Housing prices continued to drop late last year and foreclosures are still a very troubling problem. From Bloomberg:
Home prices dropped the most on record in the fourth quarter as foreclosures dragged down values and the recession pushed buyers out of the market.
The median price of a U.S. home declined 12 percent from a year earlier and sales of properties with mortgages in default accounted for 45 percent of all transactions, the Chicago-based National Association of Realtors said today. Prices declined in almost nine out of every 10 cities.
The Columbian gives us a sense of the situation in Washington state:
Clark County received the second-highest foreclosure ranking out of Washington’s 39 counties. One in every 400 households were in some stage of foreclosure countywide last month, RealtyTrac said.
In January, Pierce County ranked No. 1, with one in every 393 housing units in foreclosure in January. King County ranked No. 6, with one in every 795 homes affected by foreclosure. Statewide, one in every 874 households was in foreclosure last month.
Both articles give the sense that job losses are now playing a bigger role in foreclosures, underscoring the need for the stimulus package, as imperfect as it may be. Whether it can do what it is intended to do, namely stop a spreading and worsening economic disaster, is an open question.
Behind all the statistics are real people, of course. You probably talk to friends and neighbors who report job cuts at their employer, or at the very least severe belt-tightening. The irony, of course, is that regular folks then start clamping down on their own personal spending, exacerbating the troubles. The fear becomes self-fulfilling.
It’s not enough to urge people to spend money, there has to be a sense in the country that we are turning the corner. The stimulus package is part of that, but the other big part is dealing with Big Shitpile. It’s understandable that the new administration is still working on that, but “setting piles of money on fire,” as Atrios calls it, does little to inspire confidence and end fear.
Somehow, the administration has to come up with a workable plan to re-organize the financial sector. If we can’t call it “nationalization” because that’s too scary and pinko, fine. Call it a “restructuring award” and get on with it.
I guess I don’t mind this news since both the counties you mention tend to vote right of center – especially Clark County which is full blown nutjob red – fuck em. I hope the bastards looooose their homes. Vote GOP get fucked – that’s what they deserve.
One of Josh Marshall’s readers makes a good point. If you’re going to end up seizing bank assets in some manner similar to the way the RTC works, you aren’t going to announce it before hand.
There seems to be a lot of expectation out there that Geithner needs to articulate more details of the plan, and it’s not at all clear that this expectation is justified. He hasn’t unpacked the boxes in his new office yet, but the clamor for details can be heard on every side.
Are we really so screwed that Geithner can’t take another week or two to think this thing through? If we’re that screwed, then does it really matter what plan Geithner implements?
Dismal?
For those that were smart with their money now is the time to buy houses.
For those that put more importance on leasing a new car every 3 years or a giant flat screen television, well, I guess it does look dismal.
1. Uh, dude? That really sucks.
Besides, as Jon points out, misfortune is contagious. Every laid-off worker, every family foreclosed out of a home, every retiree whose nest egg just evaporated, every company that goes out of business contributes to the social death spiral we’re all caught up in.
@3 Profiting from other people’s misery — exactly what I expect from wingnuts. A seldom-discussed side effect of depressions is they’re the most effective wealth-concentrator there is. That’s why conservatives love depressions — plus the fact they force wages down.
3 Marvin, for once I’m 100% in agreement. My daughter and her fiance’ are still saving every dime they can, as they watch house prices in LA continue to decline. They may be able to buy themselves a nice place as a wedding present to themselves this fall, if they can both hang on to their jobs.
For that matter, if you do have some cash and are of a sufficiently frivolous frame of mind that you can’t do without a bling-ey set of wheels, you could probably find a helluva deal on a used Bentley. Like I said, if you have some cash lying around. It’d be more practical than what the gubmint’s been doing with your money, and no less throwing it down a rathole than “investing” it on Wall Street.
