patrick.net

I haven’t found a true political home. I am fiscally conservative, fairly socially liberal, but am disgusted by not requiring people to assume responsibility for themselves but still allowing them the benefits of our society. Is there a political group out there for me?

SFWoman,

You are in a similar category as myself. I guess you could call us "Classical Libertarian", or "Minarchists". See The Libertarianism-Morality Conundrum thread).

PS,

I knew where Joe Schmoe was going and believe it or not this blog is one of the few places you can actually discuss it. Many people get quite offended when you mention these types of issues. It's kind of like "Can't you see, I've pulled my hair out and pulled out all the stops to make this a party a smash and you're trying to ruin it with your kill joy attitude"?

A lot of bears are liberals, it is true. However, this is partially due to the red state/blue state divide. Appreciation in places like Texas and Georgia has been mostly modest and steady, and affordability is not a problem, so people there have good reason to be bullish on housing.

The red states, with the noted exceptions of AZ, FL, NV and CO (the latter two are not that red, but they did go for Bush in 2004) , have mostly escaped the housing bubble. In TX you can get a brand new 1800 sq ft middle class home from KB for $95,000. Heck, even unskilled workers can afford a home; there are plenty of $55,000 SFH's in middle class neghborhoods there.

Moreover, a lot of conservatives are Baby Boomers. While the Boomers are mostly characterized by their libreralism, there are many millions of conservatiives in their 40's and 50's who have no understanding of what market conditions are like today. They are bullish on housing because their house has always gone up in value. In this way, your conservatives in Simi Valley are no different from the libs in Montecito, both are equally clueless. Furthermore, they tend to explain away complaints about prices as "whining," advising younger people to "brown-bag it" for a while in order to save up a down payment.

Some conservatives are fully aware of the housing bubble and attribute it to the decline of the blue states' social and economic policies. They are always pointing out that the blue states have been losing population for years, while red states have been growing rapidly, etc. I sometimes find myself in this camp, but I make a real effort not to politicize every economic tend that comes along, so I tend to think that the bubble is just a fact of life that can't really be blamed on either party.

Some conservatives are fully aware of the housing bubble and attribute it to the decline of the blue states’ social and economic policies.

I also fall into this camp, although t think these are only catalysts. Greed and fear is the main driving force of all bubbles.

Furthermore, they tend to explain away complaints about prices as “whining,” advising younger people to “brown-bag it” for a while in order to save up a down payment.

Just say, "price is not the concern, value is" and they will go away.

FAB,

If we keep talking Ayn Rand then we're likely to wake praetorian back into posting. He was always good at debating against Objectivism (better than I at defending it).

Joe,

They are always pointing out that the blue states have been losing population for years, while red states have been growing rapidly, etc. I sometimes find myself in this camp, but I make a real effort not to politicize every economic tend that comes along, so I tend to think that the bubble is just a fact of life that can’t really be blamed on either party.

Blue states and Red states have both been _gaining_ population. I think only one state has posted consecutive population _decline_ in the past 10 years. It's just that some red states have been growing faster than "big" blue states. Also, don't forget there is a scalar effect: the smaller growth in the blue states has added far more gross population to the US than the high growth in the red states. It's a percentage growth function thing. 3ish% growth in CA + NY + MA = just under half the total contribution by the aggregate red states.

I don’t know, at least in CA, both parties had a hand in policies that instigated the current bubble. GOP–> prop 13. Dems–> NIMBY laws

I don't think Prop 13 could have caused the bubble without NIMBY laws. On the other hand, any growth-control will lead to shortages. So I do think that NIMBY laws are more responsible.

Also, how many boomer liberal homeowner will now vote to repeal Prop 13? It is all about self-interests.

new thread: NAR: Speculation Accounts for 40% of 2005 Home Sales

And there are plenty of Conservative Republicans out there who support NIMBY laws - not only do they don’t want the growth/traffic, but they also serve to preserve/protect/prop up their property values.

Sure.

The head of the local preservation trust (which primarily sought to limit building on unbuilt lots) when I lived in Belmont was a popular local Libertarian politician. I always found it odd that a Libertarian was the head NIMBY.

Astrid-

I agree, but I tend to think these things have only exxacerbated the bubble, they are not the cause.

