I have to deviate from writing about writing. I can’t help it.
I have to address, for a moment, the hysterical economists I’m hearing on CNN and CBC.
Yesterday’s crash was well predicted by the various talking pseudos on the housing bear blogs I’ve been visiting since 2002 – it was, I’d say, late ’05ish that everyone started saying “whoa whoa whoa, hold up here, we’re talking more than just housing.” This current scenario has been well discussed. I didn’t expect most people to pay attention, to care, to have an interest, and I’ve not wanted to be seduced by the allure of being too chicken little, either.
I do rather expect both politicians and ECONOMISTS to be paying attention, and I’m beginning to get good and pissed off at all of the hand wringing. I mean, even if my friendly neighbourhood bears were describing the worst case scenario, the economists should have been aware that was out there being said and there was data behind the claim. I figured they were all parrotting the Realtors’ Association in part because saying negative things destabilizes. But acting like … like they simply didn’t know it was a possible outcome?
It seems like a surgeon being shocked that heart transplant sometimes ends in death. C’mon, assholes. If you didn’t know that was possible, you shouldn’t be operating.I have been watching the subprime mortgages fail in relatively precise lockstep with the predictions at Calculated Risk and Housing Bubble Blog. Even The Motley Fool, which is not a group of amateurs so easily dismissed, has been talking about it. So what gives with all the “oh it’s so shocking we’re so amazed?” The party HAD to end, people.
SO. To catch up with the bears, here’s the precis of what what I’ve learned from the bear blogs over the past 4 years – they have data, all errors in understanding are mine, and this is just a very top level:
Greenspan’s easy-money lending rates post dot bust prevented a dot-bust bubble recession. This was a risky choice, because created a wave of money not based on GDP value – he made a printing press and injected a steady stream of money into the economy that wasn’t based on people making stuff. Instead, people were extending credit.
Generally, this causes inflation, because when there’s more money representing the same amount of stuff, stuff gets more expensive.
Only inflation indices don’t include housing. So interest rates stayed down.
The housing sector started slurpin’ the funny money through a straw. 12 years of cheap credit has been a hell of a lot less painful than the 18% of the 80s, but has been also a bit of a house party (with everyone drinking ‘cheap’ consumer goods to the point of blackout).
Add to this subprime, which was a bigger straw for the funny money with a completely non-sensical premise – that paying the bank less than the interest payment for 2 years and then having your rate jump 400% was somehow something the poorest consumers could do – and so you had a Big Crazy Bullshit Lie sitting and vacuuming the funny money and hiding it away from the rest of the economy. And then selling that funny money all around the world. To everybody. In packaged derivitives.
Richer than God: A Play in One Act
BANK, DRUNK ON GREENSPAN-BUX: ”I gave a Beemer to a Homeless man and he promised that in two years he’d pay me an OooblyBooBillion dollars for it if he could sleep in it for free for the first two years.
I owe you some money, but I have an OOBLYBOOBILLION dollars coming, so I’ll cut you in a percentage instead of paying you. Then, in two years, we’ll be richer than god.”
Later that night, You and Your Partner lie in bed:
YOU: “In two years, we’re going to be Oooblyboobillionaires! So why don’t we get ourselves some fancy credit that’s going around Drunk Bank, where we don’t pay any money for two years! We’ll buy a million dollar house in Shaughnessy, and put some money in the stock market, and invest in our daughter’s business!”
YOUR PARTNER: “Okay. Can we put in Granite Countertops I’ve been hearing about?”
At the realtor’s office:
REALTOR: “Have you heard of leverage? Your house is going to be worth 3 million in two years because there are a whole BUNCH of oooblyboobillionaires in waiting! You should buy MORE THAN ONE HOUSE to sell to them!”
YOU AND YOUR PARTNER: “Okay!”
So now, the ridiculous promises of a homeless man sleeping in a Beemer are “funds” that are in a Beemer, a house in Shaughnessy, investment property elsewhere, a chunk of stocks, and a small business start up.
The slurped up Oooblyboobillion is what’s in ALL our wallets, now, it’s been so mixed through everything.
Many people on the bubble blogs want to blame primarily the homeless guy. I say, when a person’s income doesn’t cover their basic needs, of course they’ll use credit if offered. The problem is systemic, not personal, because economies have to fit to the way humans are, rather than humans fitting into economic systems. This is why the free Market Fairy is an insane concept. For christ sakes. Game theory that ignores the basic needs of right the hell now and privileges computer-like rationality isn’t reality. Game theory that supposes that people’s self interest and sense of responsibility overrides their ability to withstand marketing of today is idiocy: why the hell is there marketing, if people are so resistant to its wiles? It’s ridiculous and wishful thinking.
And if I am never going to get a house I can afford - because I’m too poor, really, and you’re going to give me a house anyway – well fine, okay, you fancy pants mortgage brokers know your job better than I do.
So. I’ve learned a lesson in supply and demand here. There are way, way more houses than there used to be. The States is going to have a glut of houses – and if supply and demand work properly, rents will get cheaper along with mortgages. Problem is, with that ooblyboobillion spread so globally, so thickly tied in, I’m not sure that supply and demand is the best model for what’s happening, because a lot of the demand was a vapour, a hysteria, unreal.
Anyway, all these screaming economists either JUST figured out that the homeless man isn’t going to pay an ooblyboobillion, or are lying to us because they don’t want to admit they’re that stupid. I don’t know. Either way, the screaming is a bit much.