Demand for housing won’t go away. People need shelter, same as they need to eat. Housing got overbuilt as a result of distortions in the financial markets, and it’ll take time to work through the excess inventory. Now, demand is being artificially repressed by seized-up credit markets and potential buyers’ fear of job loss and/or waiting for prices to go lower. These factors are creating pent-up demand that eventually will erupt in a burst of home-buying activity. While the depressed housing market may be feeding on itself at this point the pendulum always swings back the other way — that’s as certain as the laws of physics. The only thing that could change it would be a sudden population drop — for example, if the Rapture arrives and abruptly lifts all the Republicans, or at least a substantial number of them, to … well, to elsewhere. So, remember, drinking kool-aid impedes the housing recovery; and if housing doesn’t recover, it’ll be the wingnuts’ fault.
@6 I’d prefer to see asset divestiture fall on the class that looted the country in the first place. Let retired state workers lounge in waterfront estates while Goldman Sachs bonus babies rot in tarpaper shacks! It’s time we had a little class warfare in reverse.
Kudos to them for working hard and saving. Good things happen in life when you make good choices.
Unless it’s a classic and will increase in value, no thanks. Or is that a reference about the car chase a couple nights ago where the guy was driving a bentley and then killed himself depriving the lapd the pleasure.
Marvin @ 4 says: “…For those that were smart with their money now is the time to buy houses…..”
Yes, but that’s kind of hard to do when you are out of work, or anticipating a potential layoff shortly. Not very many people have enough cash lying around to buy houses without borrowing money to do so. Unlike a couple of years ago, banks are now requiring that you prove that can repay the loan, which usually requires steady employment.
Of course, that doesn’t mean that there aren’t some people out there with a lot of cash on hand, looking for a good investment in which to park it for the time being. Unfortunately, they aren’t in the U.S. It seems that all those out-sourced jobs have resulted in some Chinese accumulating quite a bit of our cash, and they are using it to buy U.S. real estate.
Source: Chinese finding U.S. real estate a bargain
So due to the policies over the past several years which have effectively screwed the American worker and enriched a few weathy within the U.s., we now many American workers now (a) don’t have jobs, (b) have lost their homes, (c) will end up renting from some of the people who profited from their job loss, and (d) will pay higher taxes for several generations to pay for those mistaken policies, and (e) watch the new Chinese owners profit from the taxpayer-funded bailout as the housing prices eventually recover.
Pelletizer@6:
Goldman Sachs needs reverse class warfare. After all they were playground and jock strap of the Democratic. Finally, finally, Pelletizer said something worthwhile.
Goldman Sachs $955,223 – Barack Obama Democratic
Goldman Sachs $229,395 – John McCain Republican
More than a 4:1 ratio.
That would be rewarding incompetence.
And that would only encourage more incompetence.
Besides, anyone is free to make $ and buy a waterfront estate. Unfortunately state workers don’t have the drive nor the ability to make their dreams come true, that’s why they want a life long government job with the protection of a union. Kinda like wanting a substitute daddy.
once the rabbit realizes he accidently picked on a company that supports obama he will come to love them and praise them.
I wonder if those obama supporters tell their undocumented gardeners to shoot the rabbits that terrorize their gardens.
We could be really snide and call it ‘publicization’.
re 3: Yes!! They should cash in their Enron 401 K’s and buy houses.
Maybe that’s an advantage I have. Being self-employed I always knew no job was going to be for life. That at the end of the project I was going to get a check and then it was my obligation to get more work.
Maybe if when I was young and playing in the disney band marching up and down main street in some crappy costume and expected to do that until I retired I would be bitter if I got laid off because I was too old to fit the image disney wanted to portray.
I find it strange the same people that voted for change want their jobs to be for life, just like it was generations ago. It’s change people, learn to change or get left behind.
Or in your case, racism.
Did you forget about the second biggest ponzi scheme in american history, bernie madoff? Looks like his contributions to the democrats kept him safe for a long time.
Besides for him supporting democrats, why didn’t you mention him?
@11 What are the numbers for 2000 and 2004, putz?
@19 continued: 2008 isn’t really a fair comparison, because in 2008 everyone supported Obama, including former Bush Pioneers and the Wall Street capitalist class.
Marvin: You are so glib with the ‘choices’ malarkey. A 6th grader who steals candy rather than using his allowance to buy it has made a choice.
