Uh excuse me, but the lifeboat leaks

August 8, 2011 at 4:50 pm | Posted in Consumer Issues, economy, I'm just saying, rants, stupidity | 9 Comments
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I saw a little blurb, in the August 15th issue of Time Magazine, about Bank of America in Cleveland, as well as other banks that are demolishing some of their inventories of foreclosed homes.  The reason being, according to economist Thomas Lawler, is that fewer houses may revive prices.  He states, “It’s the right thing to do.”   Perhaps Lawler should consider a career in politics because he seems good at contradicting himself; check out another of his very recent articles, that would seem to indicate he thinks otherwise.  The whole concept pissed me off.  How freaking stupid is this idea?

The banks, bless their magnanimous little hearts, after razing the houses are often donating the lots to local governments or non-profit organizations.  I’m guessing they ran the numbers and it turned out that rather than holding the properties, paying property taxes and other expenses, that donating them, which I imagine comes with a sweet tax write-off, is better for their bottom line.

Let me get this straight…the economy sucks and unemployment is off the charts.  Couple this with a housing market that’s in the toilet because of record foreclosures, the sad fact that most people cannot afford to buy homes at today’s prices, and for the ones that can it is difficult if not impossible to get the banks to finance the purchase.  For the most part the only people able to take advantage of lowered housing prices are investors already flush with cash.  So I’m having trouble with the concept of taking actions that will drive housing prices higher.  If you presently own a home that is under water, artificially inflating its value might correct that situation…but if you haven’t been able to make the mortgage payments and are facing foreclosure that will hardly matter, you’re still just as screwed.  It’s rather like getting into a leaky lifeboat as the ship is going down.

We are told the problem is that there is a surplus of homes for sale.  DUH!  But that surplus doesn’t exist because there are not enough people who need homes.  Do they think the people who once resided in all those foreclosures have mysteriously disappeared?  They have not; they are either renting, staying with friends or family, sharing living quarters, or homeless. It seems to me, the only thing we have a surplus of in this country is greed, corruption, and stupidity.

I’m just saying.

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  1. First, a grammar quibble: you don’t “run for politics”, you run for public office.

    (Sorry, it just caught my eye as I read the post.)

    Second: actually, demolishing old, run-down houses may actually be good for the economy in the medium- and long-term. (And trust me: a house held by a bank becomes run-down very quickly.)

    If you ignore gigantic investment fraud bubbles, which fueled the Great Depression and the recent We-Don’t-Want-To-Admit-It’s-Another-Depression, America broke out of nearly every one of its economic slumps starting from the home construction industry. It’s a source of economic activity which can’t be offshored, either. So there is sound historical reason to believe that stimulating home construction will be extremely helpful.

    Until the last decade or so, a noticeably larger portion of the U.S. population lived in rented housing than do now (or did as of a year or so back; the number is gradually going back to historical levels). The temporary increase of individual property ownership IS the housing bubble; people who “should” have been renting were instead buying houses they couldn’t really afford. If you start applying historical ownership rates, the U.S. has far more existing housing than it needs, so the market is depressed. And, of course, a depressed housing market translates unavoidably into a depressed home construction industry.

    We can’t do much to goose demand, because even now we are well above historical levels of home ownership. Trying to force more people into ownership would just create another bubble — an obvious one which would pop quickly and hurt even more people. But it is possible to play with the supply of housing; the easiest and most reliable way to do this is to demolish the worst of the housing stock. It may not be “nice”, but it isn’t exactly “nice” to build another bubble on the backs of people who can’t afford it, either. At least when the banks do this, they are taking a loss instead of finding a sucker, which is their usual method of coping with this kind of problem.

    As for whether this will make getting a home loan “too hard”, that’s another question, and one which we will probably only be able to answer after the new conditions are in place. The cause of the housing bubble was that it was temporarily too easy to own a house — people who were nowhere near financially stable enough to keep up payments were getting outrageous loans. Our standards for “too hard” have probably become skewed.

    • First, a grammar quibble: you don’t “run for politics”, you run for public office.

      I think you’ve been reading my blog long enough to know I didn’t really think that was correct usage. It was a mistake that I noticed immediately after I hit publish. I hit edit, the phone rang, one thing led to another and it didn’t get fixed right away…but thanks for pointing it out.

