September 9, 2010

Housing Divided


There’s been considerable buzz lately on the doomed attempt to sustain and reflate the housing bubble. Should policy capitulate to the real free market and let prices deflate? Which is another way of saying, should we let prices move closer to reality? Housing became absurdly expensive, way beyond any historical measure, as a result of the bubble. Reality now wants to deflate.
This would contradict the government’s commitment to propping up the zombie banks, as their fraudulent balance sheets are dependent upon reflating the bubble. This has been the basic contradiction from the start of the Bailout: Corruption vs. increasingly insistent reality. It defines how the Bailout, even leaving aside its criminality, is a policy of fantasy and insanity.
That’s why every phony mortgage mod plan was intended only to continue to extract payments while preventing prices from continuing to decline. That’s why cramdowns are anathema. That’s why the nightmare scenario would be large numbers of people making the rationally and morally correct decision to walk away* from underwater mortgages. That’s why the desperation position, including that floated a month ago as a rumor about upcoming GSE policy, would be to really renegotiate payment schedules but not write down the principal (the HAMP was a lie which promised to do this).
[*Among the non-rich there’s no such thing as a “strategic default”. Even those who could at the moment afford to pay have to take into account the precariousness of their situation. No one who isn’t rich can say with confidence that he’ll be able to keep paying indefinitely, or that his payments now won’t end up having been an irrational mistake in retrospect. If there’s any doubt at all about one’s negative equity, we have to assume we can’t afford to maintain it. So if the definition of a strategic default is to “walk away while you can still afford to make payments”, then for the non-rich there’s no such thing as a strategic default.]
This week two NYT articles expressed the elite ambivalence. They struggle in the contradiction. The reality of asset deflation stares them in the face, but given that the Bailout cannot coexist with this reality, and given that they’re nevertheless committed to the Bailout…..

Caught in the middle is an administration that gambled on a recovery that is not happening.

“The administration made a bet that a rising economy would solve the housing problem and now they are out of chips,” said Howard Glaser, a former Clinton administration housing official with close ties to policy makers in the administration. “They are deeply worried and don’t really know what to do.”

Streitfeld describes the policy follies, talk of another destructive housedebtor tax credit, administration cadres contradicting one another, empty proclamations, “stakeholders” like Bill Gross still pimping the rumor about really doing rate reductions (but not principal cramdowns), the administration still resisting….it’s all very stupid.
I won’t bother documenting all the lies and editorializing in the piece. There’s as much as you’d expect from an NYT piece on this subject, because it too is committed to the Bailout and the permanent zombification of those fraudulent balance sheets.
But I must emphasize the falsehood of this line of propaganda:

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Nobody “chose” current housedebtors. The corrupt politicians chose to prop up prices as part of the bank bailout. The housedebtors are just an occasion for that.
Here’s the editorial core:

A small decline in home prices might not make too much of a difference to a slack economy. But an unchecked drop of 10 percent or more might prove entirely discouraging to the millions of owners just hanging on, especially those who bought in the last few years under the impression that a turnaround had already begun.

So according to the NYT the current propensity of housing prices to fall is a minor glitch in the big scheme of things, and not at all a major symptom of the core insanity and unsustainability of the exponential debt/growth economy itself.
So letting prices fall in compliance with reality would really be just “choosing to do nothing” in the face of an annoying but fixable SNAFU, and this capitulation would have nothing to do with restoring reality-based economic balance. Meanwhile, it would badly hurt those still clinging to the American Dream.
The desired implication is obvious – the reader should demand forceful action to prop up housing prices. In this way the NYT hopes to astroturf unwitting “bottom up” support for the Bailout.
Streitfeld’s colleague Leonhardt takes a different tack, discussing whether housing was and is actually overpriced at all, and what that ought to mean. Of course, this is simply inventing a false debate by taking those who state the obvious, pairing them with mercenary hacks, and pretending there’s a real question being asked and answer being sought.

No one doubts that prices rose roughly with incomes from 1970 to 2000. The issue is whether that period was an exception. Housing bears like Barry Ritholtz, an investment researcher and popular blogger, say it was. The government was adding new tax breaks for homeownership, and interest rates were falling. These trends won’t repeat themselves, the bears say.

As evidence, they can point to a historical data series collected by Mr. Case’s longtime collaborator, Robert Shiller. It suggests that house prices rose no faster than inflation for much of the last century…..