A person who has worked hard all his life for an energy company in Oregon, and the energy company gets bought by Enron, who transforms everyone’s retirement money into Enron stock, and then ‘locks’ the employees’ 401 K’s (they can’t pull their money out)but the insiders are warned and know Enron’s going down and they are unloading their stock — where in this scenerio did the worker make a ‘bad money choice’?
I expect a glib and supercilious answer from you. On that score, you never disappoint.
@ 20
Oh, Puddy has this fanciful idea that if you count up all of the money that a firm and individual employees gave to various candidates in a given election cycle, you can use that to decide who’s a Republican and who’s a Democrat. It never seems to enter his puny brain that these folks might just be independents trying to game the system to their advantage.
The only definitive way to decide whether or not individuals are Democrat, Republican or Independent is to take a look at their voter registration. And organizations, like Goldman Sachs and the New York Mercantile Exchange are “None of the Above”. Corporations, though they are legally “persons” in many other respects, still don’t get the right to vote.
‘Course all this bullshit about who is a Democrat and who is a Republican is all a smokescreen. The one fact that Puddy (or Marvin or any of our other resident trolls for that matter) cannot deny is that the implementation of Republican economic philosophy is precisely what has gotten us into the mess we’re in now. They do this, because their philosophy is sacrosanct, never once to be touched by the dirty hands of reality.
Ken Lay was a Bush ‘Pioneer’. Do you suppose he got access to the White House because of that? Of course he did.
Marvin, have you heard of Ken Lay Potato Chips? They come in an inflated bag with no chips inside with the sloga: “Betcha can’t eat just one!”
http://www.msnbc.msn.com/id/29141942/
ANOTHER Publican threat to the safety and security of the USA – this is why the American people don’t trust Publicans – the GOP is full of stupid idiots.
This fool should be wearing an orange jumpsuit.
Why would anyone buy a house in this market? Obama “The Messiah” is telling us that the economy is going to get a lot worse in the next couple of years and the tax cheat in charge of the treasury wasn’t smart enough to follow the Turbo Tax prompt on paying his SS taxes.
For all of you retired state employees – just keep buying your T bills like all of the “smart people.”
You may (repeat…may) be rewarded for being “smart with your money”, assuming you have money to be smart with.
However, smart doesn’t always win the game, because it’s partly a game of chance. Besides that, a few of the big players happen to own the casino, and they’ve rigged the dice.
Of course the japanese are already mocking obama.
Is this the change you voted for?
http://www.youtube.com/watch?v=GpNSip5gyKo
All this bloviating from Marvin, Puddy et al about how you’ll always make out ahead if you’re “smart” or something is just another version of the elitist mantra that the “worthy” should get the goodies. It’s the same as George W. Bush telling his professors in the Harvard MBA program that all poor people are “lazy”.
“Unfortunately state workers don’t have the drive nor the ability to make their dreams come true, that’s why they want a life long government job with the protection of a union. Kinda like wanting a substitute daddy.”
Hey “Marvin”…you might want to bring this up with “IAFF Fireman” if he happens by.
Pelletizer @19:
I posted the values to your same stupid question last week.
I think 15 times is enough dumb bunny…
HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR
Man arguing against someone as dense as spent uranium Don Joe is exhausting…
Goldman Sachs is where Robert Rubin sat his carcass for 26 years probably directing many political funds to the Democratic…
You mean BEFORE obama got all that money?
In that case, lets go back before bush and see how much clinton got.
Obviously you couldn’t dispute the PuddyFact so you had to change the rules.
Another Don Joe worthless comment:
Tell that to your HA Democratic friends who use it to nail conservatives. I use your side argument tactics and those lace panties just got wadded up around your small scrote sized brain.
Man you are an xDS fool!
More Don Joe postulations:
Because a person puts their money where they believe. Seems the Democratic believed Bernie Madoff a lot! HAR HAR HAR HAR HAR!
re 27: The Japanese are racist.
ARF!
Republican = Failure
Of course. Without his “contributions,” he never would have gone on a trade mission with the Commerce Secretary to Bosnia and Croatia to sign a $100 million contract to build power stations.
Without his funneling of $$$$ into the right pocket he never would have won the contract in India as well as in Indonesia.
