The Housing Bubble

Good Morning Clueless America……rise and shine for another day of wasting our precious resources on deadbeat HoeOHnaz…

Government to Deploy Broader Mortgage Aid ~ WSJ

The Obama administration on Tuesday will launch its most ambitious effort at reducing mortgage balances for homeowners who owe more than their homes are worth.

Officials say between 500,000 and 1.5 million so-called underwater loans could be modified through the program, the first initiative to target homeowners who are current on their mortgage payments but are at risk of default because they have no equity in their homes. Some experts are warning, however, that the same knots that tied up prior initiatives could do so again.

Under the new “short refinance” program, banks and other creditors that write down mortgages to less than the value of the property can essentially hand off the reduced loan to the government. The process involves refinancing borrowers into loans backed by the Federal Housing Administration.

While the program puts taxpayers at risk—officials estimate one in five loans in the program could default—the government has set aside $14 billion previously earmarked for housing aid from the Troubled Asset Relief Program to cover losses.

The new program, which was announced in March, is starting as the housing market shows signs of renewed trouble and as the Obama administration’s signature Home Affordable Modification Program, or HAMP, falls short of its goals of helping three million homeowners. Half of the 1.3 million borrowers that enrolled in temporary loan modifications have fallen out of HAMP because they didn’t qualify. Only one-third has received permanent modifications.

Hey guys..

http://www.foxnews.com/politics/2010/09/04/white-house-deploy-broader-mortgage-aid/

Gosh, I wish I had bought a $400,000 house that is now worth $200,000 and get the govt to write down the value so I can get a lower payment. Think they will do that with cars too?

“The topic no one wants to talk about: house prices. They need to fall more. Washington has attempted to prop them up with some 18 different programs from mortgage buyouts to tax schemes. It delayed the fall of prices for a time. But they have begun to fall again, exactly to the point where nature wants to take them.” ~Facing the Music.

< Lew Rockwell explains that you can’t artificially boost both supply and demand at the same time, which is exactly what Washington has been trying to do. Lew compares the 1930’s economic depression with the present one and notes the major differences between what consumers can do today, with credit cards and deferred debt, compared to the hapless consumers of the ’30s.

Rockwell quotes von Mises, who had it all figured out in 1931.

http://www.lewrockwell.com/rockwell/reality-economics153.html

Remember 2007? Panic was beginning to set in and Congress, rattled - as always, raised the public debt ceiling on September 28th to a staggering $9.81 trillion!!

Congress blew through the new borrowing level in nothing flat. By July 30, ‘08, it was necessary to raise the debt ceiling to $10.6 trillion.

That wasn’t nearly enough. Congress has raised the debt ceiling FOUR TIMES since then! It’s now $14.3 trillion. And what’s the actual public debt right now?

$13,449,652,537,035.05

Your U.S. Congress has raised the debt ceiling 73 times since 1940. Maybe we need put the brakes on the runaway spending spree and vote for a different breed of politician.

Lest we forget! The U.S. Constitution was written in 1787 to replace the flawed Articles of Confederation, which, among other failings, permitted the issuing of irredeemable paper currency.

“The 1781 Articles of Confederation needed fixing, particularly with respect to putting the kibosh on irredeemable paper currency. Forty-seven years after ratification of the new constitution President Andrew Jackson explained it: ‘…it was the purpose of the Convention to establish a currency consisting of the precious metals. These were adopted as a permanent rule excluding the use of a perishable medium of exchange, such as certain agricultural commodities recognized by the statutes of some States as tender for debts, or the still more pernicious expedient of paper currency.’

“The vision of getting something for nothing, or getting something that someone else has to pay for, explains why so many Americans are duped by politicians.” ~Dr. Walter Williams

This brings us back to Professor Franz Oppenheimer who neatly explained in his early 20th century book Der Staat that there are only two ways to exist - either by working to supply one’s shelter, raiment, and food….OR, living out of the pockets of people who do.

It really is that simple.

A New Program To Attack Underwater Mortgages
By Tom Lindmark|Sep 4, 2010, 11:55 PM|Author’s Website
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So what’s behind this. Well, the article contains one rather interesting observation:

The administration’s plan doesn’t target loans held by Fannie Mae and Freddie Mac, which own or guarantee half of the $10 trillion in U.S. first-mortgage debt, to avoid inflicting big upfront losses.

Instead, officials hope to reach more loans that were bundled by Wall Street firms and sold to investors as mortgage-backed securities. For more than a year, many of those investors, which include hedge funds and pension funds, have been clamoring for such a program because they have already had to mark down the value of their holdings.

“It’ll take some really crappy loans out of the marketplace…and replace them with much higher-quality” mortgages, said Scott Simon, a managing director at Pacific Management Investment Co.

So who are these hedge and pension funds that are clamoring for relief. Could it be bottom fishers who bought this stuff at deep discounts and have the flexibility to modify loans without incurring a loss. Is this just a means for them to cash out rather than holding onto these loans? Has the game been to not modify even though their acquisition price allows for it in order to induce the government to provide a liquidity facility?

I’m speculating obviously, but this program seems so pointless on its face that I’m induced to believe that there is something else at work. Just getting jaded I guess.

Surprise! Banks help more homeowners than Obama
By Tami Luhby, senior writer
August 30, 2010: 7:15 AM ET

NEW YORK (CNNMoney.com) — Remember how everyone complained that banks weren’t doing enough to help troubled borrowers?

Banks have realized that foreclosing on home after home after home may not be in anyone’s best interest — least of all their own. So they’ve ramped up the number of loan modifications they’re handing out to their delinquent clients.

Banks are doing nearly twice as many modifications under their own foreclosure prevention initiatives than under the Obama administration’s signature Home Affordable Modification Program, known as HAMP.

But before homeowners rejoice, they should take a close look at the terms of their bank modification offers, consumer advocates say. Many may not be as good as HAMP, which lowers monthly payments to 31% of pre-tax income.

“We don’t know if they are sustainable based on the monthly payment,” said John Snyder, manager of foreclosure prevention programs at NeighborWorks America, adding banks don’t release a lot of information about their modifications. “We’re not sure what to think.”
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SYNDICATED COLUMN: The Banksters Strike Again
August 19th, 2010

Chase Bank and Obama’s “Make Home Affordable” Scam
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From Chase’s website: “No matter what your individual situation is, you may have options. Whether your want to stay in your home or sell it, we may be able to help.”

Key word: “May.” Translation: “May” = “Won’t.”

