Editore"s Note
Tilting at Windmills

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December 21, 2007
By: Kevin Drum

IN THE DOLDRUMS UNTIL 2012....Merrill Lynch on the end of the housing bubble:

As we saw in the November housing starts data, the builders are now frantically cutting production.

But with the sales backdrop still softening, they may have to slice their construction plans by another 30% before we hit bottom on a cyclical basis. And, that bottom could be as long as a year away. Beyond that, weak demographic fundamentals point to years of sluggish real estate activity, particularly in terms of the "price". The looming dominance of the "move down" buyer suggests that home values will continue to soften long after the building industry mops up the current excess supply. In fact, real estate pricing in general can be expected to be in the doldrums through 2012.

....Here is what we really "do not get". There are still economists out there talking about how the housing recession is still local and not regionally broad based. We have no idea who their data vendors are. In our view, this clearly goes down as the most national real estate downturn since the 1930s.

But think of the bright side: at least the housing bubble kept the economy humming long enough to get George Bush reelected. So it was all worth it, wasn't it?

Kevin Drum 1:29 AM Permalink | Trackbacks | Comments (81)

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There is providence even in the droppings of a sparrow.

Posted by: Ross Best on December 21, 2007 at 1:40 AM | PERMALINK

Right, and when the bubble is burst, it will be the Democrats in the next administration and Congress that will be blamed. Instead of joining the current bipartisan efforts to "solve" the subprime, CDO and foreclosure problems that the Fed, the administration and the past Congress created, Democrats should be busy exposing who is culpable.

Where are the hearings on the massive fraud that created the problem? Where is the accountability and the effort to identify who is responsible?

When the bottom falls out between now and 2012, it will be too late to pin the blame on those responsible.

Posted by: DevilDog on December 21, 2007 at 1:42 AM | PERMALINK

Paul Krugman and Brad DeLong were writing about a future housing bubble back in 2004 and maybe even 2003. In fact, I remember one person saying specifically that the market would take a big hit when, in 2 or 3 years, all the ARM payments would go up and cause a ton of forclosures. They also said that the housing market was acting a lot like the just-popped tech bubble, insofar as prices were goign up at an extraordinary rate due to speculation, and, like the tech bubble, when real estate prices stopped going up the whole edifice would collapse, since, like the tech bubble, its continuation was completely dependent on that appreciation. I remember this because it made a lot of sense and was very persuasive, they (he?) had even given a time frame, and I was waiting to see if their predictions to come true. Unfortunately they did. It appears that Bush's mindset that he could create his own reality had spread to other areas of the country.

Posted by: Mitch Schindler on December 21, 2007 at 1:52 AM | PERMALINK

The final days are here. We go out like Rome, overrun by barbarians.

Posted by: Luther on December 21, 2007 at 2:06 AM | PERMALINK

Atrios likes to point out that the notion of ever-rising real estate prices isn't really based on anything other than what could be the aberrant experience of the past few decades.

Krugman, in a talk linked to at FireDogLake, says that the bursting of real estate bubbles isn't like the bursting of stock bubbles, in that you don't immediately see the entire drop in prices. Instead you build large inventories of unsold housing with the price slowly going down till the backlog clears.

In this case, the collapse of subprime has also revealed lots of unexpected exposure to bad real estate debt on the part of institutions and players you wouldn't expect to have it. The resulting crisis of confidence in widely separated parts of the financial markets can only be resolved after the players with exposure own up to their losses and either go bankrupt or rebuild their reputations.

I think 2012 is optimistic as a timeframe for working through all this. Nor is it necessarily the case that, once it is worked through, real estate will start another inexorable climb.

Posted by: jimBOB on December 21, 2007 at 3:20 AM | PERMALINK

Mitch schindler: "It appears that Bush's mindset that he could create his own reality had spread to other areas of the country."

But if we turn our backs on God by voting Democratic, and then one day all those secular humanists from al Qa'eda break down our front doors to take our guns and impose their San Francisco values on us while turning all our children and grandchildren into Spanish-speaking gang members who do nothing but sit around all day smoking dope and watching gay porn, then we'll be really, really sorry that we didn't listen to George W. Bush, who'll thus be remembered as a prophet for our troubled times.

Posted by: Donald from Hawaii on December 21, 2007 at 4:47 AM | PERMALINK

Man, when will they learn not to follow the bubble and instead build houses we can actually buy and loans we can actually pay?

Wouldn't that have more stability and therefor profits?

Posted by: Crissa on December 21, 2007 at 4:48 AM | PERMALINK

Of course, as the Democratic Party supports open borders and unlimited immigration, many more neighborhoods will become unlivable for the middle class. That will make housing prices increase in the few upper middle class neighborhoods that are still majority upper middle class white and that still bother to enforce zoning regulations.

Posted by: superdestroyer on December 21, 2007 at 4:49 AM | PERMALINK

The problem is big, expensive houses being bought with big, expensive loans that squeezed American wages couldn't afford. Homes were sold as an investment, bought as goldmines, and are now being sold or trying to be sold as vehicular lemons. The market didn't create all these problems, we did. We did it when we bought huge houses, thought we needed huge houses, and now are only supplied with huge houses. There were plenty of manufacturers willing to build them for us and plenty of banks making the foolish decision to finance our equally foolish desire to get them when we couldn't really afford them. This debt spiral was caused by a greed spiral, and of course the little guy gets screwed the most. I'm glad I was able to get out when I did, at only a modest loss. Most importantly: I could still afford a place to live.