I certainly think that goverment could mitigate the effects of the bubble by easing zoing restrictions, building more roads/and or public transit, etc., but the business cycle and manias have always been with us, and I don't think government can do away with that.

In Britan, the Labour party has actually promised to do away with the business cycle; Gordon Brown (likely to be Tony Blair's successor as PM) actually used "No Return to Boom and Bust" as one of his campaign slogans!

Needless to say, I think that's insane. The government does not control the economy, we cannot legislate prosperity, it's crzay to think otherwise. And while our American politicians arent' exactly the cream of the crop, none of them would be caught dead making such an outgrageous promise, not even the moonbats.

The politicization of the economy has always bothered me, and I try to bend over backwards to not blame all of life's economic woes on the White House.

Since when did overpaying for something become a source of enjoyment?

Perhaps it is a way of displaying "wealth"?

(Remember, Debt = Wealth)

In Britan, the Labour party has actually promised to do away with the business cycle; Gordon Brown (likely to be Tony Blair’s successor as PM) actually used “No Return to Boom and Bust” as one of his campaign slogans!

I laugh when people try to do away with the business cycle.

It is possible to eliminate the boom/bust cycle, only if you leave it in a permanently depressed state. :)

Bring back the Conservative Party!

I really hate to brand or label people... but any human who thinks he can defeat boom/bust cycles is a communist.

I really hate to brand or label people… but any human who thinks he can defeat boom/bust cycles is a communist.

Or laughably self-delusional, or both. Even so, I think NIMBY laws have the effect of making the boom/bust cycles far more severe. If there was ever a clear-cut example of government interference creating moral hazrds, the RE bubble is it. And CA is the poster child.

It is possible to eliminate the boom/bust cycle, only if you leave it in a permanently depressed state.

can you reference any respected authority on this? given that govts generally don't want to see depressions under their watch, although they still seem very ignorant of the economic drivers...

so booms and busts are essential now. once again, we should just shut down this site then. total waste of time. the economy is on track, lending practices are normal and prudential, and tulip booms, dotcom crashes and having your life savings wiped out overnight because you believed in 'the system' is perfectly normal and acceptable. further, you are not entitled to an affordable house anywhere in the country, just get used to renting forever and retiring on nothing.

what's a communist?

The head of the local preservation trust (which primarily sought to limit building on unbuilt lots) when I lived in Belmont was a popular local Libertarian politician. I always found it odd that a Libertarian was the head NIMBY.

I really do not understand libertarianism then.

The only way we can save the world is for everyone to become more spiritual and care about everyone else. This is so far away from human nature that we can forget about it.

can you reference any respected authority on this?

I am a self-respected person and so I hereby reference myself. :) Just kidding.

Boom/bust cycles are horrible. But they are no worse than humanity.

If there was ever a clear-cut example of government interference creating moral hazards, the RE bubble is it. And CA is the poster child.

hmmm, so CA state laws have created the boom? nothing to do with people in a private market bidding higher and higher? getting more and more credit from private sector lenders without regulation or oversight? completely uncontrolled by govts? given the most recent thread pointing out that 40% of purchases are investments or holiday homes.

can you point to any sound reason the govt is to blame? except that centralised banks control the single economic lever of interest rates, which has multiple effects on multiple parts of the economy, often working in different directions to somebody's detriment.

and given that similar booms are occurring in a dozen OECD countries in the world right now due to historically low interest rates, liberalised credit offerings by private sector lenders, and no curbs on free market speculation. so they're all suffering from govt-induced moral hazards? i'd like to see the peer-reviewed academic paper on that - presume you're working on one... those views are not just blind prejudice and idiotically blind self-destructive tendencies - like the poor Republican-voting farmers of the red states guaranteeing their kids will never get to college and they will never get affordable health care...