As I can now attest from personal experience, “Make Home Affordable” is a scam. MHA is cited by bank ads as evidence that they get it, that their “greed is good” days are over, that we don’t need to nationalize the sons of bitches and ship them off to reeducation labor camps.

In reality, it exists solely to give banks like Chase political cover. They deliberately give homeowners the runaround, dragging out the process so they can foreclose. As of the end of 2009, only four percent of applicants received any help. By June 2010 the vast majority of that “lucky” four percent had lost their homes anyway—because the amount of relief they got was too small.

I was a banker in the ’80s. I often travel to the former USSR, where sloppy paperwork gives the police the right to rob you blind. So I know how to navigate bureaucracy. I’m careful. Thorough. When, among other things—many, many other things—Chase asked me for copies of my bank statements, I knew to send the blank pages too.

I explained my situation to an officer at my local Chase branch. “As someone who recently lost a job and thus a substantial portion of your income,” she said, “you clearly qualify for Make Home Affordable. But you have to keep making your payments on time. Don’t fall behind or you’ll be disqualified.”
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Why Obama’s mortgage-relief program failed
By Matt Smith Wednesday, Sep 1 2010

At age 64, Brenda Reed of Lafayette is reaching a point in life when most of us expect to rest on our accomplishments. Instead, she faces starting over from scratch as she braces to lose her home through foreclosure.
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“It’s pretty grim. I’m going to have to figure out plan B,” she says. “And I don’t know what plan B is going to be. … I’m a Vietnam War widow. I run a bed and breakfast business out of my home. If I lose my home, I lose half my income.”

Reed’s dismal state of mind can be traced in part to a government program that has painfully dragged out the inevitable road to foreclosure, filling her with false hope and putting her through months of paperwork before leaving her still hopelessly in debt and soon to lose her home.

Reed, who owes about $500,000 more on her loan than her house is worth, is among the hundreds of thousands of people who pinned their hopes on the Obama administration’s Home Affordable Modification Program (HAMP). The idea was to encourage loan services to renegotiate the terms of delinquent mortgages, so that residents might remain in their homes rather than be foreclosed upon. Instead, many of them have been strung along for months, before ultimately either losing their homes anyway or remaining in limbo.

After filling out mountains of paperwork, Reed was given a three-month trial period in which she would be allowed to make reduced loan payments while the bank considered whether to cut a permanent, lowered-payment deal.

But like a reported 616,000 other struggling homeowners, she was bumped from the program without a satisfactory explanation. “They said I don’t fit into the HAMP box,” she says.
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The Loan Modification Conspiracy
by Moe Bedard on August 27, 2010
in Featured

(LoanSafe dot org) – This is why homeowners are screwed. You can either read this with an open mind or continue to believe in loan modification fairy dust. There are also a few bad words here and there to emphasize the vulgarity of this subject.

It has been three years since I started preaching the loan modification gospel from my blogging pulpit here on LoanSafe dot org and over on my other blog, LoanWorkout dot org. I have come to the conclusion recently that the vast majority of struggling homeowners who cannot maintain their current mortgage contracts are up the foreclosure creek without a loan modification paddle.

They are simply and 100% unequivocally screwed. There is no other way to put it. I am not going to sugar coat these shitty mortgages any longer. If it tastes like $h!t, looks like $h!t, feels like $h!t and smells like $h!t, then by golly, it’s $h!t.

I am asking the media, Congress, banks, Obama and anyone else who will listen to please just be honest with the people who are losing their homes. Inform them they are up foreclosure creek without a paddle. So, let’s stop the loan mod chit chat. There is no reason to reason to put lipstick on the mortgage pig for any longer.
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Homeowners Can Take a Breather; Obama Federal Loan Modification Plan Has Been Unveiled
August 30th, 2010

Wondering how the Obama federal loan modification plan would influence your countrywide loan workout request? Would it be simple to get eligible for the assist you need to lower your monthly mortgage payment? Even though you have previously applied for a loan modification through Countrywide you might have a second opportunity. Learn more concerning how the program works and if you would advantage.

Thousands of stressed homeowners have felt similar to they are painted keen on a corner through no alternative however to lose their home. A Countrywide mortgage modification has been very tough for many borrowers to qualify for. The Obama federal loan modification program will intend to offer relief to around 5 million homeowners across the country, lot of whom might have by now been turned down for a loan workout. Now, participating lender must agree to appraisal the eligibility of each homeowner who requests information concerning the programs to decide if they might get eligible. During the review process, any foreclosure will be stopped until a determination of eligibility is made.
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What I wants ta know is, where are all the protests from the moderate members of the religion of peace in the US? Crickets.

http://www.cnn.com/2010/WORLD/meast/09/04/iran.stoning/?hpt=T1

Posted on Sun, Sep. 5, 2010

U.S. housing value down at least $4 trillion
By Alan J. Heavens
Inquirer Real Estate Writer

If you’ve recently had your house reappraised for sale or refinancing, and wonder where the equity went, consider this:

Since the real estate boom ground to a painful close about 31/2 years ago, the nation’s housing stock has shed from about $4 trillion to $7.1 trillion in value.

The amount depends on who’s counting. A study by Equifax Inc. and Moody’s Analytics Inc. says the downturn began in early 2007 and cost $4 trillion through March. The Federal Reserve says the downturn began in the fourth quarter of 2006 and cost $7.1 trillion through March.

To put a $7.1 trillion loss of housing values into perspective, if you bulldozed half-million-dollar McMansions until their cumulative lost value equaled $7.1 trillion, you’d level 14.2 million homes.

Psychologically, this massive loss of equity has changed - at least for now - the view of homeownership as a major source of wealth.

“The perception of homeownership as a wealth builder has suffered a deep setback,” said Center City developer Carl Dranoff. “People are still buying, but not necessarily as investments.”

Younger people especially “are probably going to be more likely to rent, to move to take the best job, and to treat home as a place to live, rather than as an investment,” said Holden Lewis, of Bankrate.com.

“If I’m right, I wonder how long these attitudes will linger?” Lewis asked.
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A housing market out of sync
By Dina ElBoghdady
Washington Post Staff Writer
Sunday, September 5, 2010

Jack Donnelly put off selling his Capitol Hill rowhouse for three years until he thought he saw glimmers of life in the housing market this past spring. At $950,000, he said, the red brick Victorian is a “solid deal.”

Jackie Wright sees it differently. The row house is one of many homes competing for her attention in uncertain economic times. She’s been looking to buy a home in the District since April but is in no rush to commit, partly because she thinks mortgage interest rates - and prices - could sink even lower.