That 700 billion? To cover the homeless guy’s promise. Of course, the homeless guy’s getting kicked out of the Beemer AND the 700 billion gets to go to Bank, who promised to share it with You, who invested money in Her and Him. Which is why I like the solution where the 700 billion should go to the homeowners… the homeless guy.
That solution pisses most bears off, of course, because they were offered Beemers and said – way back when – “actually, no, I can’t afford that.” Yeah. Sure sucks to be a rational actor and believe that’s how the system works.
But when BANKS are irrational actors and get bailed out, that chafes my nards more than when individuals are irrational actors and get bailed out. You know. I’m a pinko, though. I want my experts to be experts, or why the good goddamn are they being paid so much more fucking money than the factory worker. Thank you very much. GRRRRRrrrrrRRRRRrrrr.
A more controversial point about how inflation’s been kept artificially low is that “basket substitutions” have gotten more and more creative – inflation is reckoned by pricing a basket worth of goods, and as the market changes, sometimes you have to substitute out items. Horses become cars. The sorts of substitutions made in the past couple of years really are bugging some commentariat: yesterday’s steak is today’s hamburger, for example. This is more controversial because everyone has iPods that they didn’t use to; luxury has changed.
I have no real opinion one way or the other, except for health care, which in the states has become an impossible burden on class churn and worker mobility.
Also, credit’s been cheap but wages have been falling in real dollars; which means the middle class has been spending more credit, not more wages. When you’ve got that happening for too long, you’re asking for a pop – someday the piper needs to be paid, and that’s not going to happen on increasingly smaller paycheques in real terms v. the increasingly high cost of living in real terms.
Plus, our wealth concentrating group – les Boomers - have their wealth in land values, not in the market. There’s more wealth in homes than in 401Ks.
And finally, most of the job growth in Vancouver and the United States has been in REAL ESTATE, RENOS, or LAND DEVELOPING – which is because that’s where all the money was – and if you remove those from the job picture, well…. There haven’t been a great plethora of jobs created in the American economy in the past 10 years. S’posedly, Vancouver’s job picture looks like 20% of people are dependant on real estate in one way or the other. If half of those people lose their jobs, we’re looking at serious unemployment. I haven’t seen the data on that, just seen the claim, so that’s grain of salt numbers: what I HAVE seen is a booming employment picture commiserate with the number of cranes on the skyline, and that sort of lends credence to the claim. Plus: softwood is sold south of the border for what? Houses. Plus tourism is usually what? Rich people from other places.
All of these things make me thing we’re quite vulnerable in Vancouver to this downturn, in terms of our job market: if unemployment starts creeping up as these development projects finish, I will not at all be surprised. With 10 months of inventory of houses on the market, and several thousand units under construction, and land prices being catastrophically high, I would imagine we’ll be seeing a significant drop in housing starts in the next little while. We can only hope commerical construction picks up the slack.
At least in Canada, we have health care: people CAN move to Alberta to work in the Oil sector. Or maybe, maybe, we can get the green economy going.
All the economists are breathlessly choking “we couldn’t see it coming! end times! end times!” on the radio, and I keep thinking – well, fuck a duck, but I learned economics from the fucking *Internet* and I saw it coming. Not being an economist, I couldn’t and can’t commit to how sustained the price cuts or the recession would be, but the predictions of a looming global Great Depression have been increasingly discussed on the bubble blogs, and what was up in the air was not that this was coming, but what might happen to stop it.
Generally the talk is that we’ll have to retrench Green, and because it’s a start up if we Get On It there should be more than enough work for everyone.
I wandered over to the economic internet not because I’m terribly interested in money or getting rich, but because I was increasingly scratching my head about *how people paid for stuff*. It was quite clear to me that with more and more of people’s incomes going to housing, they should have less and less for STUFF: what I couldn’t figure out is how everyone seemed to be making $250K/year, based on what I could see being marketed. (Holt’s Expansion, Urban Fare’s $12- small pack marshmellows, ‘lifestyle’ toys). So I went in trying to find out: 1) what people’s wages were and 2) what the transfer of wealth from generation to generation looked like.
I figured that the fact that I was class climbing made this more obvious to me, because I didn’t have the transfer of wealth obviously coming down the pipe.
But the local numbers made it pretty obvious, looking at people, rents, and mortgages, that if people really were paying that sort of money for housing, they shouldn’t HAVE that much money to pay for Stuff. My friends, who don’t have Hummers and new wardrobes and new cars and trips to the Carribbean are all making tough choices and living frugally in most areas to enjoy their lives in others. So it is not my friends who support the roaring economy by papering their homes in granite and Urban Fare items.
My friends run the gamut of wage earners.
Anyone whose household income is 100K and above is in the TOP 18% of wage earners. That means at 100K YOU’RE IT, unless the top .5% is living really really large, or there are a bunch of people whose wealth is not tied to their earning power. Hands up those with 100K+ who are not buying single family homes in Vancouver proper? Yep, that’d be all y’all.
Those without kids are maybe able to spend more at Holts, but really – given those I know who are in that 100K+ wage bracket, there’s not High Off The Hog happening in lifestyle choices. There’s a lot of transit, and a lot of sales, and although everyone’s comfortable and can buy some things no one’s RICH. I’m not whining on people’s behalf, I’m just saying: who’s spending all the money, then?
Paying for STUFF is what makes the economy go. Paying for home ownership – sinking more than 30% of your wage into a non-liquid asset class – doesn’t make jobs. It sticks a flag in a bit of land. Which, hey, I want to do someday: a flag in a bit of land is a bit of security.
But the *economists* should be watching from above, no?