I’m struck by the eloquence of the argument that “affordable housing” programmes are really “accessible mortgage debt” programmes, and that house prices have tended to increase over time (context) rather than decrease like, say, the price per gigahertz of computing power. In other words, the people who’re clamouring on about making housing “affordable” for people in the lower two income quartiles are really on about making it easier for those people to saddle themselves with a metric fuck-ton of debt that banks ordinarily wouldn’t expect them to be able to repay. Arnold Kling wrote, back in August:
Old consensus: we need Freddie and Fannie in order to make housing “affordable.”New consensus: we need them in order to “prevent further house price declines,” in other words, to make housing less affordable.
All this comes up as E. D. Kain gives me a good platform to riff off of at the League today:
- Wealth transfer (League of Ordinary Gentlemen)
Kain gets his populist wharrgarbl on:
What this amounts to, really, is a vast transfer of wealth from the working poor and the middle class to the bankers and financial elites. Not only were these huge, risky institutions bailed out by the government and shielded from the worst consequences of their recklessness, they also made a ton of money selling and re-selling mortgages that people never should have been able to afford in the first place. Then, when all was said and done, they were able to come back in and foreclose on the very people they’d already made so much money swindling – and whose tax dollars went in part to bailing the banks out in the first place.
I can’t find much in there with which to disagree. The housing bubble looks (to me, in retrospect) like a textbook example of moral hazard and indirect regulatory capture: government policy led to looser mortgage credit, which mortgage lenders cheerfully leveraged. Of course, “the banks” that issued these mortgages aren’t necessarily the same as “the banks” that bought the non-conforming mortgages on the secondary market, folded, spindled, and mutilated them into tranched collateralized debt obligations, and sold them to investment banks; and neither one is the same as the ratings agencies that rated CDOs chock-full of non-conforming mortgages at AAA or the regulatory agencies that cheerfully gazed down upon the increasing levels of horseshit filling capital markets… but it does make a pretty good start.
I guess I could quibble about the glibness with which Kain packs the foreclosure mess into a single clause, but having tried and failed to make a dent in my incomprehension of foreclosure law I’m disinclined to condemn Kain for the same.
I can quibble about his next sentence, though:
This doesn’t even take into account the mismanagement of pension funds and other investments which, inexplicably, have made a lot of the financial folks very rich while ruining the retirement prospects of countless ordinary Americans.
The Great Pension Fuckup — which’ll probably be the primary financial narrative of woe and despair in five or so years — is based on a lot of things, but I don’t see any story more sophisticated than The Merchant of Venice that’d put “deliberate mismanagement for profit” anywhere near the top of the list — except in cases like Bernie Madoff’s Ponzi scheme. I’m speaking even more thoroughly out of my ass than usual on this subject, but to my mind the major culprits in suddenly-fragile pensions are (a) generational shift, in which the folks running the pension funds realize that there are more Boomers than Gen-Xers; (b) the deferred nature of pension benefit payments, which (especially in public pensions) make it far too easy to pass the buck to the next office-holder; and (c) tranched CDOs full of horseshit that somehow receive AAA ratings from the usual suspects.
In any event, the major lesson here is that corporatism sucks, even when it’s not blatant Russian-style crony capitalism. When governments step into markets to regulate them, the big players in the markets inevitably find that gaming the regulations is more profitable than honest exchange. Government doesn’t have to set out to elevate cronies in private commerce to end up doing so.
But wait; there’s more! Here’s Kain on the subject of foreclosure bankruptcy reform:
The point isn’t to get the housing market back to the good ol’ days of the mid oughts, or to punish people for getting in over their heads (often at the insistence of ethically dubious lenders and a real estate industry drunk on the delusion of a housing market that could never possibly implode). We don’t want, and couldn’t sustain anyway, a return to the inflated prices of 2003 – 2006. But we don’t need the adjustment to happen in the most painful way possible either.
Let me repeat the really important part of that:
We don’t want, and couldn’t sustain anyway, a return to the <unsustainable condition that got us into this mess in the first place>. But we don’t need the adjustment to happen in the most painful way possible either.
I’ve mentioned this before. Unsustainable conditions naturally have to end sooner or later. Recognizing that a condition is unsustainable — like inflated housing prices, say, or non-means-tested Social Security — and taking steps gradually to scale the condition back is painful in the short term, but far less painful than the alternative of sudden unplanned-for collapse. One might even find that a scaled-back condition (like means-tested Social Security) is actually sustainable. Either way, it’s easier and less painful for a pensioner, say, to be informed that their Social Security benefits will be reduced by a certain amount next year than suddenly to discover, California-style, that the government’s issuing IOUs rather than benefits.