.com/2008/09/barack_obama_and_the_strategy.html
As usual, Vamderleun gets it and serves it right back:
http://americandigest.org/mt-archives/the_americans/how_the_final_f.php
See especially the comment by “Viktor Silo” who makes a mockery of thrift and sound financial practices:
“What is driving the modern real estate market? In my opinion, it started with the advent of the two income family. They simply bid up the price of homes. People of my father’s generation and, to a certain extent, my generation, made a bundle selling our homes to these young moderns. We weren’t entitled to this money. We didn’t get it because of hard work or risk taking. Still, who is going to turn down the dough?”
That’s what I’m saying….
Vanderleun!
The consequences of action or inaction can be equally vast and equally catastrophic, and it seems fairly clear that no one really can predict the effects of either.
America Loses Its Dominant Economic Role
Gray, are you angry at me because I advocate an old fashioned way of approaching home ownership? I mean, it was your mockery of my experience and opinion that led me to interpret the fact that there is some anger and cynicism there. And I’m a younger Boomer, born in ’55, who had nothing to do with the kinds of rape of the nation that the older boomers have done. Unlike some – and in no way to I imply that this applies to you – I do not live beyond my means.
But there was definitely something in my original post that ticked you off. And I fed it back at you. You didn’t like it one bit. If you pull out a gun, don’t be surprised that the other guy draws his too.
I would further add that in no way has any aspect of my existence made your life more miserable, Gray. In fact, in many ways I got a late start in life. When I graduated from high school in 1973 the older boomers already scooped up most the few jobs that were being created in a stagnant economy. Ditto for when I got out of the Army in 1976 and started college. I graduated from college in 1982 – right smack dab in the middle of a very bad recession. Unemployment in double digits. I already had plans to enter the Jesuit seminary anyway, which I did in August of 1983. I left the Jesuits in 1986 and had no skills. Only a degree in economics. I had a hard time finding a job because ex-seminarians are not exactly a hot commodity in the business world. So, I enrolled in the MBA program at Boston College. Got married in ’88 and got my degree in early 1991, right smack dab in the middle of a severe regional recession. It took me awhile to finally get a foot in the door in the investments field as an analyst. So, I had to struggle to get somewhere. I’m not a boomer who hogged the wealth and screwed you over.
And it is zero-sum thinking that a lot of people get caught up in, which makes them resentful of the way they did not move along as expected. Look, I could be resentful of the hard time I had. No, I never was laid off from a job, except for a construction job I had during the summer when I was in college.
What bids up the price of housing and makes it less affordable is exactly the practice of zero down financing. My suggestion to increase the supply of rental housing is a better way to alleviate the problem. And the zero down financing tends to encourage flipping houses and the whole bidding upwards of the price of the homes.
On the subject of explaining the economy:
Agree or disagree: The financial system is to the economy as a whole what the circulatory system is to the body?
I like the lymphatic system.. it’s more mucusy
“Agree or disagree: The financial system is to the economy as a whole what the circulatory system is to the body?”
Economy is circulation of money through society and its institutions. Financial system is a specialised subsystem which issue money, deposit them, regulate this circulation, so it is better to compare it with red marrow, spleen and liver. Trade and money circulation predate forming of banks or stock exchanges by millenia.
Development of financial system signifies the most advanced stage of capitalism. But, as it often occures in bilogical evolution, the most recent and advanced organs are the least reliable, being themselves not fully formed, least tested and mature.
Another view worth to consider:
http://spectator.org/dsp_article.asp?art_id=13974
The point of the comparison is to provide an explanation for Everyman of why Wall Street is not the enemy, and why the economy is in danger right now. Isn’t it credit, rather than money, that’s at issue now?
There are 2 people who have done a fabulous job of proving that they have no idea what is going on or what to do about it: Ben Bernanke and Hank Paulson.
The Paulson plan would be a bad joke except that he means – he really does plan to give $1 Trillion to the Wall Street swindlers and pigmen in a pretense of helping the economy.
See here for
See here for
See here for the great
See here for the great
THIS TIME WITH WORKING LINKS.
There are 2 people who have done a fabulous job of proving that they have no idea what is going on or what to do about it: Ben Bernanke and Hank Paulson.
The Paulson plan would be a bad joke except that he means – he really does plan to give $1 Trillion to the Wall Street swindlers and pigmen in a pretense of helping the economy.
See here for my opinion on the House Vote
See here for my general opinion of Paulson
See here for the great Right Wing Myth on GSEs
See here for the great Right Wing Myth on the CRA
Gray said:
There simply aren’t enough young people able to pay current mortgages for current housing to keep the mortgage business afloat at the baby-boomer level
Which is why median house prices will have to fall to the historic level of about 2.8 times median household income. It will hurt, but it is the only way to end up with a stable, functional housing market now that the funny money that pushed up house prices so much after 2004 is gone.