The Congress, President, GOP, Democrats, big banks, international finance, homebuilders, mortgage companies, credit card companies, employers, people who work for homebuilders, and people who live in and buy homes all should have seen this coming and acted accordingly. But there was too much damn money being made. Just like car companies shouldn't have made all those SUVs when gas prices were going up: the market was still there and there was money to be made. It took a few years, but many of the SUVs are smaller now. It'll be decades before we can adjust and there will be small homes to buy.

When some version of Honda starts making small, reliable, efficient and affordable homes, there will be a lot of Chryslers getting decorated with discount stickers. When houses are in line with current incomes, the only truly disappointed groups will be the banks, builders, and debt collectors.

I'm so glad I plan to build my own home.

Posted by: jon on December 21, 2007 at 5:26 AM | PERMALINK

There are plenty of small houses around Jon. Most Americans live in them. Many of them are in Southern California, Northern Virginia, Florida and Boston, and they used to sell for $500,000 to $1,000,000. Of course, in Omaha a similar house would sell for an affordable $100,000.

Location, location, location. That is why all this talk of a national housing bubble is simultaneously overblown and frightening. Overblown because much of the country is not going to suffer dramatic deflation, because much of the country areas didn't enjoy dramatic inflation. Frightening because if our society can't sustain the bottom of our housing market in areas that haven't been overpriced, we are well and truly screwed. Everybody has to live some place. If most people can't afford $100,000-150,000 loans that means the underlying economy isn't good enough to sustain a minimum first world standard of living.

That is a really serious problem, a problem that can't be solved by self-satisfied "leaders" who embrace America's move to a "service economy" model. We need to start re-building our infrastructure. That means we need to start building stuff again.

Posted by: corpus juris on December 21, 2007 at 6:14 AM | PERMALINK

I am sorry. I need to edit before I post. Please delete the word "areas" after country in the third line of the second paragraph and the words "That means" at the beginning of the last sentence.

Preview is my friend. Preview is my friend.

Posted by: corpus juris on December 21, 2007 at 6:19 AM | PERMALINK

Affordable housing is the issue. In areas with higher incomes, the housing isn't proportionally higher in cost. It's econ 101 to see why: increased demand. California will have higher prices than Nebraska because more people live there and more people want to move there. But the McMansion problem is a big part of this current mess. Easy credit (not wealth) was the thing that made us able to "afford" those big homes, stuff to fill them, and the ability to make the payments most of the time. Unfortunately, a move to smaller homes leaves a lot of unsellable homes on the market. So my "solution" (smaller, affordable homes) won't come close to solving the problem. Only lots of bankruptcies can. And won't that be fun to watch? No.

Posted by: jon on December 21, 2007 at 6:37 AM | PERMALINK

With the gross overspending and overborrowing by both the federal government and the average consumer over the past eight years, there had to be a day of reckoning and I'm afraid it may be here. There is going to have to be a lot of pain experienced by a lot of people before this is over.

I hope the blame is placed squarely on the irresponsible Republican Party, where it belongs...

Posted by: The Conservative Deflator on December 21, 2007 at 7:12 AM | PERMALINK

jon,

Let me see if I understand. America needs to lower its standard of living. We need to resign ourselves to being a second world country. Right Jon, when do you give up your "McMansion?" I think you would be well advised to spend a Saturday driving around your city and looking at the housing stock. There are far fewer "McMansions" than you might think and far more starter homes. Anyway what is wrong with a "McMansion" besides the fact that you don't approve of others living a first world standard of living.

Sadly your dream of the world tomorrow is probably more reflective of what will happen than mine. The standard of living for most Americans is on the downward path but that downward path has been dictated by the wealth transfer policies of our current "leadership."

Posted by: corpus juris on December 21, 2007 at 7:22 AM | PERMALINK

One of the unspoken facts about housing is that most of the "affordable" housing is in towns or neighborhoods that middle class whites would never think about living in. thus, middle class whites (and Asians) either bid up the price in the good neighborhoods or commute from the exurbs.

Posted by: superdestroyer on December 21, 2007 at 7:49 AM | PERMALINK

jon,

I will give you this. There are long term trends in housing dictated by the aging of our population and smaller families. As the population ages there are going to be more and more emptynesters looking for quality two bedroom ranches. Families in most first world countries are smaller than families in second and third world countries. If we are lucky enough to retain our first world status the need for five bedroom single family houses will diminish simply because there are fewer families with 4 to 5 kids.

That last trend might be reversed as we move to a second world "service economy" because there will be so many fewer good jobs in the America although there will be more families with four or five kids there are going to be fewer and fewer families with four or five kids who can afford a five bed room houses. Think I am wrong, visit Mexico.

The solution is better jobs, and a stronger economy, not smaller houses. The housing stock will take care of itself.

Jon we have been sold a bill of goods by our leadership. They have told us if we reduced taxes on the very rich we were all going to share in a stronger economy. That's crap. All we accomplished by embracing the Republican tax and economic policies is to transfer enormous wealth from the middle class to the rich. In the process we have weakened the middle class dramatically and placed ourselves firmly on the path to the second world. I am not sure Republicans and their fellow travelers in the Democratic elite care. They kind of like the idea of being served by a lot of low wage peons.

Posted by: corpus juris on December 21, 2007 at 7:50 AM | PERMALINK

F*** this noise. I've been living in a community in its 30th year of downturn--welcome to the jungle, boys.
I'm looking now for the WSJ/Club for Growth spin on how this is all a GOOD thing--or something along the lines of how this is God's punishment for speculating too long and too late in the game.