As with many prospective sellers, Donnelly’s hopes for his rowhouse were forged in the past, before the housing bust, when homeowners assumed that real estate prices would inexorably rise. They expected to reap vast windfalls when their houses sold. But Wright’s eyes are turned to the future. She’s anxious about whether the coming months will bring more gloomy economic news and reluctant to gamble on a major purchase, especially if a flagging market might actually mean better deals ahead.

“I keep thinking, ‘Do I really want to do this now? Shouldn’t I wait to see what happens in the next few months?’ ” Wright said.

Across the Washington region and around the country, the expectations of buyers and sellers are out of whack, thwarting deals that could potentially lift the U.S. housing sector from its long funk. The nascent rebirth of the market earlier this year proved to be a mirage.

Despite record-low interest rates, many would-be buyers are retrenching, hamstrung by meager growth in their wages, gripped by fears over the possibility of losing their jobs or another recession. Sales of existing homes plunged in July to the lowest level in more than a decade, and sales of new homes were slower than at any time since the government started tracking the data in 1963. The results were far worse than some of the most pessimistic economists had expected and added to the doubts nagging at Wright and other prospective buyers, even in areas such as Washington that have been relatively insulated from the housing bust.

There are now so many homes for sale and so few selling that, at the current sales pace, it would take over a year to clear the existing inventory on the U.S. market. That is more than double the time required in a healthy market and up significantly just since June.

“That’s a powerful cocktail working against the housing recovery,” said Mike Larson, an analyst at Weiss Research. “There’s going to be a long-lasting psychological hesitancy for ordinary buyers to believe again in the dream of building wealth through homeownership.”
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Bought a house!

My wife and I closed on a house on the 30th. Fell ass-backwards into the deal some weeks ago. A friend of ours re-married and moved into this new wife’s home.

The house sits at the bitter end of a dead end road on a heavily wooded 3/4 acre lot. It’s 1890 sq.ft. single story contemporary design. Built in the 70’s. brick foundation, cedar sided. 4 minutes to the lake on which we sail.

Anyway the deal was a simple hand shake with the owner. NO REAL-A-TORS involved and happily this for me is the 4th time in my life I have bought a house with no real-a-tor involved! Very simple process.

The finainceing is through a local bank, 15 year mortgage @ 3.8%.

The house appraised for $156,000.00 we purchased it for $128,000.00 so even as the market keeps declining we may or may not be OK in a few years. The thing is the condo we live in is what is now called a “sick” building, mold issues that are going to take major eradication and my wife has bad allergies so we just can’t stay.

Started remolding the kitchen last week, I do everything my self and hope to be done in the week 2 weeks we move in on the weekend of the 18th. Looking forward to some piece and quite on the back deck away from the always busy city noise.

New Program for Buyers, With No Money Down
Darren Hauck for The New York Times

Matthew and Hannah Middlebrooke bought their first home, in Milwaukee, with a mortgage through a Fannie Mae program.

By JOHN LELAND
Published: September 4, 2010

MILWAUKEE — When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down.

But on a recent evening, Matthew and Hannah Middlebrooke stood in their new $115,000 three-bedroom ranch house here, which Mr. Middlebrooke bought in June with just $1,000 down.

Because he also received a grant to cover closing costs and insurance, the check he wrote at the closing was for 67 cents.

“I thought I’d be stuck renting for years,” said Mr. Middlebrooke, 26, who earns $32,000 a year as a producer for a Christian television ministry.

Although home foreclosures are again expected to top two million this year, Fannie Mae, the lending giant that required a government takeover, is creeping back into the market for mortgages with no down payment.

Mr. Middlebrooke’s mortgage came from a new program called Affordable Advantage, available to first-time home buyers in four states and created in conjunction with the states’ housing finance agencies. The program is expected to stay small, said Janis Smith, a spokeswoman for Fannie Mae.

Some experts are concerned about the revival of such mortgages.

“Loans that have zero down payment perform worse than loans with down payments,” said Mathew Scire, a director of the Government Accountability Office’s financial markets and community investment team. “And loans with down payment assistance” — like Mr. Middlebrooke’s — “perform worse than those that do not.”
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Is it a big stretch to suggest that when the bond bubble eventually bursts, the financial picture will get truly and undeniably fugly once again for a while?

Fundamentally
Are Investors Unfair to U.S. Stock Funds?
By PAUL J. LIM
Published: September 4, 2010

INVESTORS have been fleeing stock funds in droves, moving their money into bond portfolios, the headlines tell us. But while there is some truth in these reports, they don’t provide a complete picture.

Yes, a flood of money — more than half a trillion dollars since the beginning of last year — has been pouring into bond funds as investors have gravitated toward less risky assets in the wake of renewed market volatility. But not all stock funds have been neglected.

So far this year, on a net basis, more than $11 billion has actually gone into funds that focus on shares of companies based in the emerging markets, according to the Investment Company Institute. And an additional $17 billion has been invested in other foreign equity funds, including those that specialize in the developed markets of Western Europe and Japan.

In fact, upon closer examination, one major type of equity fund has been bleeding most of the assets: domestic stock portfolios.

This has some market watchers baffled.

“I certainly understand the popularity of the emerging markets,” said Michele Gambera, head of quantitative analysis at UBS Global Asset Management in Chicago, noting that many investors favor this asset class because developing economies in countries like China and India are expected to outpace the global growth rate.

But he says it is odd that fund investors who are turning their backs on domestic stocks are simultaneously embracing foreign funds that focus on developed markets.
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I sure hope these measurements that our government is taking is the right prescription for a housing market that is pretty much non existent.

Bruce Willis has been buying up the town of Hailey (just south of Sun Valley) here in Idaho for years now. For the first time, he’s now trying to sell one of his assets. Good luck getting almost $6 million for a bar in Hailey.

Actor Bruce Willis is offering for sale his central Idaho bar called The Mint and is asking $5.95 million.

The star of the “Die Hard” series of action movies put the downtown Hailey bar on the market last month. The nightclub and bar closed last year.

It’s just the building now. Wouldn’t he have made more money selling it as a turn-key business?

Belle Glade officials enjoy taxpayer-financed cars, gas that officials in bigger cities don’t get

By Charles Elmore Palm Beach Post Staff Writer
Posted: 8:48 p.m. Saturday, Sept. 4, 2010

BELLE GLADE — The unemployment rate hovers at a brutal 27.5 percent in a city of 16,739 that prides itself on its fertile soil and elite football prospects. Cash was so tight this year that Belle Glade fell behind $798,000 on payments to the Palm Beach County Sheriff’s Office for the most fundamental of services: public safety.