Without knowing and paying off the right people he never would have received permission to build a pipeline from Mozambique to South Africa after National Security Adviser Anthony Lake threatened to withhold aid to Mozambique
Thanks to his political connections Enron received U.S. government funds to build power plants in China, the Philippines and Turkey.
Thankfully he “paid” enough to accompany senior US government officials on state trips in order to win contracts in Pakistan and Russia.
Without a doubt the fact he donated large amounts of money enabled him to sleep in the white house and serve as an advisor to the president.
I can’t say enough bad things about the man…
Of course, I’m still talking about his actions during the clinton presidency. Once I’m done with that period of time I’ll MoveOn to his actions during the bush presidency.
Oops, that’s not what you meant was it. You wanted to skip over the clinton connection and only talk about bush.
But thanks headless for giving everyone a chance to reminisce about the clinton presidency.
If you are using bush as an example of republican values, you don’t understand republican values.
What part of small government did bush believe in. Forgetting the war costs, he still increased spending and the size of government.
Do you believe the mess had anything to do fannie mae and freddie mac? At least ken lay donated to both parties, depending who was in power. The same can’t be said for fannie mae and freddie mac.
Marvin@38: It’s not the first time any of us has skuuled leadless douchy and his 25 sock puppets with these facts.
Similar to Dr NotRight and his Iraq no bid screeds. It’s their tired playbook of saying the same stuff over and over and over, hoping someday it’ll stick.
Looks like AWOL George lost 87,000 weapons sent to Afghanistan. GREAT! Way to go Georgie. Screw-up central strikes again. NO WONDER America sent the GOP packing – stupid, inept, lousy motherfuckers.
24: If I remember correctly, the Wingnuts on this board went rather ballistic when Gregoire went to Iraq last December, accusing her of making a political visit on the taxpayer’s dime and lying about her whereabouts. Yet as this article indicates, the military advises politicians NOT to make public statements about the trip until AFTER it is completed, for security purposes. Of course, leave it to a prominent Republican to figure that those rather commen-sense rules don’t apply to him.
@27 & @35: I deal with Japan on a regular basis, and all of those who’ve spoken to me on the matter considered Pres. George W. Bush to be a running joke, and figure that Obama is the best chance the U.S. has of putting a brake to this train wreck. I was in Japan back in early September and the feelings seemed to be pretty universal back then (I got lots of questions about the Presidential race), and nothing seems to have changed since then.
Of course, there’s always a few jerks everywhere, but they aren’t among those I work with.
Okay, you convinced me. Your daughter and son-in-law are stupid for working hard and saving money to buy a house.
If they were smart they would spend that money on gadgets, new cars, bling and tattoos.
You don’t have to be smart to make it, you have to make smart choices. Let’s compare your daughter and someone making stupid choices. I’m hoping your daughter finished school, got a job, got married and then had children in that order. Or in the process of doing so. Compare that to someone that drops out of high school because they got pregnant. Your daughter is going to be much more successful than the dropout. Was your daughter lucky or did she make better choices?
I will say that one is “lucky” in life if they can find what their god given talent/abilities are. For example… michael jordon did okay for himself on the basketball court. What if instead of basketball he picked baseball. Considering we saw how his baseball career turned out, he was lucky he found his gift in life. He then made good choices to work at his game to become the second best player of all time behind MAGIC JOHNSON.
Did you feel you made good choices in life?
Maybe Marvin will take a moment to again demean Puddy’s and my own faith in God and Christ. What was it you were saying the other day, Marvin, something about Puddy and I being so stupid as to worship a boogyman in the sky? You had a few other choice insults too. Care to repeat them for Puddy’s benefit? Maybe he missed them.
re 38: Those things happened because of a Republican majority in Congress. None of it was Clinton’s fault. (Sound Familiar to the Republican 2006 refrain?)
AND According to Molly Ivins book ‘Bushwhacked’, all those things you claim happened in the Clinton presidency actually happened in the Bush Presidency.
Ken Lay was also an influential member of Cheney’s secret energy meetings. Kinda makes me lose confidence in your credibility, Marvin.
I figured you already tried your best to help headless learn and grow.