Posted by: Steve Paradis on December 21, 2007 at 7:59 AM | PERMALINK

I approve of McMansions for those who can afford them. Most people can't. I don't care if the rich want to live in gold-plated space needles with entire herds of cows in the icebox, have an orchestra pit in their home theatre, and thirty five bathrooms.

I do say we need to lower our standard of living to something we can afford. If we make a second or third world economy's wages, we shouldn't live like we aren't. Our problem isn't lower wages so much as unearned higher expectations. We tricked ourselves into buying too much foreign-made crap we don't need, are deeply in debt as individuals and as a nation, and need to correct things while we can.

A stronger economy comes from business decisions, government policy, and a whole lot of people voting with their dollars, investments, and their ballots for something other than short-term gains based on rosy scenarios where everyone will be rich. People don't get rich buying stuff they can't afford.

Posted by: jon on December 21, 2007 at 8:08 AM | PERMALINK

Since at least the administration of Ronald Reagan America has sold the notion that the concentration of wealth in the hands of a few is a good thing. That is what all that "greed is good" talk in the 1980s was about. That is what all the Bush tax policy is all about. That is also what all the "we have to fix the social security crisis by reducing benefits" talk is all about. That is what the Club for Growth is all about.

It is all a bill of goods. The truth is first world economies are marked by about three dominate features. First, wealth is broadly distributed among the citizens. There are lots and lots of winners living well. Second, basic services like quality education and health care are cheap and easily available across the society. Third, first world economies make and sell things.

There have been second world "service" economies. They exist all over Latin America. Service economies tend to be triangular. Broad poverty at the bottom and spectacular wealth at the top.

To my knowledge there has never been a first world "service economy." When our leaders told us about how much better things were going to be after we globalized and converted America to a "service economy," they were talking about themselves. They don't give a fig about most of us. If you didn't go to Harvard or you aren't Skull and Bones you are just a f***ing peon unworthy of consideration.

Look at the trends. Post secondary education is unbelievably expensive. Most can't afford it. The Republicans have sponsored programs like home schooling and the underfunded "no child left behind" designed to weaken our primary and secondary schools. Our kids are undereducated in comparison to the first world.

America's leadership opposes universal health care. We have been sold the strange notion that its their own damn fault if poor people die in the streets untreated. If they didn't want to be poor they would get a better job and buy health insurance. Of course, that assumes better jobs are available. Anyway health care costs are escalating at an incredible and completely unsustainable rate. Nobody in charge notices.

All the while we have lowered taxes on the wealthy until they are actually lower than taxes on the middle class. Wealth is flowing to the rich as never before. That same wealth is flowing from the middle class. The Bush tax policy is sort of like a horror movie with the Bush and his friends in the role of blood sucking vampire and the rest of us cast as innocent victim.

I guess we are supposed to accept that America's wealthy and their servants (who are supposed to be our leaders) are getting rich while the rest of us are getting poor is just an accident. The rich can't help it. The tax policy is just an accident. Anybody here by that myth?

Anyway if you want to benefit from our screwed up tax structure like a rich person you ought to be rich like them.

Posted by: corpus juris on December 21, 2007 at 8:52 AM | PERMALINK

What would have happened to the housing market if millions of illegal aliens had been shipped out in this downturn?

Posted by: Bob M on December 21, 2007 at 9:12 AM | PERMALINK

As far as the folks predicting sunshine just around the corner - I once read a bunch of the headlines from the big Wall Street crash that brought on the Great Depression. There were lots of people back then talking about how people were unduly pessimistic, and that the markets would turn around any day.

As for housing, thank Alan Greenspan. The US economy was tanking, so he dropped interest rates to historic lows. This made it cheaper to buy than rent. Rational people with the necessary resources started buying. Increased demand ran up home prices. Speculators jumped in, running home prices up even more. Homeowners were encouraged to "tap into the unused equity" through second mortgages - which many of them did (kids in college, plasma TVs, loss of one wage-earner's job...). With home prices jumping, everyone wanted to jump on board the gravy train. Financial companies inevitably jumped in and designed "innovative financial tools" for the people eager to make a fast buck but not able to invest in home lending directly. It isn't McMansions - it's people making decisions based on imperfect data.

Causation is clear: had Alan not thrown that snowball down the slope that said "warning, avalanche danger" so as to prop up the economy for Bush's 2004 re-election bid, we'd all be better off. Now that Alan's gone, all we've got is a burst bubble - and the creditors are closing in.

Posted by: RepubAnon on December 21, 2007 at 9:15 AM | PERMALINK

The wool market must be flooded with all the sheep being sheared.

Posted by: baaa on December 21, 2007 at 9:17 AM | PERMALINK
Location, location, location. That is why all this talk of a national housing bubble is simultaneously overblown and frightening. Overblown because much of the country is not going to suffer dramatic deflation, because much of the country areas didn't enjoy dramatic inflation.

Well, the bubble is a national bubble. It's just that there are large swathes of the country where real estate bubbles can't happen in the first place--where land isn't scarce, real estate prices are constrained by construction costs. However, everywhere in the country where land is scarce, the bubble is now bursting, with the possible exception of New York City, where land is really, really scarce and demand for land comes closer than elsewhere to supporting the currently inflated prices. Still, even NYC is seeing a softening market, though we're likely here to have an easier landing than the rest of the bubble-prone parts of the country.

Posted by: R Johnston on December 21, 2007 at 9:17 AM | PERMALINK

in terms of the "price"
the "move down" buyer
Here is what we really "do not get"

Don't worry folks, I've "alerted" the "blog" of "unnecessary quotation marks"

http://quotation-marks.blogspot.com/

Posted by: Oberon on December 21, 2007 at 9:26 AM | PERMALINK

We have no idea who their data vendors are. -Merrill Lynch spokesperson

Translation: "We don't know who *cough*GOP*cough* is selling this line of crap".