Last year, Belle Glade joined Pahokee to ask for a $160,000 bailout from county taxpayers. One county commissioner said the cities should consider dissolving or combining first. The county offered loans. The cities declined.

Yet Belle Glade leaders enjoy taxpayerfinanced perks that Palm Beach County cities five or six times larger do not offer, records reviewed by The Palm Beach Post show:

•Free cars and gas for top city officials include a red Ford Expedition SUV for the mayor, with no requirement to show office-related vs. personal mileage. The mayor’s gas bill in the last 12 months: more than $2,500.
•The city manager is billing residents for up to six tanks of gas per month bought near a cattle operation he runs more than 50 miles from Belle Glade, where his contract requires him to live. That’s in addition to more than $4,500 in gas charges on a separate city account over the past 12 months. Belle Glade rehired the manager despite his 1998 guilty plea to official misconduct for using city resources for personal gain.
•A $376 golf cart upgrade charged to taxpayers includes a wood-grain dash with cup holders, five-way mirror, score card holder, compass, clock, thermometer and hubcaps. Explanation: It was a gift for a prison that provides the city with inmate labor.
Mayor Steve Wilson said the SUV he drives was a gift to the city from the Belle Glade Housing Authority. The practice of providing the mayor with a vehicle was inherited from previous administrations, and any whispers about it now smack of politics, Wilson said.

“All of a sudden since I came back on the commission as the mayor, someone’s got a problem with it,” the mayor said. “We know it’s personal, but we deal with it.”

Meanwhile, Belle Glade’s residents pay some of the highest tax rates in the county.

“For the mayor and city manager to be incurring these kind of expenses just doesn’t make any sense,” said resident Myrtle Rains, 79. “They have no conscience if they have any concern about the citizens of Belle Glade.”

Official: Obama backing research tax credits

By JULIE PACE The Associated Press
Posted: 10:07 a.m. Sunday, Sept. 5, 2010

WASHINGTON — Seeking ways to spur economic growth ahead of the November elections, President Barack Obama will ask Congress to increase and permanently extend research and development tax credits for businesses, a White House official said Sunday.

Obama will outline the $100 billion proposal during a speech on the economy Wednesday in Cleveland, the official said. The announcement is expected to be the first in a series of new measures Obama will propose this fall as the administration looks to jump-start an economy that the president himself has said isn’t growing fast enough.

In addition to making the research credits permanent, Obama will also ask Congress to extend one of the credit options available to businesses from 14 to 17 percent, according to the official, who spoke on the condition of anonymity because the proposal has not been formally announced.

Around here the term “banksters” is in vogue.

But wouldn’t a better term be “Schicklgrubers”? As in someone who grubs for shekels? It also has a somewhat obscure historical meaning which may also be appropriate.

New American
Bernanke Whitewashes Fed Responsibility for “Great Recession”
Written by Thomas R. Eddlem
Friday, 03 September 2010 13:15

Federal Reserve Board Chairman Ben Bernanke largely whitewashed Federal Reserve responsibility for the housing bubble and resultant economic recession in testimony before the congressional Financial Crisis Inquiry Commission September 2.

Bernanke’s testimony admitted the obvious, that he had no clue that a housing bubble even existed, let alone that it would burst in late 2007, while at the same time claiming there was little he could have done to prevent the crisis or mitigate its impact upon the economy. Bernanke argued that several Wall Street giant financial firms such as Lehman Brothers failed because he had too little legal power to bail them out. “It was with great reluctance and sadness that I conceded there was no other option” than allowing Lehman to fail, Bernanke told investigators, concluding he lacked the legal authority to bail out Lehman Brothers. Bernanke explained that “the Federal Reserve under normal conditions is permitted to lend only to depository institutions and had the authority to lend to nondepositories only in unusual and exigent circumstances. Thus, the Federal Reserve could not directly address liquidity problems at nondepositories until the crisis was well underway.”

But perhaps the most unbelievable part of Bernanke’s testimony was his claim that the Federal Reserve’s suppression of interest rates “was only a small factor” in creating the housing bubble. “Did the low level of short-term interest rates undertaken for the purposes of macroeconomic stabilization inadvertently make a significant contribution to the housing bubble?” asked rhetorically, answering his own question with the claim that “studies of the empirical linkage between monetary policy and house prices have generally found that that that linkage is much weaker than would be needed to explain the behavior of house prices in terms of FOMC policies during this period.”

Of course, interest rates have a direct impact upon housing affordability because affordability has traditionally been calculated by the income of the borrower, the price of the house and the interest rate of the amount borrowed. Because a lower interest rate means a lower mortgage payment (and qualification for home loans is a percentage of income), the Federal Reserve’s monetary policy of suppressing interest rates had a strong impact on the affordability of larger houses and the eligibility for lower-income people to afford mortgages. By increasing the eligibility for housing, demand for housing spiked throughout the last decade. Even a 2009 study of the housing bubble by the Federal Reserve itself (though it too was a whitewash) admitted: “Nominal house price growth began to pick up in the late 1990s…. This timing clearly predates the accommodative monetary policy following the 2001 recession. However, the pace of house price appreciation increased notably after 2002, and much of the overvaluation in house prices appears to have occurred after 2002 as well.”

But Bernanke instead blamed the housing bubble on Wall Street for following the Federal Reserve’s lead. Bernanke testified that “innovations in mortgage lending and the easing of standards had far greater effects on borrowers’ monthly payments and housing affordability than did changes in monetary policy.” Of course, if the Federal Reserve created a decade-long housing prices boom with its suppression of interest rates, one would reasonably expect Wall Street to cater to — and cash in on — the central bank’s manipulation of the housing market. Bernanke paints this foolish accommodation by many private banks of the Fed’s interest rate policy as the cause, rather than a symptom, of the problem. “Although a number of developments helped trigger the crisis, the most prominent one was the prospect of significant losses on residential mortgage loans to subprime borrowers that became apparent shortly after house prices began to decline.”
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Bailing out the Fraudsters instead of Saving America’s Economic Base
Is the Economy as Broke as Lehman Was? The Angelides Committee Sidesteps the Mortgage Fraud Issue

by Prof. Michael Hudson
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There was disagreement last Wednesday at the Financial Crisis Inquiry Commission hearings now plodding along through its post mortem on the causes of Wall Street’s autumn 2008 collapse and ensuing bailout. Federal Reserve economists argue that the economy – and Wall Street firms apart from Lehman – merely had a liquidity problem, a temporary failure to find buyers for its junk mortgages. By contrast, Lehman had a more deep-seated “balance sheet” problem: negative equity. A taxpayer bailout would have been an utter waste, not recoverable.