The second, less bearish group of economists doesn’t buy this. This group includes Mr. Case, Mark Zandi of Moody’s Analytics and Tom Lawler, a Virginia economist who forecast the end of the housing boom before many others did. They say they believe that house prices rise nearly as fast, if not quite as fast, as incomes, and that real estate is no longer in a bubble.

The inclusion of Zandi says it all for where the “less bearish” are coming from.
Leonhardt does ask a question which goes to the core, far deeper than he intends.

I can’t claim to clear up all the uncertainty. But I do want to suggest a framework for figuring out whether you lean bearish or less bearish: do you believe that housing is a luxury good and that societies spend more on it as they get richer? Or do you think it’s more like food, clothing and other staples that account for an ever smaller share of consumer spending over time?

He means of course that given the neoliberal rigged-market and Social Darwinist parameters, “is this the way things behave?”
But the real answer is always the prescriptive, not the descriptive. So the answer to the question is that in a healthy society housing “prices” would act in the latter way, and that’s the society we must rebuild. Since we all need housing, if we have to “pay for” it then no one has the right to treat it and pay for it as a luxury. That’s coercion and assault against those who can’t afford to pay luxury prices for a necessity.
That brings us back to the core issue here. These articles represent the housing quagmire as an isolated policy mess. They emphasize how painful asset deflation may be for housedebtors. But this is doubly false.
Housing policy has nothing to do with the good of the householder and everything to do with propping up insolvent banks and enabling them to continue their rent extractions. And reality’s compulsion toward asset deflation isn’t some accidental thing floating around which policy is free to choose to deal with or not. It’s the result of structural gravity, of the physical (Peak Oil) and economic unsustainability of infinite growth, which has reached its limit.
Underwater housedebtors can’t be removed from their predicament by any top-down policy short of cramming down the principal, which would directly contradict the reflation imperative of policy. They can remove themselves by walking away from the self-destructive debt. Or if they surrender to their plight and wait for policy to help them, that’s simply committing fiscal suicide, since sooner or later policy will be overwhelmed by reality. But in the meantime their passivity just enables the Bailout, just enables their own debt enslavement, and portends the enslavement of us all. In that sense underwater debtors who don’t jubilate are a kind of scab.
So however painful in the short term jubilation and capitulation to deflation may be, it’s the only way. You can’t appease fascists, and to genuflect before the neoliberal version by continuing to play its debt game by remaining the good little sharecropper is just another pre-doomed attempt at appeasement.
Housing divided by the banks can never be united through compromise with the banks. A house divided by class war can’t be united except by fighting hard and following through to the bitter end, for only there can we break through and beyond to freedom.


  1. A few comments here…
    I sometimes think that insistance on believing that the crooks in power have loaded the dice and are devoted to milking us for all we’re worth is due to the refusal to squarely look in the face the OTHER POSSIBILITY which is much more disturbing to our control freak society : that “the elites, the ones running the show are really shitting in their pants with fear because THE WHOLE THING has gone out of control, and they don’t have a clue about what to do to fix the problems.
    MY EXPERIENCE AS A SHRINK has taught me that most human beings prefer to believe in an all powerful bad guy that is screwing them than an all too human person who CAN’T CONTROL or solve the fuck up. Call that human psychology.
    I have sometimes wondered about all the hype about how prices get fixed…
    Like… maybe… the housing bubble COULD be related to our DESPERATE ATTEMPT to hold on to THE VALUE OF THE AMERICAN DREAM which is… a HOUSE for every individual (family), with two kids, two SUV’s, etc etc.
    On a personal note, my cousin, two years ago, was a highly paid, working his ass off executive in a big insurance company WITH A BIG BIG HOUSE in the country, and… two kids, and maybe ONE SUV…
    Last year he SOLD the whole kebang, quit his job, and took a BIG SALARY CUT, while renting an apartment in a big university town. The kids are in college, (no big time EXPENSIVE schools there) and they are currently living on their savings, as what he is earning as a consultant is not bringing in what he earned before.
    Question… is HE rich ? Is HE one of the elites ?? (They owned their house…)
    Even… the upper middle class needs to put a roof over their heads, don’t they ??
    And.. for info, another one of my friends’ sons has done up a van that he will use to do. ITINERANT WORK, going from job to job while traveling. He is in his early 20’s. HE doesn’t want… a HOUSE. Maybe.. there are other lifestyles possible that we need to investigate too ??
    Maybe.. the American dream needs a big overhaul ?

