Thursday, September 06, 2007

The housing meltdown

U.S. economy to grow at a slower rate than the "socialist" European countries this year, the OECD says. The primary culprit: the meltdown of the housing industry.

Now, the primary problem there is that folks took on adjustable-rate mortgages that they were promised could be refinanced when the interest rate reset took place, but now they can't re-finance because their incomes did not rise as fast as they had hoped. And of course we know why their incomes didn't rise -- the Republicans specifically took action to prevent their income from rising. Whether we're talking about their refusal to raise the minimum wage (the effect of a minimum wage hike is wealth transferral from folks with six+ figure salaries -- like me -- to folks with five-figure yearly incomes, as the wage hike bumps up through the ranks and us wealthier folks pay more for our burgers and car washes), or their deliberate refusal to consider any realistic scheme for securing the Southern border (while some level of immigration is desirable, immigration to the point where it depresses wages for U.S. citizens is *not* desirable and now that Mexicans have largely displaced Americans in the lucrative building industries wages for blue-collar Americans have plummetted to their lowest in recent memory), to tax policies that encourage outsourcing by taxing companies less if they outsource, the game has been rigged all the way to make the rich richer and everybody else poorer.

So, what's the best way to eliminate the housing meltdown? Well, that's simple: Higher wages for the people who took out these loans, and lower interest rates on the loans themselves. On the interest rate front, Countrywide and its ilk are just going to have to realize that if they adjust the interest rate of an ARM from 4.5% to 12.5%, people are going to default, period. If they cannot make a profit at a more reasonable interest rate, fine. Close these outfits down, and sell the loans to people who can make a profit at a reasonable interest rate, maybe we can create a quasi-governmental "corporation" funded by a large bundle of cash from the Federal Reserve. Maybe we could call it something like "FNMA". Oh wait, sorry, there already is such a quasi-governmental "corporation", my bad!

On the higher wages front, there's an easy way to immediately almost double the income of most people making under $60K/year: Raise the minimum wage to $20 an hour. Someone working full-time 40 hours a week is then guaranteed $40k/year in salary, more than enough to pay off the bad loan he took out. The tighty righties then start screaming, "it'll cause unemployment!". Bullshit. Restaurants and etc. already have as few employees as they get away with. They're not charities, they're businesses. They won't lay off Jose' the Busboy if they have to pay him $20 an hour rather than $10 an hour. The tables won't bus themselves, after all. They'll gulp, pay him the money, and raise their prices -- prices paid primarily by folks who make a lot more money than Jose' and will dislike the cost of their dinner entre' going up from $7.95 to $16.95 in order to pay Jose's wage, but look. Folks like me can afford it, and reality is that if the price of a Double-Double at In'n'Out doubles, I'll still buy just as many Double-Doubles. The results of the price of gas doubling over the past few years ought to be instructive there. Price of gas doubled, gas consumption remained pretty much constant, because even doubled, people still want it and can afford it. And hey, Jose' himself, now that his income has doubled, will be able to afford the doubled prices even more because while his income doubled his mortgage did not!

Combine this with a reasonable amnesty program for workers we need combined with real employment verification to eliminate the current practice of firing American workers in order to hire illegals who can be worked as slaves because they're scared to report poor working conditions (including closing the all-important "contractor gap" -- if you employ "contract" employees from a labor contractor, you're required to independently validate employment verification for each employee the labor contractor supplies immediately via a real-time system), and we're talking about a significant transfer of wealth from the upper classes to the lower classes *without* government involvement in the actual transfer of wealth (other than investigating and enforcing worker complaints regarding wage law violations). And while some might argue that this sort of inflation is "bad", well, it's the same deal as always for inflation. Inflation is bad for the haves, and good for the have-nots. Inflation means that the assets that the haves have are declining in value, while allowing the have-nots to pay off their loans with cheaper money. The problem is not inflation, the problem is inflation which is not stable and predictable. Given that our current problem if we don't suddenly boost the incomes of these people so they can pay off their loans is going to be the collapse of the home lending system and staggering levels of DE-flation, basically this inflation of the cost of lower-priced services would simply be to fend off that deflation.

Of course will any of this happen? Well, of course not. Because the above is economics as it actually works, i.e. reality-based economics. And the ideologues who currently run our country, like Communist commissars of the Soviet era, don't care about reality. They care only about whether proposed solutions are "ideologically correct". And the notion that "screw the poor" is not sound national policy simply does not comport with their Little Green Book that they live by (the Maoists have their Little Red Book, the Busheviks have their Little Green Book, generally located in their wallet and heavily illustrated with pictures of dead Presidents).

-- Badtux the Economics Penguin


  1. It seems to me that you failed to mention that Americans want bigger and fancier homes than they really need. And that stupid need often gets them in trouble.

    So in a very real way, a lot of them ask for the problems they have.

    Well, there is also the scum sucking real estate agents and bankers that want to help them get in trouble so they can make more money off of them.

  2. BBC, the biggest problems are in the "subprime" market and believe me, those folks are NOT looking for bigger and fancier homes than they need. In my community in particular over half of the "subprime" mortgages are in trouble but that's not because people bought gigantic new McMansions with that money. Most of those in trouble are working people who bought the cheapest house they could find that would be a roof over their head and just hoped that somehow they'd manage to afford it. But as we've found out in the Middle East, hope is not a plan!

    - Badtux the Housing Penguin


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