Only a “liquidity problem,” or a balance sheet problem of negative equity?

Lehman CEO Dick Fuld is bitter. He claims that Lehman was unfairly singled out. After all, the Fed lent $29 billion to help JPMorgan Chase buy out Bear Stearns the preceding spring. In the wake of Lehman’s failure it seemed to gain the courage to say, “Never again,” and avoided new collapses by bailing out A.I.G. – saving all its counterparties from having to take a loss.

Was this not a giveaway? Mr. Fuld implied. Why couldn’t the Fed and Treasury do for Lehman what they did with other Wall Street investment firms and stock brokers: let it reclassify itself as a bank so it could pawn off its junk mortgages at the Fed’s discount window for 100 cents on the dollar, sticking taxpayers with the loss? (And by the way, will these firms ever be asked to buy back these mortgages at the price they borrowed against from the government? Or will they be allowed to walk away from their debts in a Wall Street version of “jingle mail”?)

This is the soap opera that Americans should be watching, if only it weren’t conducted in the foreign language of jargon and euphemism. At issue is whether Lehman’s crisis was merely a temporary “liquidity problem,” that time would have cleaned up much like BP’s oil spill in the Gulf; or, did the firm suffer a more deep-seated “balance sheet problem” (negative equity), as Federal Reserve Chairman Ben Bernanke claims – a junk balance sheet, composed of assets that not only had no buyers at the time, but had no visible likelihood of recovering their market price even after the $13 trillion the Treasury and Federal Reserve have spent to bail out Wall Street.

Insisting that Lehman should have shared in Washington’s $13 trillion giveaway, Mr. Fuld testified that his firm was just as savable as Countrywide or A.I.G. – or Fannie Mae for that matter. Lehman was perversely singled out, he claims. Was it not indeed as savable as the Fed and Treasury claim the U.S. real estate sector is? Like over-mortgaged homeowners, all it needed was enough time to finish selling off its portfolio, given enough loan support to tide it over.
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My hourly rate is lowered now…I have been working extra hours for free the last couple of months. It beats being unemployed though! The work is interesting, I have higher visibility, and I’m being noticed by higher levels of my much increased productivity. I don’t think it will end up in me having a raise at least this year. But I figure at some point the next project could be boring again and I will settle back to 40 hour weeks.

Some of the dead wood have been let go from the company over a few months. They were overpaid (senior engineeers) but underperformers, but at the same time they don’t have enough experienced people willing to do the work. I have around seven years of experience on the product line and two years on other product lines, plus essential algorithms and knowledge of specifications over multiple product lines. So that’s partly why they keep me. My new enthusiasm is also a reason for them to keep me.
Wonder if any others here are going through the same thing? I spend most of my weekdays and some weekends in a windowless lab cut off from internet :). Worked yesterday and will work either today or Monday (Labor Day).

The Daily Reckoning
Economy stuck? Print money. Watch out.

Central bankers have faced today’s crisis before. But their new weapon, quantitative easing, could make the mess worse.

A man looks at the share prices displayed on an electric board of a securities’ firm in Tokyo Aug 20. With the economies of Japan, the US, and many other advanced economies stuck, central bankers are turning on the money spigots.

Koji Sasahara/AP/File
…
Professors Ken Rogoff and Carmen Reinhart studied 15 economic crises over the last 75 years. What they found was what you’d expect: real recoveries in the post-Keynes era are rare. Instead, in the 10 years following a crisis, economic growth rates are lower and unemployment is higher than in the years preceding the crisis. In two thirds of the episodes, jobless rates never recovered to pre-crisis levels, ever. And in 9 out of 10 of them, housing prices were still lower 10 years after the crisis ended.

“Our review of the historical record, therefore, strongly supports the view that large, destabilizing economic events produce big changes in the long-term indicators, well after the upheaval of the crisis. [Up to now,” the authors warn, “we have been traversing the tracks of prior crises. But if we continue as others have before, the need to de-leverage will dampen employment and growth for some time to come.”]

It was perhaps this scholarly warning that roused Shirakawa to action, with Ben Bernanke right behind. Neither wants to be known as the central banker who followed in the footsteps of losers. Urged on by sages and simpletons, they will print money. “It falls to the Fed to fuel recovery,” writes Clive Crook, one or the other, in The Financial Times. “Under the circumstances,” he writes, “better to print money and be damned.” At last week’s conference in Jackson Hole, Wyoming, the Americans promised to print more money, if needed. Shirakawa rushed home early so he could turn on the presses right away.

We would have more faith in central bankers if they had not been responsible for causing the crisis in the first place. Shirakawa joined the Bank of Japan more than 30 years ago. Ben Bernanke, an expert on the Great Depression, joined the Fed in 2002; he was standing at Alan Greenspan’s right side, with a pin in his hand, years before the bubble reached a crisis level.

“In a sense,” said Professor John Taylor, also at Jackson Hole, “the Fed caused the bubble.” That is, in the only sense that matters – they kept the key lending rate too low for too long. Now they are about to make another monumental mistake. No, two of them.

The first is already in progress. By promising the world extremely low rates for an “extended period” of time, they have created the exact conditions they wanted to avoid. President of the St. Louis branch of the Federal Reserve, James Bullard, explained that the Fed had unwittingly put the economy into an “unintended steady state.” The key rate cannot go any lower as prices sink; it is already at zero. It cannot go higher, either, not as long as inflation remains below the target. So, it does not move. The private sector has come to expect no policy response, Bullard concludes, “so nothing changes with respect to nominal interest rates or inflation.” As in Japan, the US economy remains in a coma.

The second major mistake is still ahead. Quantitative easing is a new weapon. It is not meant to kill dollar holders or bond buyers. It is intended merely to scare them with a little bit of inflation. But with the Fed’s QE shotgun staring him in the face, an investor may doubt the Fed’s promise to pull the trigger “just a little.” He will drop the dollar and US bonds and run. Inflation will soar.