They are one trick ponies. They can copy and paste off dailypus, unable to think for themselves. Almost like democrat zombies.
Speaking of zombies, ever see this video clip?
re 44: “Okay, you convinced me. Your daughter and son-in-law are stupid for working hard and saving money to buy a house.”
One extreme or the next, huh Marvin. The one caveat (which you chose to ignore in your ode to wise choices) was the Artful Farters caveat about IF they could hang on to their jobs.
That’s where your hymn to good choices = happy profitable lives hits a sour note.
Taking a break for your goats to ask a question?
I was quoting bill mahr. Ever hear of him? He hates republicans, you should appreciate his humor.
Steve, Bill Mahar has many anti-religious screeds we’ve posted here. Mahar is one sick puppy.
Sorry you couldn’t tell I was being sarcastic.
Well… because they made smart choices, like working hard and saving, they have some money to get them by until they get another job. And the fact that they work hard and save says a lot about them. I have no doubt they will find other employment.
Blowing Harder@46:
Wait a minute… Are you saying Clinton was a figurehead preznit and the Congress had the balls? I cant believe what I read above… I thought Hillary had the 900 FBI Files in her possession so she wore the jockstrap.
And now you are saying Bush was a strong leader? Man this is confusing even if it came from a Democratic…
Funny how when you quote a left-wingnut and other left-wingnuts don’t know the phrase being quoted they get their panties in a bunch. I don’t expect steve to say anything bad about billy talking bad about his faith.
Kinda like when I would quote biden and his “first clean articulate black man” line and I would be called racist. Of course once I would link to the video of biden they never called him a racist.
Typical double standards that democrats believe in.
You mistyped Marvin.
Its “Typical double standards that democratics believe in.”
Remember we were skuuled to use democratics.
So that means the financial collapse was because of the democrat majority of congress.
Except for those pesky dates that keep cropping up. If you change the 97 of 1997 to 07 like in 2007 it all works. And of course change the name of veep gore to cheny and a bunch of other trivial little details.
They should consider themselves lucky I don’t call them by their original name… Dixiecrats.
The chicken didn’t change when Kentucky Fried Chicken changed their name to KFC.
Puddy, I’m no fan of Mahar. Well, except for maybe his role in the Amazon Women in the Avocado Jungle of Death flick. Ever see that? Heh, red licorice. A humorist lacking much humor, he at least had that one great line.
OK, Mahar? I take offence with what for me is his unfunny demeaning of my faith. I’ll go farther and say that I think Mahar’s an untalented ass. But I want to talk with you about a different, more relevant ass. Marvin. I’ll put it to you again. Do you share my offence with his demeaning of our faith or not? You’re not situational with your faith, I hope. That is, a Republican can get away with remarks demeaning your faith that you’d never let pass if they came from a Democrat? I’ll cut to the quick. Why don’t you stand with me when Marvin trashes my Christian faith? For truth, I’m hesitant to believe that, with you, the common ground of politics is a stronger bond than that of faith. I’m not sure about you so I’m checking.
@ 39
If you are using bush as an example of republican values, you don’t understand republican values.
I’m not.
Do you believe the mess had anything to do fannie mae and freddie mac?
No. Do you understand the meaning of the term “sub-prime loan”?
@53 “I don’t expect steve to say anything bad about billy talking bad about his faith.”
Looks like you’re wrong again, chump. Come on, Marvin, let’s hear you rag on Christians. You on the left are welcome to take a shot at Christianity too. And then I want to see Puddy stand up to you side by side with me.
“Well… because they made smart choices, like working hard and saving….”
Working hard and saving is only a choice if you make enough money to pay the bills and have some money left over for saving.
You spout all this common-sense drivel that anyone over the age of 11 already knows and when anyone tries to puncture the simplicity of your Sunday school teacher bromides, you twist like a pretzel trying to justify the unjustifiable.
Incidentally, justifying the unjustifiable started in the Reagan years. (“I know I’m a crook, but gosh darnit, I don’t feel like one.” Ron the Retard)
If you want to hear someone rip your religion a new one…
Rent the movie religious. Better yet, watch the movie in a theatre with a bunch of liberals.
