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Here is a nice little synopsis of a much larger situation in the U.S. economy, taken from an L.A. Times reader's comments about the present slump in the national housing market. I have been arguing this thesis on this board for some time.
Los Angeles Times: LA Land Blog : The rapidly changing landscape of the Los Angeles real estate market (http://latimesblogs.latimes.com/laland/2007/09/why-sellers-won.html - broken link)
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One of my brothers was caught in the price crash in East Boston, where the market had been distorted by fraud perpetrated by Dime Savings Bank. The techniques were similar to what we've seen all over the United States during the George W. years: No-doc loans and conspiracies among phony bidders and appraisers and agents and mortgage brokers.
In the late '80s he and some friends paid $180,000 for a triple decker. A couple years later there were hardly any bidders. When one did appear, they'd offer $100,000 or $110,000. My brother and his friends decided to stay put, and by the mind-'90s the market had recovered enough so that he could sell the place for break-even.
For a while, I think you'll see a bunch of people doing what my brother did: just holding on, figuring that the market will come back. This time around, though, we're got a deeper and wider set of problems. In the early '90s, there were only a few markets in the sort of distress that faced my brother. Now, most of the country is overbuilt and overpriced, and the fraud has been rampant and national.
I agree with the one economist, Schiller, who's been predicting that house prices will be cut in half. If you do the rent vs. buy equation (rational house price = 150-170x month rent) you can see just how overpriced things have become. By that yardstick, my "$850,000 house" in Seattle is treally a $350,000 house on a good day.
The big question in mind is how the political system will deal with all of this. We can see the Federal Reserve getting cranked up to hyperinflate the debt away, which is going to be just as much of a disaster as the deflationary alternative.
Meanwhile, no one in power is looking at the real issues, which are rampant criminality and a huge shift of economic returns from labor to capital. In the past 25 years we've seen average corporate return on equity go from 11-12% to 17-18%. This has sucked purchasing power out of the middle class, which has responded by putting their living expenses onto their credit cards and sucking phantom equity out of their houses.
This has been a game of musical chairs, and now it's going to stop. "May you live in interesting times," as the Chinese say. It's the 1920s all over again, and it won't be pretty.
//
Here is a nice little synopsis of a much larger situation in the U.S. economy, taken from an L.A. Times reader's comments about the present slump in the national housing market. I have been arguing this thesis on this board for some time.
Los Angeles Times: LA Land Blog : The rapidly changing landscape of the Los Angeles real estate market (http://latimesblogs.latimes.com/laland/2007/09/why-sellers-won.html - broken link)
//
One of my brothers was caught in the price crash in East Boston, where the market had been distorted by fraud perpetrated by Dime Savings Bank. The techniques were similar to what we've seen all over the United States during the George W. years: No-doc loans and conspiracies among phony bidders and appraisers and agents and mortgage brokers.
In the late '80s he and some friends paid $180,000 for a triple decker. A couple years later there were hardly any bidders. When one did appear, they'd offer $100,000 or $110,000. My brother and his friends decided to stay put, and by the mind-'90s the market had recovered enough so that he could sell the place for break-even.
For a while, I think you'll see a bunch of people doing what my brother did: just holding on, figuring that the market will come back. This time around, though, we're got a deeper and wider set of problems. In the early '90s, there were only a few markets in the sort of distress that faced my brother. Now, most of the country is overbuilt and overpriced, and the fraud has been rampant and national.
I agree with the one economist, Schiller, who's been predicting that house prices will be cut in half. If you do the rent vs. buy equation (rational house price = 150-170x month rent) you can see just how overpriced things have become. By that yardstick, my "$850,000 house" in Seattle is treally a $350,000 house on a good day.
The big question in mind is how the political system will deal with all of this. We can see the Federal Reserve getting cranked up to hyperinflate the debt away, which is going to be just as much of a disaster as the deflationary alternative.
Meanwhile, no one in power is looking at the real issues, which are rampant criminality and a huge shift of economic returns from labor to capital. In the past 25 years we've seen average corporate return on equity go from 11-12% to 17-18%. This has sucked purchasing power out of the middle class, which has responded by putting their living expenses onto their credit cards and sucking phantom equity out of their houses.
This has been a game of musical chairs, and now it's going to stop. "May you live in interesting times," as the Chinese say. It's the 1920s all over again, and it won't be pretty.
//
Does this really surprise you? The U.S. government has screwed up the housing industry, yet many want them into the health insurance industry as well.
There still is O N E way out -- let a whole bunch (legal and illegal) "new" Americans in to suck up the glut of houses.
About 50 million new arrivals ought to do it. Problem is today's typical new arrival is smart enough to not over-buy on housing -- at least smarter in that regard than many Americans. The current crop of new folks will "hot cot" (share beds) and sleep 20 to a house, at least until they make it and bring the family.
Had a real laugh last month. I was looking at a job for the Federal Reserve in Dallas (I guess most of you know they are NOT part of the Federal Government? Just a private bank using the "Federal" in their name -- like Federal Express). Anyway they have layers and layers and layers of security. About three layers in, I was sitting in their lobby waiting for the next contact person, and started lookiing at their propaganda docs they tell themselves.
One funny (to me) full color brochure was called "Race to the Top." Sort of a reverse spin on the common view that their Globalony Fantasy is a Race to the Bottom -- towards the lowest common demoninator -- i.e., the lowest bidder, or as Wally World says -- always the lowest price.
They had it full of charts, graphs and unending bs -- and I was thinking -- So this is where it starts -- With the lies they tell themselves.
note to Amaznjohn -- this not the government doing any of this -- instead it is all private corporations totally unleashed by the government.
The losers' "race to the bottom" is the winners' "race to the top." Talk about two globalizations, two models of governance of state and market.
Well, I suppose you are correct about that.
The Winner Takes All you speak of reminds of neural network designs. The more you run it, the sharper and sharper the algorithm becomes until all but a few options are left.
I guess what that looks like in the human and economic realm is -- Billions of people with little and in poverty, and a few with Billion$ and in extreme wealth.
Does this really surprise you? The U.S. government has screwed up the housing industry, yet many want them into the health insurance industry as well.
How did you come up with this syllogism? Bizarre. Try LACK of regulation plus G-R-E-E-D and no law enforcement. Oops, sounds also like the chronically underfunded U.S. Securities and Exchange Commission.
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