    Comment by Debra — September 9, 2010 @ 12:39 pm

    • Shorter Debra (first half): accurately describing the problem and prescribing its remedy does not require ASCRIBING blame. (I had to throw in the RANDOM all caps.)

      I agree with that (hell, I wrote it before I read your comment), but the fact is that Hayek and his fellow architects of neoliberalism intended precisely this outcome. For them it was all about making the world safe for the rentiers. I’m sure that the neoliberal followers are just being human instead of being evil like Hayek, Mises and Friedman.

      And yes, Debra, your cousin is rich and is one of the elites, even if he doesn’t actively participate. I was an executive of a public company, I walked away 18 months ago, and I’m now “living off my savings” (although the consulting work I do for 15-20 hours A MONTH manages to make it so that our savings have been increasing since I walked away). Compared to the rest of our society, I’m among the rich and the elite, just like your cousin, and I’m willing to admit to that fact. Why aren’t you?

      Comment by Tao Jonesing — September 10, 2010 @ 10:26 pm

      • Hello, Tao, and welcome to the blog. (I don’t think you’ve commented here before, have you?)

        Thanks for trying with Debra, but I think she has a different agenda.

        Comment by Russ — September 11, 2010 @ 4:42 am

      • I’ve been lurking for awhile, Russ. I’ve always enjoyed your comments elsewhere, so I followed you here a couple of months ago.

        Trying to communicate with people I don’t understand or who don’t seem to understand me is something I like to do because I learn a lot about myself and them. And it makes it easier for me to communicate with people like them in the future.

        Comment by Tao Jonesing — September 11, 2010 @ 12:31 pm

      • Cool. Congrats on your new blog. I would’ve christened the comments for you, but it doesn’t look like you have them.

        So here’s my comment: They’re really starting to write down that garbage? But everything’s been dedicated to propping it up.

        Comment by Russ — September 11, 2010 @ 4:03 pm

      • Thanks, Russ. I just turned the comments back on. The blog had been a private scratch pad for a variety of different ideas. I’ve now repurposed it to focus primarily on economic and social issues.

        I’ve been doing a lot of research into the rise of neoliberalism and its consequences, and I intend to focus on that along with empirical, data-driven analysis of public data.

        Comment by Tao Jonesing — September 11, 2010 @ 10:29 pm

      • Excellent. We need a data warehouse compiled from the point of view of fighting neoliberalism.

        I’m not aware of one site which I’d call the go-to place.

        Comment by Russ — September 12, 2010 @ 6:02 am

  2. Re your comment on the last thread… all I want to do is to defend the elites.
    You make me VERY ANGRY THERE.
    It’s not for nothing that I used to write COUNTLESS LETTERS to ask that death row defendants (not exactly.. THE WEALTHIEST PEOPLE IN THE U.S.) NOT BE EXECUTED REGARDLESS of their crimes.
    It’s not for nothing that I visit people who have been INTERNED in psychiatric hospitals either, or that I even.. HANG OUT WITH THEM AND ENJOY THEIR COMPANY (more than the company of many of my, ah… WEALTHIER friends, BUT NOT ALL.).
    No, I am an elite defender in your eyes.
    That is really narrow and prejudiced thinking.
    It is tantamount to… saying that because I am against the death penalty, I am AGAINST the victims and FOR the death row convicts.
    Do you care ??
    Or do you just like.. SOUNDING OFF ??
    You disappoint me. Too bad, because some of your analysis is really interesting.
    If YOU were not so interested in SCAPEGOATING the “elites”, i would not feel so… OBLIGED to defend them.
    There are two sides to EVERY coin.

    Comment by Debra — September 9, 2010 @ 12:50 pm

    • Oh yeah! Here we have the usual liberal stupidity… defend those who would without a second thought throw you to the wolves. Those poor elites; how could you scapegoat them?! They may have destroyed the american dream and sent tens of millions to the unemployment lines, but you can’t be so negative towards them, the sorry things!

      Comment by jimmy james — September 9, 2010 @ 1:49 pm

      • Actually, that looks like the usual “conservative stupidity.”

        Hey, look, I give to charity!

        Comment by Tao Jonesing — September 10, 2010 @ 10:28 pm

    • I overheard a couple of people at the bar talking about the history of the financial crisis. One of them said to the other: “Your problem is that you see history all wrong, as somehow one of your courses in the humanities department. I, however, see it as one of the social sciences.”