Strange you didn’t get upset when I quoted biden and his first clean/articulate black comment. Yet you complain about me quoting bill mahr. Is it because you disagree with bill and agree with joey?
By the way stevie… you can expect me to start quoting the hateful things liberals/democrats say about Christians. Deal with it.
Say… did you know that rosie feels people like you are worse than the taliban? People on the left are so intolerant of those that have faith. I’m surprised you never noticed before.
@61 Lame.
re 61: So intolerant, we won’t honor their Doctor’s prescriptions for birth control items.
Also, I am so intolerant of fat people, that when I was a kid working at ‘Burger Chef’, I refused to sell food to fat people on the grounds that it was against my god-fearin’ moral code.
And the Supremes backed me up. (“Set me free, why doncha’ babe?”)
Who is this Marvin Stamn? He really blows.
@64 I don’t know but for some strange reason he just can’t seem to stop talking about farm animals.
Puddy @ several
Let’s see, Robert Rubin was at Goldman Sachs, so that means all the higher ups at Goldman Sachs are also Democrats. If you find one green M&M in the bag, do you conclude that they’re all green?
You claim, as fact, that people make political contributions according to their beliefs. If we take that simplistic view, however, then no one would ever give money to both parties, and we can find examples where people have.
As for telling all my HA friends anything, why should I bother? The fact is, you can’t, and never have, responded to the point about Republican philosophy.
I note that Marvin started to, but he seems to have dropped that one on the floor. What happened, Marvin? Did you get tripped up somewhere along the line trying to figure out the meaning of the term “sub-prime loan” and how that relates to Fannie Mae and Freddy Mac?
You were ignorant of the community redevelopment act.
It’s not my job to educate you. Go back to school. Hell, even google it and learn something for yourself.
Two-thirds of the word count in #30 looks suspiciously like plagiarism to me. Not content to steal our money, Republicans steal our literary works too …
@ 67
You were ignorant of the community redevelopment act.
I’m quite aware of the CRA as well the various, and laughable, wingnut attempts to pin the current crisis on it. We’re supposed to believe that poor minorities (yes, minorities, because that’s the population that CRA targets) are capable of collectively pulling together enough leverage as to bring the entire US banking system to its knees.
Apparently you have failed to notice that not a single wingnut argument that attempts to blame the CRA for this debacle provides an iota of data to back up the claim. There’s a reason why wingnuts don’t cite any data. The data actually prove the opposite. Banks that were subject to CRA provisions had healthier loan portfolios than banks that were not subject to CRA provisions.
Some 80% of sub-prime loans were made by institutions not subject to the CRA supervision. That fact, alone, should be sufficient to put this canard to rest.
You can find a good run-down here, and the comments are as instructive as the links. I’m particularly partial to the commenter who tried to blame the CRA effect on Clinton’s rule changes back in the early 90’s–as if those rule changes weren’t among the first things that Bush II rescinded.
It’s not my job to educate you.
No, it’s not, and I’m quite thankful for that. There is obviously very little you can teach me about Economics.
Your refusal to come up with a cogent argument, will, however, be interpreted as conclusive evidence that you are unable to do so.
So, let’s see. You’ve tried blaming Fannie Mae and Freddie Mac. That turned out to be a dud. And now you’ve tried blaming the Community Reinvestment Act, and that turns out to be an even bigger dud. Want to try again?
Better yet, allow me to save you from hurting your brain. The causal chain goes like this:
1) Following the attacks on 9/11, the Federal Reserve attempts to forestall a recession by easing up on the money supply. At the same time, Bush and the Republican-controlled Congress pass the Bush tax cuts that disproportionately favor wealthy folks.
2) Wealthy people who are now flush with additional cash and facing a Federal Reserve that is, essentially, saying “Don’t buy T-Bills” (that’s a euphemism for easing up on the money supply) go looking for some other safe place to put their money.
3) Investment firms seeing this pent-up demand for some form of safe investment cobble together something known as a collateralized debt obligation (CBO)–what other people have referred to as “mortgage backed securities”. Supply meets demand. The market works to perfection.