Here at The Daily Reckoning, we have argued that it is coming…but not soon. Our opinion hasn’t changed. We’re just getting tired of waiting.

yeah, I didn’t get a raise but blue shield was happy to give me two increases. one, 50 dollars more a month NOW and in february I get a 100.00 increase. Meanwhile, I only go in for yearly stuff. How was your week?

The Baker Hotel in Mineral Wells TX is going to be restored. Good news.

http://www.statesman.com/business/real-estate/austin-hotelier-trigger-to-lead-restoration-of-mineral-862888.html

Got some skinny on the Foreclosure Ranch real estate scene last night. I guess a few folks in our circle have recently copped some “screamin’ deals” on 4S foreclosure homes. One mentioned was $570K for a 3800 sq ft home; that is more house than we need or want, but an interesting comp to our rental, for which our landlords paid $540K in 2004 to get half a duplex with 1835 square feet, in an older neighborhood.

On a price per square foot basis, we are talking about $540/1835 sq ft = $294/sq ft in 2004 dollars versus $570k/3800 sq ft = $150/sq ft in 2010 dollars. Since the CPI-U was around 190 in fall 2004 and recently around 218, implying the recent $570K purchase price has a 2004 dollar value of $570K*(190/218) = $497K, or in price per square foot terms, $497K/3800 sq ft = $131/sq ft.

Based on the above, the inflation-adjusted decline in price per square foot, based on these representative examples, has been
(131/294-1)*100 = 55 percent. We’re getting there. Now just wait until the effects of the first time buyer tax credit wear off, a lot more prim- and Alt-A ARM resets hammer the high end between now and 2013, and interest rates adjust up to some semblance of normalcy. You ain’t seen nothin’ yet!

Fannie is playing games with their inventory again. The very same shacks that have been sitting for months with “price reduced” status are now getting recycled with new status “coming soon”.

PhoneyMae is just as deluded as your typical home-debtor attempting to sell at grossly inflated prices.

IMHO, the jury is still out on whether Shelter in Place performs as advertised. Sure no home in 4S Ranch burned in the 2007 Witch Creek fire, as the main path of fire tracked through Lake Hodges Canyon, which is a couple of miles to the north.

Critics Speak Out About Shelter In Place Option
Cielo, 4S Ranch, Bel Etage, Salviati, Savenna, The Bridges, Crosby and The Lakes Are Shelter In Place Communities
…
During the last fire storm, not one shelter in place home was lost and only one 4S Rancho house was damaged.

But shelter in place is not without critics.

“It’s a fool’s errand to think you can make this work,” said critic Bruce Tebbs from the Deer Springs Fire District.

He said developers use shelter in place to get dense housing projects approved in areas difficult to evacuate.

“They cannot get the projects through following the state fire code,” said Tebbs.

He said unpredictable wildfires are likely to cause panicked people to flee their homes too late when it is the most dangerous.

“This is the only county in America to my knowledge where they allow that,” said Tebbs.

Salzetti said that if a fire comes through, she won’t be sticking around.

“Having little kids, I would evacuate if I could,” said Salzetti.

We saw in Fall 2008 how, at the height of crisis, U.S. financial authorities chose discretion to break the usual rules governing the financial system in order to justify bailing out too-big-to-fail banks. So long as these financial behemoths are allowed to continue existence in their present, too-big-to-fail size, they will continue to dangle a Sword of Damocles above the U.S. Treasury’s head, ready to drop the next time a systemic risk crisis triggers its release. At that point, the same decision will face financial regulators as that which faced them in Fall 2008, and the regulators will have to again decide whether crisis conditions warrant abdicating the rule of law which normally governs the financial system. Why would we expect different results, if whatever rules happen to be in place can easily be ignored at the height of crisis, to be later defended as necessary to save the financial system?

Why Ben Bernanke Will Regret Declaring Mission Accomplished on “Too Big to Fail”
By Alain Sherter | September 2, 2010

Here’s a simple test for determining if the era of “too big to fail” is over, as Federal Reserve Chairman Ben Bernanke and FDIC chief Sheila Bair said it is in their appearance today before the Financial Crisis Inquiry Commission. Ask yourself — in your role as businesspeople, taxpayers, voters, investors, borrowers, parents — whether you expect the U.S. government to bail out the nation’s largest financial firms the next time calamity strikes.

If the answer is yes, then TBTF lives. After all, that’s what this unofficial designation is all about: a market perception, shaped by an understanding of economic and political realities, that the feds must guarantee the existence of certain institutions because of these companies’ importance in the financial system.

It’s the central question of the financial crisis. Because while the meltdown had many causes — from fraudulent mortgage lending, fictitious credit ratings and dangerous financial “innovation” to hapless regulation and political corruption — it couldn’t have happened without the super-sizing in recent years of a handful of companies. Firms, it’s worth remembering, that are getting bigger.

If the issue of what to do about these titans remains the same, so does the nature of the proposed solutions. The debate today, as it was in 2008, remains not whether government will intervene in the financial markets when the next meteor strikes, but how. Will we again rescue big banks, allowing taxpayers to absorb their losses in the name of preventing financial Armageddon; or will we emulate the FDIC in how it deals with small failing banks and also nationalize larger firms?
…

Great stuff here:

…while we do now have a roadmap for resolving TBTF financial firms, there are a number of reasons to think regulators won’t follow it:

* Speculation is alive and well on Wall Street.
…
* Whatever their statutory powers, regulators remain handcuffed.
…
* Disposing of TBTF firms is dauntingly complex.
…
* TBTF firms are bigger and more interconnected than ever.
…
* Political will remains weak to challenge TBTF firms.
…

Returning to our litmus test above, to declare an end to TBTF requires an enormous suspension of disbelief regarding the forces acting on our financial system. And finally, it implies an investment of trust in our bankers, regulators and lawmakers that none of these parties, in recent years, have earned.

Off topic…….can someone explain to me why “Napoleon Dynamite” is supposed to be so funny.

My kids think it’s hysterically funny. To me, it’s moderately amusing, but mostly just stupid.

Is this one of those movies where you have to be high, to think it’s funny?

Builders of N.Y. mosque face financial hurdles
Developers are about a quarter-million dollars behind on taxes and fees

NEW YORK — The developers planning to build a $100 million Islamic center near the World Trade Center site still have financial hurdles to clear: They haven’t finished buying all the property they want for the project and are nearly a quarter-million dollars behind on real estate taxes and late fees.

How serious those problems might be depends on who is backing the project — and that’s still a big unknown.