      Comment by Lloyd — September 9, 2010 @ 2:24 pm

  3. When you show up at the revolution with the pitchfork in your hand, jimmy… I really can’t say WHERE I will be… I DON’T KNOW YET.
    I DO know.. that lots of people on the blogs love sounding off, and spouting off about abstract ideas, and situations. (That comment above was about PEOPLE, not JUST abstract situations with lots of big numbers.)
    And they start salivating when they hear words like… “liberal” or “communism”, or “marxist”, “democrat” or… “christian” or WHATEVER.
    Sounds like the country has turned into one big maelstrom of salivators.
    Too bad… Lots of potential for MANIPULATION there.
    Demagoguery is deadly to the republic.
    Too bad that it appears to be endgame for the American dream at this point.
    Over here IN FRANCE, there is a great demagogue who has just decided that… Sigmund Freud is not Santa Claus, and HE has been busy spewing out a lot of stuff during a major temper tantrum because, aw shucks, he’s disappointed that heaven is not on earth, and that HIS HERO is not who he thought he was.
    The WISE man does not give in to temper tantrums.
    He turns his tongue ten times in his mouth before speaking.
    And he does NOT scapegoat.

    Comment by Debra — September 9, 2010 @ 2:45 pm

    • Debra,

      I think I understand where you are coming from, and I empathize. Truly, I do.

      Let me try to say what I think you mean: there are plenty of people who have been rewarded by our current system, even excessively, who are good people who had no intention of causing harm to anybody, so let’s not blame them. Is that what you really mean?

      If so, I agree with you. I certainly don’t want anybody stringing me up simply because I am, at least economically, at the low end of the “elite” and next to go as the “elite” pull up the ladder.

      That being said, our current SYSTEM (all caps, for your benefit) was CREATED by NEOLIBERAL ELITES like Friedman and Hayek. Their system kills people every day and needs to be euthanized with something better to take its place. When I read what Russ has to say, that’s the filter that I read it through. It’s the rentier/speculator-reinforcing system that’s evil. Only some of the elites are evil(most of them are just chasing the carrot like I used to do), and I don’t think I’ve met more than a handful of those.

      Comment by Tao Jonesing — September 10, 2010 @ 10:43 pm

  4. I DO know.. that lots of people on the blogs love sounding off, and spouting off

    Yes indeed, you’ve provided evidence of this.

    You still don’t understand how to use the word “scapegoat”.

    And I think it’s pretty obvious which side you’d be on if the people tried to take back and redeem their societies.

    Comment by Russ — September 9, 2010 @ 2:51 pm

    • I humbly request that you EXPLAIN to me YOUR definition of the word “scapegoat” ?
      MAYBE we can find some COMMON GROUND for exchanging, then. (Remember… the DICTIONARY only provides a necessarily subjective snapshot of ANY word whose meaning is constantly evolving EVEN AS WE EXCHANGE. And as for “believing” that YOUR definition of the word “scapegoat” is “THE TRUTH” (neon flashing lights, please, and incense, a respectful pause while we bow down before the IDOL, “TRUTH”), well, you already know how I stand on that one.
      IF/WHEN ? the revolution arrives, (blithely accelerated by insouciant, well meaning, and earnest people like yourself) I have great faith (unfortunately…) that I will be one of the first to go, MOWED DOWN in the generalized BRUTISH STAMPEDE that occurs when people relinquish ALL ties to reason. History will bear me out on this one, too.
      I have no illusions about that one.
      Where do you think YOU will be ? Leading the charge, maybe ?
      History tends to show us that the most.. idealistic people in the French Revolution ended up SOONER OR LATER on the guillotine, some of them after committing horrendous crimes too. (After all.. ending up on the guillotine is PROOF OF NOTHING, but committing those horrendous crimes in the name of abstract “liberty”, etc etc, that should give US PAUSE for thought.)
      On some of your previous comments.. STYLE IS EVERYTHING. The choice of words you use, too.
      Indeed, it is because, unfortunately most people blogging are incredibly unaware of the nature of language, and the power of words that things risk getting totally.. OUT OF CONTROL.
      As I say to my loony friends (to whom I belong, in some ways, and who I find much more endearing than most people who CONSIDER themselves “normal” these days, and point fingers), language is NOT JUST content, or a message. It is much more than that. As YOU have already discovered.
      Am I sounding off ? Well, as I say to Edwardo, I sure as hell am having fun doing it.
      And you’re right… I MUST BE AN ELITE…. I have more than a 250 word vocabulary to do it, and I’M FUCKING PROUD OF THAT. I worked hard for it.