Fredhjr,
And it is zero-sum thinking that a lot of people get caught up in,
I very much agree with what you are saying. marxist socialism is a zero sum look at the world that imagines finites all over the place that actually dont exist once progress is made adn there is enough wealth to make such things possible.
if one looks at how an economy progresses, incredibly expensive things become cheaper over time. so cell phones requireing satellites, and huge batteries, costed a bundle when they first came out and were rediculously large while being called “portable”. now you can get a phone for 1/10,000th the cost of the first ones. same is true of computers, and so forth.
marxism with its stagnant luditte view (it calls progress), cant anticipate that at each new level new things appear that before were way too expensive to do.
bill gates havig so much sets the span. the shorter this span, the fewer places there are to occupy… and since the span starts from nothing, the shorter the span the more lower places there are to occupy and the fewer higher places that can be occupied.
remember things tend to get cheaper, so if there are more higher places in a larger span, then there are more people with more, and things that were expensive are now cheaper.
keep this process up and the ills of today fade away over time. not enough resources on earth, the oort cloud has mroe than we could ever use…
processes too poluting to have on earth, do them in space, no problem. nuclear waste will never be held for 10,000 years, thats a scare story. within 200 we will be sending the crap to the sun…
that is if we are allowed to continue progressing.
the old marxists at the top, with their non inteligent intelligentsia, were and are working on outdated principals. they are working to create a slave population taht is expendilble to uplift the leaders as a special class… they will mate based on good choices, and the things they make us despise, and we on the bottom will mate haphazardly, averaging out ourselves and dividing the speices into an upper and lower caste fixed by genetics (darwin).
of course this kind of idea came about way before the dream of technology capable of creating robots. so today, capitalism makes unecessary the slave caste to enable the ruling calss of a feudal beuracracy. soon everyone will have such productive capacity just as you are typing on a machine that is more powerful thatn the more expensive one of years ago that only a government could make and use.
here is a piece that kind of examines this in a fast loose way trying to spur a bit of debate in how our view is skewed by being so limited.
Study reveals an oily diet for subsurface life
blogwonks.com/2008/10/01/study-reveals-an-oily-diet-for-subsurface-life/
the economy is not zero sum, its just limited growth… you cant rush it faster than it will go.
techenically the CRA and other policies are attempting to ahve what will be easy tomorrow as something today… that by trying to do things too early we speed progress along faster. again, the marxist materialist kind of thinking…
however, we cant do that. in 200 years, fabrication and such will make living a lot easier and afordable, even for the poor. despite the grousing, more people can afford their own property and luxyuries today than ever before!!! (And only where capitalism is).
moving to space will create even more space, adn the fact that as we progress, we self limit biology as there is no more the urgency to over procreate to insure enough in the next generation exist.
rather than be visionaires, and arbiers of progress, these are people who are telling you that holding still is the fastest progress… that running backwards is going forwards faster, and so forth.
like the devil of literature, they are a peversion of opposites and confusion, selling black as white, evil as good, peace as war, and so forth…
good commentary fred!
Credit and money are interlinked. When credit is easy people can live beyond ther means. This props up prices, and money can not do their work: curb the spending. Effect is the same as enlarging amount of money in circulation without corresponding rise of amount of customer goods, that is, inflation. In this case, propping up housing prices (creation of bubble).
The past 5 or 6 years of national politics is its own bubble, remarkably analogous to the mortgage bubble. Except that the consequences will be much, much worse. Obama, Pelosi et al are the Fannie Maes and Lehmans, McCain the Bernanke. The electorate is the subprime borrower and the buyer of securitized mortgages rolled into one.
Y’all ain’t seen nothing yet! There is no bailout option with this bubble. Uncle Sam RIP.
There’s an economist that has been predicting this for years.
He says this about the Bailout:
A few weeks ago he said
The U.S. dollar has not been backed by gold since 1933. This crisis will bring to mind is the US dollar will stand as world Currency especially with petrol pay prices?
Pingback:The Thunder Run
Truth… it was backed by other things till nixon i believe… (though i might have the president wrong i didnt check so forgive if i do)
Never forget that the Spanish proved, through determined effort from 1600 until 1900, that you can have inflation in a gold currency.
In the end, what matters is the ability of the economy to produce. That requires a number of things, including freedom to go into business, make business decisions, respond to the marketplace, and keep most of your earnings. (The Democratic Party stands against every one of these with regulation, taxation for social programs, control by environmentalists, NIMBYs, etc., and excesses in both litigation and trade union power.) It also requires a financial system that can provide credit and equity investment, and the Dems have been acting to destroy those as well.
For someone who claims to be “bad at economics” you are doing
Sorry about that. Again:
For someone who claims to be “bad at economics” you are doing very well. Terrific.
As a follow-up to “capitalism being the worst system except for all the other systems”, I’m reminded of a college history instructor who asked the class, “[w]hat happened in 1776?” Every knew not to touch that question. After what seemed like an inteminable pause, one student blurted the answer everyone knew to avoid. The instructor said, “[t]hat was nothing. What happened in 1776 was the publication of Adam Smith’s ‘Wealth of Nations.'”
let wall street take it on the chin I would have too, wouldn’t u?
Heeeeeeyyyy, wait a minute….. that massive redistribution of wealth everyone seems to be afraid of……that just happened, didn’t it………
TARP, AKA was the Bill on TROUBLED ASSET Relief Program, on some $ 700 billion bail out.
But, the banks got shoved out to ’em over $ 10 trillion in DEALS from the Federal Reserve, a matter that is not AOKed by the President or Congress.
Yet, little is cogent in the Press on such matters.
The redistribution in Wealth was too those who did a SHAKE down to the entire Financial system from the DEBACLES of 2008.
If it was free enterprise, the crooked banks would not have gotten a DIME., or the badly run banks, or the free loading banks, or the sub prime jerks, or the derivative gamblers.
Instead, the SHAKE down has resulted in a GIANT Ponzi racket that makes Bernie Madoff look like Mother Terresa, or the EX President of the Boy Scouts.
Is what Madoff did, called Free enterprise ?
Ironic, Romney is really underscoring the Free part.