4) Existing loan portfolios, however, end up being insufficient to meet this pent-up demand for CDOs, so investment firms start calling up the various lending institutions demanding more loans.
5) Lending institutions respond to this increase in demand by coming up with increasingly creative ways to underwrite more mortgages. Again, supply meets demand. The market works to perfection.
6) Now comes the catch. Combine the disproportionate effects of the Bush tax cuts with the fact that real wages have been stagnant since about the middle of the Reagan administration, and we get into a situation where not enough people have the wherewithal to actually pay back the loans that the lending institutions are underwriting in order to meet the demand for mortgages that can be split up into tranches and repackaged as securities for the rich folks who are still raking in the cash from those same Bush tax cuts.
7) This cycle of demand and supply leading from investment firms to lending institutions to income-strapped middle class folks leads to a real-estate bubble. The increased availability of loans bids up the average price of a home to historically, and astronomically, high levels relative to median income.
8) As all bubbles do, the real-estate bubble started bursting when alarmingly large numbers of people started defaulting on their loans. At about this time, Sam Zell says that the real-estate market is fine, Noriel Roubini says that Sam Zell is full of shit, and our own Puddy makes a complete fool of himself. Not long after, John McCain says that the Economy is fundamentally sound, and gets his ass kicked in the Presidential election.
Did you follow all that? Good. ‘Cause there are two lessons to be learned from all of this:
1) Markets worked precisely the way markets are supposed to work. Increased demand for safe investments led to increased demand for mortgage-backed securities, which led to increased demand for mortgages. At every point along that causal chain, people were behaving exactly the way laissez-fair dogma says they should behave.
2) The Bush tax cuts had very little, if any, effect on the kind of investment that creates jobs. The wealthy beneficiaries of those tax cuts were distinctly not risk-takers. They went looking for safe havens for their money, and very little of it went into creating new business or toward plant and equipment that would have put more people back to work.
Thus, both pillars of the Republican cure for Economic aches and pains, deregulated free markets and tax cuts targeted to the wealthier among us, have been shown to be a deadly combination.
Schools out, now Marvin. You may go back out to the playground and play.
With the help of dems in congress they did a pretty good job.
@ 70
With the help of dems in congress they did a pretty good job.
Given the timing of events, the Democrats in Congress could only have gotten away with such a boondoggle when the Republicans had the majority. Must have been some pretty stupid Republicans.
Who was Responsible?
Now, we come to the fun part of today’s commentary: assessing blame for the whole shebang.
I have some bad news for you fans of schadenfreude: The responsibility is widespread, with plenty of blame to spare. I assess the responsibility for the mess to the following:
* Federal Reserve (FOMC)
* Borrowers
* Mortgage brokers
* Appraisers
* Federal Government
* Fannie Mae
* Lending banks
* Wall Street firms
* CDO Managers
* Credit agencies
* Hedge funds
* Institutional Investors (pensions, insurance firms, banks, etc.)
* And back to regulatory role of the Federal Reserve
http://www.investorsinsight.co.....ector.aspx
– Barry L. Ritholtz
@ 72
Who was Responsible?
One of my beefs with Barry is that he keeps coming back to that question (and did so again today).
I’d rather talk about what’s responsible than talk about who’s responsible, because assessing blame to people gives us very little insight into the policy adjustments we need to make in order to prevent something like this from happening again.
In that vein, one of the points raised in the piece linked above is:
So, where did the hedge funds and institutional investors get their money? Any ideas? As a clue, the Congressional Budget Office estimated that the Bush tax cuts would increase the Federal deficit by $60 billion in 2003 and by $340 billion by 2004–right about the time when the whole cycle I cited above started kicking in.
So, where did the hedge funds and institutional investors get their money?
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I would have to see an analysis of the role the tax cuts had.
@73,74 – It is not the suckers who paid good money for bad investments that are to blame – they are actually the victims here. It is the laws that allow this type of transaction and the ability to hide bad debts. It is also the lack of regulation of these bad debts.
As to the former, Phil Gramm (along with banking lobbyists) wrote the law that allowed this and inserted it into a budget bill at the end of the a congressional session without any debate.
As to the latter, the Bush administration ignored repeated warnings from their own regulators about these problems.