      Comment by Debra — September 10, 2010 @ 2:49 am

      • I already explained to you what a scapegoat is, in my comment on your idiotic post.


        Having a vocabulary doesn’t make one part of the criminal elite. But using it on behalf of that elite does make one a criminal.

        Comment by Russ — September 10, 2010 @ 3:06 am

      • Debra,

        It is only natural for people who understand how they are being screwed to become upset, engraged, determined at any cost to fight back. If they cannot create the just society they have idealized, the next best thing is to pull down the corrupt society and enjoy the resulting chaos. Seldom do such people envision themselves among the casualties.

        Chances are America will muddle through no matter how unlikely this seems right now. Of course this is not to suggest that millions of people will not take a ferocious beating, nor that a coterie of insiders and manipulators will not profit handsomely.

        I try to reconsider all the rhetoric in its true spirit of entertainment.

        Comment by jake chase — September 10, 2010 @ 11:10 am

      • Actually, Debra, you and Jake have a lot in common.

        Just like you, Jake wants to crawl and scrape and beg for a paltry little drop to trickle down, although he calls it “noblesse oblige”.

        So you’ve both vested your faith in the elites.

        Comment by Russ — September 10, 2010 @ 2:46 pm

      • “And you’re right… I MUST BE AN ELITE…. I have more than a 250 word vocabulary to do it, and I’M FUCKING PROUD OF THAT. I worked hard for it.”

        Sad. You claim to have an extensive “vocabulary,” but to you those words seem to be an exercise in spelling and not comprehension.

        If you spend a little time getting past your emotions, you’ll see that Russ is making a lot of important points, many of which you will probably agree with.

        P.S. Debra, the amount of cognitive dissonance you display is A-FUCKING-MAZING. As a SHRINK, you understand the term “cognitive dissonance,” n’est ce pas? Can you explain to me why I say this? I doubt it because you do not seem to have a sufficient amount of self-awareness, but I would love you to make the attempt. The exercise will do us both some good.

        Comment by Tao Jonesing — September 10, 2010 @ 10:54 pm

  5. Another great blog, my friend. I guess I need to read the NYT a bit more. Peace to you and your house, Russ.

    Comment by Bloodgroove — September 9, 2010 @ 8:43 pm

    • Thanks, JD. Peace to you as well.

      Comment by Russ — September 10, 2010 @ 2:00 am

  6. “This would contradict the government’s commitment to propping up the zombie banks, as their fraudulent balance sheets are dependent upon reflating the bubble.”

    Allow me to proffer a (one world government) master plan:

    The bankster cabal doesn’t actually want to re-inflate the bubble at least until prices in many, if not all, asset classes are much lower. To that end a double dip in shares and a further fall in housing prices is assured.

    However,”they” are walking a tight rope such that while they would like to be able to own “all of it” they dare not let things sink beyond a point of no-return at which point “they” will be the ultimate bag holders.

    The Federal Reserve “group” will not lend their activities to unleashing a hyper-inflation, at least not until more assets are on their balance sheet- to that end expect QE II, because to do otherwise would simply end up bailing out, at least nominally, borrows, i.e. the middle class, and more importantly, hyper-inflation would terminally sunder their FRN money franchise. They won’t care about that, however, if they are sitting on immense portfolios of physical assets.

    They are walking a very narrow tightrope

    Comment by Edwardo — September 10, 2010 @ 2:03 am

    • Michael Hudson suggested something similar in his piece Bubble 2.0.


      But this kind of thing sounds too complex to engineer. If we compare it to military history, such vast yet intricate strategies which are supposed to work under such chaotic conditions never do work the way they’re supposed to, and usually fail disastrously.

      Comment by Russ — September 10, 2010 @ 2:06 am

  7. On a somewhat different note, Russ, perhaps you’ve seen this?


    Comment by Edwardo — September 10, 2010 @ 9:54 pm

    • Yeah, it’s horrible.

      The Bush record of assaulting civil liberties and executive secrecy were two things candidate Obama explicitly attacked and explicitly promised to reverse.

      So the fact that he explicitly LIED about these things, a fact which can’t be obfuscated by any amount of apologism and rationalization, proves that those who claim to be “progressives” yet still support this thug cannot possibly be acting in good faith.

      Comment by Russ — September 11, 2010 @ 4:47 am

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