Posted by: Wapiti on December 21, 2007 at 9:49 AM | PERMALINK

More good news yesterday about the economy.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.9 percent in the third quarter of 2007, according to final estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.8 percent.

The increase in real GDP in the third quarter primarily reflected positive contributions from exports, personal consumption expenditures (PCE), private inventory investment, nonresidential structures, federal government spending, equipment and software, and state and local government spending that were partly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased....

The acceleration in real GDP growth in the third quarter primarily reflected accelerations in exports, in PCE, and in private inventory investment that were partly offset by an upturn in imports, a larger decrease in residential fixed investment, and a deceleration in nonresidential structures.
http://www.123jump.com/economy-story/Gross-Domestic-Product-Rises-4.9-in-Q3--Final/23967/

It's striking to see panelists analyzing a hypothetical recession, while ignoring the actual economic boom.

Posted by: ex-liberal on December 21, 2007 at 10:13 AM | PERMALINK

Krugman, in a talk linked to at FireDogLake, says that the bursting of real estate bubbles isn't like the bursting of stock bubbles...

Posted by: jimBOB

Yes, and the best part of the talk -- the one that has the most important political implications for us commoners -- comes toward the end, in answer to a question about what to do with these fucking clowns who create no value, spawn gimmicks that make themselves rich, and ultimately fuck everyone else.

I know clowns like this personally. Went to graduate school with them. Boys and girls with high GRE/GMAT scores and an MBA (or PhD in Economics) who are the greediest mother fuckers on the face of the earth, and socially and emotionally retarded as well. To not regulate the piss out of these assholes -- to not look over their shoulder at every moment -- that is, to follow the advice of Ayn Greenspan, is fucking suicide. These aren't the captains of industry; they're greedy little video game players, hiding behind the laissez faire bullshit of socialism for themselves and free enterprise for the rest of us.

They. create. no. fucking. value. And we've allowed them to turn our financial system into a playground. So-called "quants" -- read charlatans -- playing with value created by someone else. They are like unsupervised preschool children. That we have let our so-called "financial system" to be controlled by these idiots is a fucking shame. The argument that we ever needed some of these so-called "instruments and vehicles" that create liquidity while destroying solvency is nuts.

These assholes -- the ones directly involved and those who cover for them -- are nothing but GAMBLERS who have the game rigged so that they never lose. Betting with our fucking money and resources -- value we created. The proof is that we are now in a position that we don't know who is fucked, how badly they're fucked, when they will get unfucked, if ever -- and all the assholes who fucked them are lying their ass off and walking off with hundreds of millions of dollars.

We need to restructure the financial and legal system so that those who cause this damage are destroyed -- forever.

Posted by: Econobuzz on December 21, 2007 at 10:15 AM | PERMALINK

Oh, yes, 'location' tells entirely why a condo with 1500sqft sells for more than a house with 1000sqft and a yard, and why for every 1500sqft condo built, there's half a 1500sqft house, and two to three 3000+sqft houses built.

Find me a housing development with 1200sqft freestanding houses being built.

The fact is, none of the condos are being built for someone making an average amount of money, or the bottom four fifths. They live in older houses and the bottom fifth live in section 8 housing... And many of our neighbors qualify, but probably don't partake.

Rent just doesn't get cheaper just because you don't have six children. It's the same.

Posted by: Crissa on December 21, 2007 at 10:16 AM | PERMALINK

It's striking to see panelists analyzing a hypothetical recession, while ignoring the actual economic boom. ex-liberal

Since most Americans aren't seeing more jingle in their pockets, most Americans don't give a fig about the good news for the very rich. I am sure the cable channels that cater to the wealthy are delighted.

Show us the numbers supporting significant job and wage growth then we will stop worrying.

Posted by: corpus juris on December 21, 2007 at 10:20 AM | PERMALINK

In the town I live in, we moved to the cheapest neighborhood. As I said before, this is mostly 1000sqft or less with four or five rooms - rooms. Two and three bedrooms. Most apartments have three or more people - three wage earners or one or two wage earners and a gaggle of children. Like four to six. I don't know a house that has children that has less than four here.

The newest housing development in our neighborhood? Condos with double garages, pool, priced at three quarters of a million dollars.

Does that sound like a development that people in the lower half can afford?

Posted by: Crissa on December 21, 2007 at 10:24 AM | PERMALINK

What would have happened to the housing market if millions of illegal aliens had been shipped out in this downturn?

Well, if they had been shipped out *before* the bubble, we would have never had the cheap labor to build all the housing in the first place.

Ship them out now? The downward spike in demand for housing would cause even more contraction in the market.

Posted by: Disputo on December 21, 2007 at 10:27 AM | PERMALINK

Rent just doesn't get cheaper just because you don't have six children.

And, btw, rents are going up as people are forced out of their homes and back into the rental market.

Posted by: Disputo on December 21, 2007 at 10:30 AM | PERMALINK

Preach it, brother Econobuzz!

And corpus juris, I have quite a bit experience having traveled all over the 1st world, and McMansions are not part of the landscape. McMansions were merely an architectural affectation caused by a fad among home-buyers for large atriums and "great rooms", aided and abetted by towns which engaged in poor planning, cheap energy for heat and cooling and a credit bubble that causes homebuilders to churn out more than they should have, more quickly than they should have with lower quality than they should have.