The real estate partnership that controls the site of the planned cultural center, health club and mosque insists it has the financial wherewithal to put the project together, and that its failure to pay its first two quarterly property tax payments this year is not evidence of fiscal ill health.

The entity that owns the building, 45 Park Place Partners LLC, has an interest-fattened $236,327 tax bill looming on Oct. 1, according to city records.

The Manhattan real estate firm that put together the building purchase, Soho Properties, issued a statement through a spokesman that waved off concerns over the missed payments and said it’s not in financial distress.

The lack of payment resulted from an ongoing dispute with the city over the assessed value of the building, the company said. In such disputes, it is not unusual for building owners to temporarily suspend payments, the company said.

Job seekers stay closer to home
Housing crunch takes hit on unemployment
Nashville Business Journal

Americans are known for moving to where opportunity lies. Today, however, many find themselves unable to uproot themselves, adding a frustrating wrinkle to the causes behind the sputtering housing market.

Their lack of mobility — caused by an unwillingness, fear of or inability to sell their homes — is now delaying a recovery in the housing market and contributing to higher unemployment.

In a report for Washington, D.C.-based Brookings Institute, demographer William Frey said interstate migration is at its lowest level since World War II. Frey estimated that 1.6 percent of Americans moved out of state in the 12 months leading to March 2009.

Frey’s analysis of U.S. Census Bureau data showed that Nashville, the 20th fastest-growing metropolitan area in 2008-09, grew by 1.7 percent that year, down from 2.7 percent in 2005-06, which Frey describes as the last year of “the bubble.”

“Each generation should be made to bear the burden of its own wars, instead of carrying them on at the expense of other generations.”

~James Madison

NYTimes.com
Florida’s High-Speed Answer to a Foreclosure Mess

TEN days from now, a four-bedroom house on a cul-de-sac in Middleburg, Fla., is scheduled to be auctioned off at the Clay County courthouse, 25 miles south of Jacksonville.

Will ending the recession depend on selling more homes?

Mr. Waters, a supervisor at a local packaging company and the family’s sole breadwinner, fell behind on his mortgage two years ago after his property taxes jumped unexpectedly. He now owes $264,000 on the house; a similar home down the street sold for $138,500 in February.

The predicament of the Waters-Reese family is common in Florida today. The state routinely sets new records for foreclosures — in the second quarter, 20.13 percent of its mortgages were delinquent or in foreclosure, a national high, according to the Mortgage Bankers Association. And with housing prices still in a free fall, almost half of all borrowers in Florida owe more on their mortgages than their properties are worth, says CoreLogic, a data firm.

While the Waters-Reese case may not be unusual in Florida, the coming auction of the home is still notable: it will be a result of the Florida Legislature’s new effort to cut the number of foreclosures inching their way through the state’s courts. Earlier this year, Florida earmarked $9.6 million to set up foreclosures-only courts across the state, staffed by retired judges. The goal of the program, which began in July, is to reduce the foreclosures backlog by 62 percent within a year.

Shadow Shoguns Will Trash $5 Trillion Economy:Bloomberg Opinion William Pesek

Even for a guy dubbed Japan’s “Shadow Shogun,” it was a breathtaking moment.

There he was, scandal-tainted powerbroker Ichiro Ozawa, announcing a move to challenge his own ruling party’s leader this month. Why? Prime Minister Naoto Kan refused to make backroom deals to secure Ozawa’s support.

Kan could have easily forgone a mess that is roiling markets. He took the high road, though, declining to promise Cabinet or party posts to Ozawa’s supporters. Good for Kan.

This is a pivotal moment for those wondering if Japan can right its off-course economic system. It’s quite simple: a Kan win on Sept. 14 will challenge a status quo that left Japan trailing China sooner than many had imagined. An Ozawa victory may push Japan further off investors’ radar screens.

This election also gets at an old, yet growing problem in Japan. It’s the fact that the political shoguns of elections past never seem to go away and block radical change in a nation calling out for it.

Ozawa, 68, is the poster child. The former leader of the Democratic Party of Japan is under investigation for his role in a campaign-finance scandal. Such alleged shenanigans kept him from the ultimate prize: prime minister. When his DPJ finally topped the mighty Liberal Democratic Party in August 2009, that honor went to Yukio Hatoyama.

Neglected Economy

The hapless Hatoyama stepped down in June amid his own political-funding investigation. That paved the way for the reformist Kan, 63, to take over and tend to a long-neglected economy.

Not so fast, say Ozawa and Hatoyama. They are teaming up to retake the helm. This will destroy any hope for major structural change in Asia’s second-biggest economy.

Let’s not count out the LDP, which until last year ran Japan virtually uninterrupted for 54 years. Yet it, too, is looking like a has-been. Two of its former prime ministers, Yoshiro Mori and Shinzo Abe, are brawling publicly over the direction their wing of the party should take.

Japan is also rich with economic has-beens filling the airwaves with advice for the Kan government. Never mind that Eisuke Sakakibara was a Finance Ministry bigwig during a particularly undistinguished period of policy making (1997-1999). We in the media can’t get enough of the guy known as “Mr. Yen.”

http://www.bloomberg.com/news/2010-09-05/shadow-shoguns-will-trash-5-trillion-economy-commentary-by-william-pesek.html

IS this going to be the beginning of the final BUST?

No defence left against double-dip recession, says Nouriel Roubini
The United States, Japan and large parts of Europe have exhausted their policy arsenal, leaving them defenceless against a double-dip recession as recovery slows to ‘stall speed’

Dr Roubini said the US growth rate was likely to fall below 1pc in the second half of the year, despite the biggest stimulus in history: a cut in interest rates from 5pc to zero, a budget deficit of 10pc of GDP, and $3 trillion to shore up the financial system.

The anaemic pace compares with rates of 4pc-6pc at this stage of recovery in normal post-war recoveries.

“We have reached stall speed. Any shock at this point can tip you back into recession. With interbank spreads rising, you can get a vicious circle like 2008-2009,” he said, describing a self-feeding process as the real economy and the credit system hurt each other.

“There is a 40pc chance of double-dip recession in the US, and worse in Japan. Even if it is not technically a recession it will feel like it,” he added.

http://www.telegraph.co.uk/finance/economics/7981334/No-defence-left-against-double-dip-recession-says-Nouriel-Roubini.html

Has the U.S. banking system always rested on a foundation of Machiavellian deception, or is this feature a recent innovation?

