The housing question is really a matter of investment.
The Treasury under Tim Geithner whiffed on effective help to homeowners. There is no longer even a pretense that the various half-hearted programs succeeded. There is just convenient silence.
Blowing air into a popped balloon, Ben is amazed that no matter how big the compressor or how high the flow, the balloon stays flat. Maybe it makes a fluttering sound like escaping gas. We'll spare you that sound effect. We can refloat the boat, he says, if we just gun the motor harder.
The Treasury and Fed have conspired to keep the bad loans, including at least one-third of second mortgages and home equity loans from being accounted for at their true value – zero. To save the banks. I say they have conspired, but it would be more accurate to say they have followed the direction of the private banks.
Housing prices have bottomed, it is said. And in a narrow sense that is true. The price has hit somewhere near its floor. On the other hand, who can afford one? Twenty percent down is now the norm. Figure that out on a net present value scale. It doesn't pencil out as a lower price.
But as we said, the real question is one of investment. The very tepid growth of the first part of the 2000's was fueled by a massive Ponzi bubble, but it was investment, Ponzi investment. It has come a cropper. Prior to that, we had an Internet bubble. Investment, but still Ponzi investment.
For thirty years now government stimulus has come in the form of tax breaks to business investment on the front end. I won't call the breaks for capital gains and dividends stimulus, because it didn't stimulate anything. The rise of that kind of supply side scheme has corresponded not with increased investment, but with declining investment.
In any event, we have created an overcapacity that is clearly visible in the statistics, and now seems immune to any further give-aways.
Where is investment opportunity? Technology? Apple and the others have no need for outside funding. They're sitting on tens of billions of dollars.
Health care? The huge profits here are not based on product – healthier lives for more people – but on monopolies and corporate control through the government of markets. As we've said, if you counted health care's contribution to GDP the way every other private sector is accounted for – by product – instead of by cost – you'd need to knock off 8 percent in the U.S.
The real opportunity for investment lies in the other major segment of GDP accounted for by cost not product – that would be government, public goods.
Here I'm not talking about the pass-throughs, or transfer payments. Social Security, for example, is not government spending. It is private spending. Spending on consumer goods made by private individuals. They are funded by contributions to the Trust Funds, some by themselves, but most by current workers. Similarly unemployment insurance, Medicare and other social safety net programs are typically spending on consumer goods and services by private individuals. As such, they are very important to consumer goods providers, the corporations that dominate the airwaves and legislative processes throughout the nation.
What we are talking about in terms of government investment is investment in public goods – the social capital of education, legal institutions, public safety, and importantly investments in infrastructure. Any cost-benefit analysis would find enormous returns to education, K-12 and otherwise. A society without legal institutions and public safety is not a working society. And the great value of constructing and maintaining physical infrastructure, particularly that which builds toward an environmentally sound future. Immense new investment is needed beginning now and continuing for two or three decades.
This, of course, is witchcraft to the Tea Partyers and those who worship at the feet of a largely imaginary Adam Smith. You have the mob with pitchforks, but they're storming their own villages, torching their own houses, turning their own parents and children into the streets, egged on by a Frankenstein they've come to trust.
We are led to believe a healthy economy has to smoke 250 million plus American cars a day and make the toxic fuel ever cheaper by the implicit subsidy of denying its effects on the future. A financial sector has to be kept in comfort even after it has blown up the world's economy. A corporate propaganda machine can sell the wisdom of perpetual war and the need for ever more sophisticated killing machines, but deny that there is money to take care of the human casualties it creates.
Wouldn't it be nice if that propaganda machine could be engaged to sell the wisdom of the survival of the natural systems we all depend on.
Here in Seattle, until our blessed rains came these past two nights, we were socked in by smoke from wildfires to the EAST of us. Tremendous drought, terrific heat, melting ice, dead zones in the oceans. No, by God, the real danger is socialized health care and mooching old people. I have an idea, let's bring the National Guard home from Afghanistan and have them reconstruct some levies and put out some fires. Ah, no, probably too expensive.
Or so says a well-paid, high profile cadre of windbags, red-baiting in a manner we've become familiar with since the First World War. They look no more sincere to us, nor any less the liars, than Joe McCarthy.
As long as I'm on this digression, I have to note one of the great public relations events of the past week. The announcement by Mitt Romney that 47 percent of Americans are Obama voters because they're dependent on government programs of one kind of another. First, it forced the media to reveal that EVERYBODY pays taxes, so contrary to the FoxNews facts. EVERYBODY. In the form of payroll taxes, property taxes, sales taxes, excise taxes. And if you listened even half-heartedly, you'd find out that most of those on the bottom actually pay a bigger fraction of their incomes than the Mitt Romneys of the world. Second, it was revealed that about half of the 47 percent who are supposedly locked in to Obama, including a whole host of seniors, are actually voting for Romney. I guess it won't hurt him. People have already chosen sides, they know their team's colors. Doesn't really matter what is said.
Gee, that WAS a bit of a digression. Back to housing. We note here that we called in 2008 for the US to follow the successful salvage operation of the New Deal, where the Home Owners Loan Corporation sponsored the renegotiation of loans, kept those who didn't qualify (that is, couldn't make payments on mortgages even at their true values) on as renters until the property could be sold, and set the simple 30-year fixed rate on the map as the benchmark.
I'm sorry. Let's go back. Please indulge me.
Whether or not it is the design of some grand conspiracy or just the accidental company of a dozen selfish ends, the political parties have both become grafted to Wall Street.
The Libertarian wing of Ron Paul and the free market fundamentalists, who seem to think all they need is their own four wheels and they can go anywhere, damn the public roads, are lined up with the hedge fund capitalists and corporate tycoons who depend on government to bail them out, who depend on the Greenspan-Bernanke-Draghi put, whose operations are kept alive by special arrangement with the Fed and Treasury. Frankenstein may be behind the mob, but it is Mitt Romney out in front wearing a tricorner hat that fits like a beanie.
The Democrats took the White House with the help of Wall Street. Or rather Wall Street took the White House with the help of Democrats. The progressive energy lined up behind a compelling message and messenger only to find he caved even before negotiations began. Wall Street didn't have to move out of the Treasury. They just put in new carpet. And of course big banks have owned the Fed since Eisenhower took office.
It has never been more plain that there are two Democratic parties, the party of the president and the party of Congress. So the Democrats got energized, but now look like Wobblies led by Andrew Melon.
Trying to find the humor in this is like putting a party hat on a starving baby. Putting a for rent sign on Saddam Husseins hidey-hole.
It's just not funny.
I guess we'll talk about housing another time.