I live in a city and work out in an exurb about 20 miles away, which was mostly farmland about 10 years ago. Looking at the real estate market, things are solid but teetering in the city, while there's a bloodbath in the suburbs, with a dozen homes for sale in a single subdivision.

Posted by: Tyro on December 21, 2007 at 10:38 AM | PERMALINK

corpus juris: Show us the numbers supporting significant job and wage growth then we will stop worrying.

In January, 2001, the number of employed was 136,181,000. In November, 2007, the figure was 147,118,000. That's an increase of 11 million jobs.

The employment numbers are shown at the link. http://www.bls.gov/webapps/legacy/cpsatab1.htm
(You have to check the box "employed" then push the button "retrieve data."

Real wages weren't going up early in Bush's Presidency, but they have been increasing in the last few years. And, the Bush tax cuts mean more money left in every taxpayer's pockets.

Incidentally, the rest of the world is doing very well, too. Perhaps the current mortgage crisis will put us into a recession, but one should acknowledge that the US and the world are starting from a point a great economic strength -- strength that may well be adequate to overcome the housing crisis, just as it overcame the the impact of the 9/11 attack and the increase in oil prices.

Posted by: ex-liberal on December 21, 2007 at 10:47 AM | PERMALINK

But think of the bright side: at least the housing bubble kept the economy humming long enough to get George Bush reelected. So it was all worth it, wasn't it?

Damn straight it was worth it.

The alternative -- gay marriage, gun confiscation, persecution of Christians, higher marginal income tax rates, peace abroad and prosperity at home -- was simply too horrible to contemplate.

Bear any burden, pay any price, etc....

Posted by: Davis X. Machina on December 21, 2007 at 10:51 AM | PERMALINK

ex-liberal, with the exception of an interval during the great depression, pretty much all 6-year periods reflect an increase in total jobs.

Stagnant real wages and an increase in food and energy costs eating into everyone's paycheck, along with rising housing costs that can't be refinanced away with a sketchy mortgage means that people have less money in their pocket, not more.

I myself can't say whether the bursting of the credit bubble will be contained or not, but it is a serious problem, and none of the naive happy-talk from the congenitally delusional is going to change that.

Posted by: Tyro on December 21, 2007 at 10:58 AM | PERMALINK

{IP reveals a banned troll. Content deleted.]

Posted by: Keith on December 21, 2007 at 11:06 AM | PERMALINK

If speculators represented 30% of demand for new homes built in the past ten years, that means there is quite a lot of excess inventory of homes. Most of the new homes built were not McMansions, but ticky tac tract homes built on tiny lots. New neighborhoods in the area where I live make me claustaphobic because I cannot see any sky between homes. As these neighborhoods mature, they will become cluttered with parked cars and contribute to more violence. People are living too close to each other and when their children become teenagers and young adults there will be plenty of conflicts in these neighborhoods. These new homes will be difficult to resell because of the aforementioned density and because they are very far away from where the jobs are. People were foolish to buy them in the first place, but they thought homes only increased in value, and, like the speculators, bought as investments. Now these buyers' homes are not worth what they paid and they cannot sell without keeping subsantial debt. As the boomers begin to sell their real estate for retirement, real estate prices may not recover at all.

Posted by: Brojo on December 21, 2007 at 11:13 AM | PERMALINK

Econobuzz has it about right. We have allowed the creation of a system where financial manipulation is more profitable than services or manufacture.

We might follow the example of Taiwan, where they adjusted their tax code to reward manufacture and discourage financial speculation.

While I'm on the subject of tax codes, I was thinking of a way to make a flat tax equitable. We could charge a sales tax on everything anybody buys except food and medicine (to protect the poor). This would include: stocks, bonds, accounting or brokerage services, psychiatry, insurance, consultants, houses, rent, airline tickets, jewelry, Las Vegas gambling, massages, and any other purchase of goods or services. Charge a 30% tax on stock purchases and watch them squeal. It would certainly reduce day trading and encourage holding investments.

Posted by: anandine on December 21, 2007 at 11:18 AM | PERMALINK

The housing bubble was created to make the illusion of wealth for middle class persons, to give Bush the cover to cut taxes for the rich.

It worked.

It's now time to RAISE taxes on the rich to get that money back. They've had a party for 8 years.

I want my money back. I want them to pay for the recession that is coming.

Posted by: POed Lib on December 21, 2007 at 11:31 AM | PERMALINK

A flat tax cannot be equitable. Only morons think that it can.

The ONLY fair tax is a progressive tax. The rich MUST pay more because they GET more. They should pay FULL PRICE for the tremendous benefits they get from our society.

Posted by: POed Lib on December 21, 2007 at 11:32 AM | PERMALINK

But the stock market is going up! Consumers are still spending like good patriots who love their country! Have faith in God's Prosperity Plan for America! We have a special dispensation from the Lord to take the rest of the world's wealth and spend it all right now, just before Jesus raptures us away!

And Heaven has the BEST shopping malls!

Posted by: Wingnut on December 21, 2007 at 11:35 AM | PERMALINK

{IP reveals a banned troll. Content deleted.]

Posted by: Keith on December 21, 2007 at 11:38 AM | PERMALINK

Y'know, amid all the flat and "fair" tax proposals I've run across, I've never heard anyone call for what, by their logic, would be the fairest tax of all - everyone pays the same amount. Works out to something like $10,000 per person per year, I think. Under the so-called flat tax, the rich still end up paying more because they make more. Under my proposed Real Fair Tax (TM), everyone pays the same.

Any takers?

Posted by: dob on December 21, 2007 at 11:46 AM | PERMALINK

Make corporations distribute 50% of net profits to shareholders. Then listen to the squeals.