Just wonderin’…

Grim Housing Choice: Help Today’s Owners or Future Ones
By DAVID STREITFELD
Published: September 5, 2010

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.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

“Housing needs to go back to reasonable levels,” said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”
…

Toyota, Honda Lead U.S. Auto August Sales Plunge on `Clunkers’ Comparison
By Alan Ohnsman - Sep 1, 2010 6:29 PM PT

Toyota Motor Corp. and Honda Motor Co., beneficiaries last year of U.S. “cash for clunkers” incentives, had the steepest August sales declines among large carmakers because of the program’s end and a slowing economy.

Toyota, the world’s largest automaker, sold 34 percent fewer vehicles in the U.S. than in August 2009, while Honda’s volume plunged 33 percent. Sales for Nissan Motor Co. and Hyundai Motor Co. fell 27 percent and 11 percent, respectively.

Asia-based brands had a combined 29 percent decline, compared with a 14 percent dip for U.S.-based General Motors Co., Ford Motor Co. and Chrysler LLC, and topping a 21 percent industrywide drop.

While Toyota sales were expected to fall considering the boost it got last year from rebates for trade-ins, “this month’s results are even worse than expected,” said Michelle Krebs, a senior analyst at Santa Monica, California-based Edmunds.com. “Toyota still is suffering a hangover from its numerous recalls this year.”

U.S. auto sales last month were the slowest for August in 28 years as model-year closeout deals failed to lure people concerned about the economy and their jobs. Consumers avoided showrooms as fear of a double-dip recession grows following the 27 percent slide in existing home sales in July, said Jesse Toprak, vice president of industry trends at TrueCar dot com.
…

Young Children of immigrants

Please be aware it is a PDF

http://www.urban.org/uploadedpdf/412203-young-children.pdf

Adventures in Homeownership:

I am curious if anyone actually bothers to plan their landscaping for the long term. I am referring, specifically, to trees. Not only do people plant trees far too close to the house, they plant them too close together, with the result that the adult trees are unhealthy, sparse, and prone to stress– which can lead to dropped limbs, in case you’re wondering.

A good rule of thumb is to assume that the root system is at least as big as the canopy, and up to half again as large. And you can guess the spread of the canopy from the projected height of the tree. In short, you shouldn’t plant 40-foot trees ten feet apart. Or five feet from your house wall.

My immediate neighbors don’t understand why I want to rip out all but one of the trees in our backyard. “But they’re pretty.” Actually, yeah, that flowering one drops little berry-sized fruit (inedible) all over the backyard, but have you ever looked at it? It’s got very little foliage, is growing off to one side, and drops sticks all the time. It’s totally stressed. As is the tree far too close to it, and the one too close to that… the one that’s mostly sideways across the yard. We’ve made significant progress on its removal, but it’s still covering a large portion of lawn.

And as for losing the shade, the city has placed a line of trees just on the other side of the wall from these trees. We take ours out, and theirs get healthier… and incidentally don’t send roots around our sprinkler system. Just got that repaired and the guy had to take a mattock to a root. He still couldn’t get it out but he got the pipe fixed anyway. Yay!

So the adventure thus far: new HVAC (and ducts reconnected). New windows. Significant improvement in the inside temperature as a result even though we have it set “higher.” Some rooms painted. Sewer catch on city side found to be broken; repaired by city. Sewer catch on home side plugged; repaired by plumber & sewer catch located one foot down & under a bush. Sprinkler system repaired (problems with multiple heads & solenoids.) Water meter installed, new bill amounts to come. A lot of bushwhacking done in the back.

What does this mean? Aside from the paint jobs & minor repairs we’ve done, all of the work we have done on this house has been the necessary, invisible stuff. This is a better house than when we moved in, but I suspect that if we were to try and sell it we’d get overlooked because it’s not pretty. Especially since we stripped off the top of the 80s-era wallpaper but are still working on the underlayment…

The Financial Times
Why we must halt the land cycle
By Martin Wolf
Published: July 8 2010 22:28 | Last updated: July 8 2010 22:28

Those who do not learn from history are condemned to repeat it. This applies not least to the immense financial and economic crisis into which the world has fallen. So what lay behind it? The answer is the credit-fuelled property cycle. The people of the US, UK, Spain and Ireland became feverish speculators in land. Today, the toxic waste poisons the entire world economy.

In 1984, I bought my London house. I estimate that the land on which it sits was worth £100,000 in today’s prices. Today, the value is perhaps ten times as great. All of that vast increment is the fruit of no effort of mine. It is the reward of owning a location that the efforts of others made valuable, reinforced by a restrictive planning regime and generous tax treatment – property taxes are low and gains tax-free.

So I am a land speculator – a mini-aristocrat in a land where private appropriation of the fruits of others’ efforts has long been a prime route to wealth. This appropriation of the rise in the value of land is not just unfair: what have I done to deserve this increase in my wealth? It has obviously dire consequences.

First, it makes it necessary for the state to fund itself by taxing effort, ingenuity and foresight. Taxation of labour and capital must lower their supply. Taxation of resources will not have the same result, because supply is given. Such taxes reduce the unearned rewards to owners.

Second, this system creates calamitous political incentives. In a world in which people have borrowed heavily to own a location, they are desperate to enjoy land price rises and, still more, to prevent price falls. Thus we see a bizarre spectacle: newspapers hail upward moves in the price of a place to live – the most basic of all amenities. The beneficiaries are more than land speculators. They are also enthusiastic supporters of efforts to rig the market. Particularly in the UK, they welcome the creation of artificial scarcity of land, via a ludicrously restrictive regime of planning controls. This is the most important way in which wealth is transferred from the unpropertied young to the propertied old. In his new book, David Willetts, the universities minister, emphasises the unfairness of the distribution of wealth across generations.* The rigged land market is the biggest single cause of this calamity.

Third and most important, the opportunity for speculation in land both fuels – and is fuelled by – the credit cycle, which has, yet again destabilised the economy. In a superb new jeremiad, the journalist Fred Harrison argues that this cycle – with a duration of 18 years – was predictable and, by him at least, predicted.** In essence, he notes, buyers rent property from bankers, in return for a gamble on the upside. A host of agents gains fees from arranging, packaging and distributing the fruits of such highly speculative transactions. In the long upswing (the most recent one lasted 11 years in the UK), they all become rich together, as credit and debt explode upwards. Then, when the collapse comes, recent borrowers, the financial institutions and taxpayers suffer huge losses. This is no more than a giant pyramid selling scheme and one whose dire consequences we have seen again and again. It is ultimately, as Mr Harrison argues, a ruinous way of running our affairs.
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