      • That’s why I apologized for pointing it out. 🙂

    • I don’t know, Vicar. This morning I listened to an economist on NPR saying that the banks should be lending and are being way too tight fisted with money, even with well qualified borrowers. He said one of the things that is needed to get the economy going is for banks to start lending and stop being so tight fisted. Probably gonna be a lot of grammar errors here, so I apologize in advance. 😉

      • Well, there are a few things I want to say in reply to that:

        1. The banks can be tight-fisted while still lending to large numbers of people; it would merely involve lowering the amount of money they are willing to lend.

        2. Are you sure this economist was talking about home loans and not business loans? It seems to be a matter of common agreement that business loans are too tight right now, and that’s a whole different kettle of fish.

        3. Economics as such is less a science than a way of justifying political decisions about how money is to be spent. (Remember the “Reason” program from Douglas Adams’ book Dirk Gently’s Holistic Detective Agency? Economists generally work like that.) There are very few economists who aren’t just shills for big business or (rarely) social spending, and shamelessly cherry-pick data and do a lot of hand-waving to avoid having to explain the flaws in their theories. So when you hear an economist say something, even one on NPR, it’s a good idea to remember that they are probably not speaking with any authority. Krugman is less biased than most, but even he has been known to make comments which don’t stand up to scrutiny.

        4. Also, don’t forget that we are emerging from a historically abnormal period. A lot of people are going to have skewed expectations about the economy for a while. It’s entirely possible that your economist was mentally adding a footnote saying “assuming, of course, that home ownership is going to return to the levels it has been at for the better part of the last decade”.

        5. I generally don’t care about grammar errors, and in fact I seldom post a comment of any size which doesn’t contain at least one whopper, somewhere. The one about “running for politics” just caught my eye, and it’s generally considered helpful to mention those things to the author when possible. No offense or pickiness was intended.

        • @the vicar, oh man where do i begin?

          Economists generally work like that.) There are very few economists who aren’t just shills for big business or (rarely) social spending, and shamelessly cherry-pick data and do a lot of hand-waving to avoid having to explain the flaws in their theories. So when you hear an economist say something, even one on NPR, it’s a good idea to remember that they are probably not speaking with any authority.

          what makes YOU such an expert? by what AUTHORITY do you speak?

          I generally don’t care about grammar errors, and in fact I seldom post a comment of any size which doesn’t contain at least one whopper

          at least ONE whopper???? (yeah i know when i comment mine sucks, but i know the rules) not only do your comments have more than one whopper but for the most part they’re disjointed and don’t even make a whole lot of sense…and i think making a point of pointing out honjii’s blooper was petty and condescending, and i DOUBT that is was “appreciated by the author”

        • what makes YOU such an expert? by what AUTHORITY do you speak?

          How about “several prominent economists have admitted as much — after retiring from their positions” combined with “nobody has yet produced a version of microeconomics which produces valid conclusions outside of cherry-picked situations, but nearly all economic ‘experts’ use microeconomic models as the basis for their conclusions”. (Keynesians like Krugman go with macroeconomic models, which is why they’re more likely to be right — but if you examine the records of the economics “experts” quoted by the media you’ll find very few Keynesians these days.) Maybe it’s just me, but when the “experts” are constantly wrong and some of them have admitted it’s all politically driven, it suggests that economics is really more religion than science.

          at least ONE whopper???? (yeah i know when i comment mine sucks, but i know the rules) not only do your comments have more than one whopper

          Yes, “at least one”. Back when I was learning math, “at least one” covers any positive number, going as high as you like.

          but for the most part they’re disjointed and don’t even make a whole lot of sense…and i think making a point of pointing out honjii’s blooper was petty and condescending, and i DOUBT that is was “appreciated by the author

          You sound like you need to cut down on your caffeine intake a little, there. And as for “condescending”, Mr. Pot, I’d like you to meet Mr. Kettle. He’s black. 😛

  2. @the vicar, i’ve heard economists with many different opinions and i know they don’t all agree but i’ve never heard any of them admit anything about being politically driven, so could you provide me with a few of the names of the ones who have admitted that?

  3. Hey kids, play nice …or I swear I’ll turn this blog around….


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