Econobuzz has it right about the scum on Wall Steet, they need to be supervised all day long.

One of them was former VP candidate Edwards, who earned over $500,000 from a hedge fund that owned two supprime mortgage companies in 2006. Instead of becoming a champion for financial market regulation, Edwards wanted to play with those 'greediest mother fuckers on the face of the earth.'

Posted by: Brojo on December 21, 2007 at 11:46 AM | PERMALINK

Well at least Meryll Lynch is being honest about it.

Posted by: MNPundit on December 21, 2007 at 11:50 AM | PERMALINK

Brojo

Your characterization of Edwards has to be wrong. I heard Sean Hannity call him an intellectual light weight. Those Rich MOFs wouldn't risk their money with an intellectual light weight would they?

My old tax professor told us that it is the duty of every tax attorney and account to take advantage of every legal loophole or other in the tax code. Taking advantage of legal loopholes isn't cheating. It's playing the game. Problems arise when people start bending the facts to fit into some shelter. Nobody has said that Edwards did anything that wasn't perfectly legal under the current code. Don't blame Edwards because Congress enacted some damn loophole, blame Congress.

Posted by: corpus juris on December 21, 2007 at 11:58 AM | PERMALINK

accountant. Damn I am having a bad day.

Posted by: corpus juris on December 21, 2007 at 11:59 AM | PERMALINK

Wait a minute! - 2012 is when, according to the Mayan Calendar, the World Will End! So who cares?
Oh BTW, notice how less talk there is now of "End Times" from fundies, now that it looks increasingly ridiculous this far from all the "signs" like the "ten nations of the EU" (to make horns for the dragon, hah! Now we've got what, 20+?) and it's already 60 years since founding of Israel, but something was supposed to happen by 40 years after, etc.?

PS: Brojo you are right, we shouldn't have Dems representing us who are or even were part of the problem. For all his inexperience etc, is Obama the best choice in that regard? Note the recent poll where he beat all Republicans by the best margins.

Posted by: Neil B. on December 21, 2007 at 12:00 PM | PERMALINK

Tyro, you wrote, "Stagnant real wages and an increase in food and energy costs eating into everyone's paycheck..."

Actually, "real wages" are already adjusted for increases in food and energy costs. Average real wages have gone up in the last few years. That is, rhe Bush boom has more than made up for the increase in energy and food costs. And, the reduced tax rates mean that all workers take home a larger share of what they earn.

I'm old enough to remember when hunger was a widespread problem. Today, obesity is a much greater problem, especially among the poor.

Look around. Home ownership is at a record percentage. Computers and MP3 players are flying off the shelves. The roads are full of cars.

Posted by: ex-liberal on December 21, 2007 at 12:01 PM | PERMALINK

I would not blame Edwards for working with the people who gave us the credit bubble if he was running as a Rebuplican.

Posted by: Brojo on December 21, 2007 at 12:01 PM | PERMALINK

>"Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.9 percent in the third quarter of 2007"

Comical. GDP measured in terms of what? Dollars?

The dollar has devalued by 34% against international currencies... er... now, what was that REAL increase in GDP again?

More accurate translation: Inflation of the dollar against international currencies increased to 4.9% in the third quarter.

Everything they say is a lie. Everything.

Posted by: Buford on December 21, 2007 at 12:11 PM | PERMALINK

{IP reveals a banned troll. Content deleted.]

Posted by: Keith on December 21, 2007 at 12:15 PM | PERMALINK

Home ownership is at a record percentage.

ex-lib, this is exactly what got us into that mess. Home ownership increased due to a speculative bubble in credit which also allowed people to borrow based on the equity of their homes to buy the very cars and mp3 players you are so enamored with.

And why are the roads full of cars? Because those homes were purchased further and further away.

Look, ex-, you can't argue with fundamentals. The fundamentals aren't there to keep the housing boom going (heck, the fundamentals weren't there to cause a housing boom, outside of a fraudulent expansion of credit), and a falling dollar and inability to refinance puts those imported toys out of reach.

People feel like they have less money. Just because a few people don't (for example, me) doesn't mean that the reality is otherwise. Honestly, why do people base their entire identity on an "all is well" fantasy?

Posted by: Tyro on December 21, 2007 at 12:18 PM | PERMALINK

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Posted by: Keith on December 21, 2007 at 12:21 PM | PERMALINK

Hey Keith, the following is from Reuters:

"Retailers have been on edge, worried that shoppers will pare budgets in the face of soaring gas prices, a slumping housing market and a credit crunch.

"Retailers have cut inventories and started advertising holiday discounts earlier than ever -- running online-only sales on Thanksgiving day.

"The emphasis on deep discounts have worked -- consumers came out in droves for the Thanksgiving weekend, drawn by eye-popping, limited-time deals on "Black Friday."

"But as the deals faded, so too did budget-conscious shoppers, betting that prices would drop later in the season.

"We believe the holiday season has been challenging with sales deteriorating more than we anticipated following a relatively strong Black Friday weekend," wrote Stifel, Nicolaus analyst Richard Jaffe."

"In our opinion, a difficult macro environment and adverse weather in the past two weeks (snow storms throughout the Midwest and Northeast, which resulted in an estimated one day of missed sales) have held back sales during the important holiday season."

Get out there and buy like crazy ex-lib and Keith. Only you can save America.

Posted by: corpus juris on December 21, 2007 at 12:27 PM | PERMALINK

Keith, actually, if you read the thread carefully, you will find that someone claimed that McMansions were somehow a sign of a "1st world economy." In fact, my experience with 1st-world economies indicates that they are not. They are orthogonal to whether one's economy is first world (and more in line with bubble-economies of all types).