@ 74
I would have to see an analysis of the role the tax cuts had.
Does this report have sufficient analysis for you?
In particular:
The top 20% of income earners got 59% of the tax cut–that’s 59% of $350 billion dollars. If they spent only a small portion of that money, what do you think they did with the rest of it?
Now, it took me all of two minutes to go find that report. Why don’t you spend, say, 15 or 20 minutes of your life, and go look up how much money was chasing after mortgage-backed securities, and see if you can’t put 2 and 2 together?
@ 75
I keep saying this: I’m not at all interested in blaming people. I’m far more interested in blaming policies.
To that end, the causal chain from the Bush tax cuts to the present crisis isn’t a difficult chain to draw. That, buy no means, blames the folks who, in an effort to save the money they got through those tax cuts, ended up providing the very demand for mortgage backed securities that caused this bubble in the first place.
The lesson to be learned in all this is, when you implement fiscal policies that extend the disparity in income between the richest and the poorest members of society, you get bubble-driven economic growth. This is exactly what happened before the Great Depression, and it’s exactly what has happened now.
The top 20% of income earners got 59% of the tax cut–that’s 59% of $350 billion dollars. If they spent only a small portion of that money, what do you think they did with the rest of it?
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This is not an analysis of how much money hedge funds and institutional investors received from wealthy investors as a result of tax cuts, relative to other sources such as pension funds, college endowments, etc. Let’s see that analysis . . .
@ 78
This is not an analysis of how much money hedge funds and institutional investors received from wealthy investors as a result of tax cuts, relative to other sources such as pension funds, college endowments, etc.
Oh, that’s right. You’re Mr. lazy assed, moving goalposts. And, judging from the timing of the two comments, you didn’t bother to even try a few web searches.
I did, however, provide precisely the analysis you requested the first time around, and ceteris paribus assumptions come into play here. See if you can’t find any data to undercut my thesis. I’ll give you a hint. “Foreign investor” will likely produce far better results than either “pension fund” or “college endowments”.
The question was asked:
* Where did the hedge funds and institutional investors get their money?
The response was:
* I would have to see an analysis of the role the tax cuts had.
That means, the role the tax cuts had with respect to feeding the hedge funds and institutional investors.
The “analysis” cited here:
* Does this report have sufficient analysis for you?
only tells us which tax payers benefited from the tax cuts. It doesn’t say a single thing about how the higher income brackets used their extra money other than they saved it more than lower income brackets. That’s it.
You’re trying to make the point that some of this money went money went into hedge funds and institutional investors. I’m sure it did. But that doesn’t tell us a thing about how much of the money these people
received from the tax cuts went there, and certainly not what impact it had. Without any data, we can’t draw any additional conclusions.
That means, the role the tax cuts had with respect to feeding the hedge funds and institutional investors.
Yup. And that’s exactly what you got.
But that doesn’t tell us a thing about how much of the money these people received from the tax cuts went there, and certainly not what impact it had. Without any data, we can’t draw any additional conclusions.
You’re thinking statically, and we’re talking about a dynamic phenomenon. Take the numbers I gave you above (59% of $350 billion) and multiply that by the savings rate for people in that percentile. Since the vast majority of people in that income percentile generally save via institutional investors, you now have a figure for the change in flow of funds to institutional investors.
I gave you all the data you need and all the analysis you need to answer the original question–provided you think about the situation in terms of a flow of funds.
Now, as I said, I am making some ceteris paribus assumptions. You’re quite welcome to try to undercut my thesis by finding other sources of funds where the rate of flow changed, but I will point out that you need to find something that would have caused that change in flow.
the Congressional Budget Office estimated that the Bush tax cuts would increase the Federal deficit by $60 billion in 2003 and by $340 billion by 2004–right about the time when the whole cycle I cited above started kicking in.
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What is your source (link) for the CBO estimate?
@ 82
Wikipedia here.
You can find the revised figures from October 2004 http://www.cbpp.org/9-7-04bud.htm.
And, of course, you could search around for estimates of the total cost in the intervening years as well. If anything, the figure on Wikipedia is a tad on the light side.