Please engage brain before commenting, next time.

Posted by: Tyro on December 21, 2007 at 12:28 PM | PERMALINK

Is there really a glut of housing or just a glut of over-priced housing?

Posted by: MarkH on December 21, 2007 at 12:28 PM | PERMALINK

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Posted by: Keith on December 21, 2007 at 12:29 PM | PERMALINK

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Posted by: Keith on December 21, 2007 at 12:33 PM | PERMALINK

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Posted by: Keith on December 21, 2007 at 12:35 PM | PERMALINK

Is there really a glut of housing or just a glut of over-priced housing?

MarkH, I don't think the problem is that there is "too much housing." The problem is that the debt that finances the houses is either larger than the value of the house or larger than the debtors can amortize (or both). It's not that there's a glut-- it's that people and corporations are seeing their assets go up in smoke.

All this talk about how "the economy is AWESOME" reminds me of people saying, "the Euro is going to be WORTHLESS!" back when it first floated as a currency in the face of massive US trade and budget deficits. You can say what you want, but the fundamentals don't bear out a continued trend. People were saying how there was no real estate bubble back in 2005, too. Turned out that not only was there a bubble, but the mortgages were border-line (if not actually) fraudulent.

Posted by: Tyro on December 21, 2007 at 12:39 PM | PERMALINK

Keith, the person raising an argument over the US's status as a first world country is you. I suspect that the use of the term "first world country" set you off into an automated tangent which had little to do with what I was saying to corpus juris. As I said, think before posting, next time.

Posted by: Tyro on December 21, 2007 at 12:42 PM | PERMALINK

"... the people who gave us the credit bubble ..."
Posted by: Brojo on December 21, 2007

To blame a corporation for trying to make money is silly. Ask, who invented the modern American corporation and told them their only purpose was to make money.

Then ask, who was in charge of the government and should have regulated that industry when this problem arose.

Those who focused the corporation on ONLY making money have caused a whole lot of trouble and haven't yet been offered justice.

Those wh should have governed the corporations, but didn't, are just scummy Conservative Bush Republicans.

Posted by: MarkH on December 21, 2007 at 12:44 PM | PERMALINK

That is why all this talk of a national housing bubble is simultaneously overblown and frightening. Overblown because much of the country is not going to suffer dramatic deflation, because much of the country areas didn't enjoy dramatic inflation. Frightening because if our society can't sustain the bottom of our housing market in areas that haven't been overpriced, we are well and truly screwed. - corpus juris

Well, I live in deep-red flyover country where median house prices last year were $120K and I'm seeing AUCTION! signs starting to pop up on a few houses that have been listed for months that haven't moved. I just went through some listings and was shocked to find a 2BR/2BA home (built in the '40s) with a 5-ACRE lot for $92K! WTF?! I talked to a guy the other day that's a lead of a surveying crew and he told me the following info:
1) Despite a subdivision being fully staked and unpaved roads present, and dirt moved around, if the ground hasn't been broken for foundation walls, all the construction has been halted.
2) Contingency loans are next to impossible to get for people that are needing to re-locate.

So, the effect is definitely being felt nationally. The percentage of the drop of course is lower.

Posted by: Doc at the Radar Station on December 21, 2007 at 12:53 PM | PERMALINK

[I checked the IP, and you all have been sucked in by one of our banned trolls. His comments are being deleted. --Mod]

Posted by: Keith on December 21, 2007 at 12:53 PM | PERMALINK

POed Lib: A flat tax cannot be equitable. Only morons think that it can.

Thank you for pointing out my deficiencies.

The ONLY fair tax is a progressive tax. The rich MUST pay more because they GET more. They should pay FULL PRICE for the tremendous benefits they get from our society.

Sigh. Yes, yes, I agree. That's why the point of my post was to do this very thing, to make them pay taxes on everything they do, including invest. No flat tax actually proposed by a real Republican would do these things.

The point of leaving out food and medicine is to make it progressive, because poor people spend a much larger percentage of their income on food and medicine than rich people do.

Christ, is it now moronic to engage in a gedanken experiment? Given that the flat tax proposals floated by Republicans are regressive and ugly, is there a flat tax plan we can think of that would not be? My post was my first try at that. Reacting from ideology rather than responding to the substance of the argument is worse than moronic: It is Republican, even Rovian.

Think of how you might have responded:

--Rich people have other ways to store and use money that would not be reached by the kinds of things I propose taxing.

--Rich people would find loopholes, such as investing in European stock markets rather than US.

--The actual amount of money a poor person would be taxed would still constitute an unreasonable burden.

--Rich people and corporations would find ways in conference committee to slip in provisions that would help them and hurt poor people.

--It is the nose of the camel, and subsequent congresses would make it more regressive by exempting stuff rich people buy.

Instead you chose to say "Only morons think that ... " I guess it's one way of advancing the conversation.

Posted by: anandine on December 21, 2007 at 1:09 PM | PERMALINK

Keith,

About this first world country stuff. I believe that despite the best efforts of George Bush and the Bush league Republicans who have run our country over the last 7 years the United States remains a first world country. I did say there has never been a first world country that was based on a "service economy" model. If I am wrong, please point it out to me.

Posted by: corpus juris on December 21, 2007 at 1:14 PM | PERMALINK
I'm old enough to remember when hunger was a widespread problem..... Home ownership is at a record percentage. Computers and MP3 players are flying off the shelves. The roads are full of cars. ex-lax at 12:01 PM
When you talk of hunger in America , don't talk bull. The fact that roads are full of cars shows a lack of investment in essential infrastructure. The percentage of home ownership is at 2003 levels

...But homeownership didn’t broaden. The great bulk of dubious subprime lending took place from 2004 to 2006 — yet homeownership rates are already back down to mid-2003 levels. With millions more foreclosures likely, it’s a good bet that homeownership will be lower at the Bush administration’s end than it was at the start....

you can brag about the sale of baubles, but they're paid for with debt, debt and more debt

....Income growth is slowing. In October 2007, income growth (adjusted for inflation) was 3.0 percent higher than a year ago, down from 4.0 percent year-on-year growth in September and 4.6 percent growth year-on-year in August.
· So, too, is wage growth. Between October 2007 and October 2005 real wage growth fell by 51 percent.
· Debt rates are rising. In the third quarter of 2007, total debt stood at 133.0 percent of disposable income—the highest level on record..
· Americans are spending less. Census data show a deceleration in the retail sales growth over the past several years.
· The housing crisis is getting worse. The third quarter of 2007 found the highest foreclosure rate on record—0.8 percent of all mortgages foreclosed—after six consecutive quarters of rising foreclosure rates.
· Bankruptcies are rising alarmingly. In less than two years the bankruptcy rate grew by 85.2 percent, with 2.8 bankruptcy cases per 1,000 people in the third quarter of 2007.....

Ideologues singing hosannas do not a sound economy make.

Posted by: Mike on December 21, 2007 at 1:37 PM | PERMALINK

Financial companies inevitably jumped in and designed "innovative financial tools" for the people eager to make a fast buck but not able to invest in home lending directly. - RepubAnon

The financial "wizards" have succeeded in turning the mortgage/HELOC lending spree into a mirror image of what they've been doing with credit cards for over a decade. I've started seeing some mortgage ads on websites again recently since rates have come down some. I'm sure they are trying to get the last dibs in before the whole show gets unplugged with new lending rules.

Posted by: Doc at the Radar Station on December 21, 2007 at 2:07 PM | PERMALINK

"It's striking to see panelists analyzing a hypothetical recession, while ignoring the actual economic boom."

That's because they're not partisan morons like you, idiot, and because there is no "actual economic boom."

Posted by: PaulB on December 21, 2007 at 3:27 PM | PERMALINK

"Ideologues singing hosannas do not a sound economy make."

Yup, which is just one more reason to not like the Republican Party's chances in 2008. For the vast majority of voters, the economy isn't in good shape and no amount of bullshit like our dear chum faux-liberal is slinging will convince them to ignore reality and pretend otherwise.

Posted by: PaulB on December 21, 2007 at 3:57 PM | PERMALINK

In answer to the conservative cheerleaders posting here, especially those using the term "Bush boom", I cite the following:

1. Credit card debt is now approaching $1 TRILLION.

2. NONE of the predicted gains in job growth, median income, or federal revenue have taken place because of the Bush tax cuts, and yes, I can cite specific data in each instance.

3. SEVENTY PER CENT of all the national debt accumulated since 1789 has been racked up by three Republican presidents, two of them named Bush.

4. Debt service in the U.S. budget exceeded $400 billion in Fiscal 2006 and is headed for $500 billion now. The "Bush boom" has all been put on the plastic.

5. Bush and the Republican Congress of 2001-2007 increased our national debt by 60%, or in actual terms, more than $3 TRILLION.

6. Republican opposition to alternative energy since Reagan has inflicted enormous oil debt on consumers--and made the financial contributors to the Republican party in the oil industry fabulously rich.

7. Foreign banks now hold so many rapidly depreciating dollars that if they start denominating their holdings in Euros, we're screwed.

8. The upper 5% in this country controls 70% of the assets. The upper 20% controls 91% of the assets.

9. For the first time since the Great Depression, savings are negative.

10. Income for the bottom 20% rose by 2% between 2003 and 2005. It rose by 43% (!) for the top 1% in that same period.

11. For the first time since the 1930s, median housing prices are collapsing.

Hey, but other than all that, you're right. Things are great.

Posted by: Joseph A. Miller on December 21, 2007 at 4:07 PM | PERMALINK

ex-liberal cited:

In January, 2001, the number of employed was 136,181,000. In November, 2007, the figure was 147,118,000. That's an increase of 11 million jobs.

What ex-liberal didn't mention is that the US economy needs about 160K net new jobs to keep up with net population growth. That translates to 2 million new jobs per year just to keep up with the population. Sadly, despite huge increases in deficits and personal debt, job growth in the last 7 years FAILED to keep up with growth in population. Short by about three million jobs.

Posted by: rational on December 21, 2007 at 5:06 PM | PERMALINK

Correction to above post: It is 160K net new jobs per month, which translates to 2 million new jobs per year.

Posted by: rational on December 21, 2007 at 5:09 PM | PERMALINK

I would have thought a "company" as large as "Merrill" "Lynch" would have someone who knew how to use "quotation marks".

Posted by: Sean Peters on December 21, 2007 at 10:21 PM | PERMALINK

MESSAGE

Posted by: ISHMAel back on March 5, 2008 at 8:29 AM | PERMALINK

MESSAGE

Posted by: ISHMAel back on March 5, 2008 at 8:30 AM | PERMALINK

MESSAGE

Posted by: ISHMAel back on March 5, 2008 at 8:30 AM | PERMALINK

MESSAGE

Posted by: ISHMAel back on March 5, 2008 at 8:30 AM | PERMALINK

MESSAGE

Posted by: ISHMAel back on March 5, 2008 at 8:30 AM | PERMALINK
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