I always found it odd that a Libertarian was the head NIMBY.

hmm, people often have self-inconsistent belief systems. surprise, surprise. politicians just go with their gut instincts on everything, anyhow, no matter how contradictory it is... whatever has personal or voter appeal...

hmm, people often have self-inconsistent belief systems. surprise, surprise. politicians just go with their gut instincts on everything, anyhow, no matter how contradictory it is… whatever has personal or voter appeal…

Different Sean, sometimes I really wonder how much our beliefs are different yet how much the are the same. :)

Uhhh....DS,

We basically agree on the central bank/low interest rates (plus GSE/MBS/taxpayer risk underwriting) having started this whole thing. What I'm basically saying is you have two government-induced moral hazards operating side-by-side here:

(a) Federal (and international) level: The Fed/CB injects massive amounts of liquidity into mortgage/banking system, which gets loaned out to Jill & Joe McDebtor in the form of IO/neg-am/no-doc jumbo-sized loans. Which triggers bidding wars and much higher prices. Risk gets transferred from banks/S&Ls to individual taxpayers & investors, thanks to mortgages getting sold and repackaged as MBS/CMOs. Speculation is also partly taxpayer subsidized in the form of over-generous capital gains exemptions, mortgage interest deductions (incl. investment property), 1031 exchanges, etc.

The stimulus/effects are mostly temporary, and lasts only until short rates are raised back above CPI levels, and while GSEs remain solvent. Whether or not the speculation-friendly tax incentives are more permanent remains to be see.

(b) State and local level: NIMBY anti-development laws & Prop. 13 tax re-distribution schemes erect barriers and disincentivize new housing development/zoning.

This has a much longer lasting, more permanent impact on housing prices regionally than the federal stimulus above. Even in the complete absence of a speculative bubble, CA house prices would be far higher than most other states. There is no other good reason why this is so, "sunshine premium" notwithstanding.

Bring back the Conservative Party!

Thatcher got voted out because the policies weren't working, and she was making life very unpleasant for a lot of people other than her elite cronies. There was, amongst other things, a 'grey rebellion' when she started axing meals on wheels services for senior citizens...

I don't know why people who are unahppy with CA have to go to Tenessee or Texas, what about other places in the world?

I have been to Dallas, you can't pay me enough to move there. I have been to Tenessee on business as well, thanks but no thanks. Now if I only have a couple mil to spare, these are definitely not the places where I fancy I can advance my personal wealth or intellectual stimulation further. Nothing wrong with these nice country folks, just not my cup of tea. If I have a couple Bil to spare, then I may consider moving there, with the intent of turning the local town into some sort of paradise I envision.

If one day CA becomes unbearable, I would rather move to Seattle. If Seattle fails, then Vancouver, if Vancouver doesn't work out, Sydney, if Sydney fails, I will exhaust London, Tokyo before I even think about Dallas. It is not that important that I have to stay in the US, my family are sort of scattered around the English speaking countries. But growing up in a cosmopolitan, I require some minimum degree of filth and crime to get by. :-)

Even in the complete absence of a speculative bubble, CA house prices would be far higher than most other states. There is no other good reason why this is so, “sunshine premium” notwithstanding.

so nothing to do with 'get rich quick' messages, irrational exuberance of markets, people believing investment properties will be their 'retirement plan', general ignorance of fundamentals, panic buying in a boom, opportunistic speculation, 'the guy next door just made a fortune', etc etc - just like the dotcom boom...

there is abundant housing to go around, despite people pointing to curbs on development. i think the price hikes are far more sinister than just a putative supply/demand effect.

Different Sean,
Have you read “What’s the matter with Kansas?”

No, I've seen excerpts from it, and reviews of it, and I was definitely subliminally channeling Thomas Frank in that remark, because he sums the situation up so neatly in his writing...

@Different Sean,

Irrational exuberance/mass psychology has a great deal to do with the business cycle, which is why no government will ever be able to regulate it out of existence. Basically, most government attempts to "regulate" innate irrational human behavior tends to be either ineffective or backfire and make things worse.

I am basically an advocate for simple asset class-nuetral flat taxes (income, consumption, whatever), eliminating taxpayer lending risk underwriting, and letting the markets determine what are "appropriate" interest rates (i.e., risk premiums). Being free of various interest group's sacred-cow subsidies / exemptions / shelters / risk-underwriting would mean a truly nuetral, moral hazard-free tax system. Of course, I'm not so naive to expect this will actually happen anytime soon.

The Fed/CB injetcs massive amounts of liquidity into mortgage/banking system, which gets loaned out to Jill & Joe McDebtor in the form of IO/neg-am/no-doc jumbo-sized loans.

that's not what happens in australia, and yet the boom here is worse than anywhere. funding for mortgages in most other countries comes direct from private sector lenders, and even pension funds. indeed from anyone who thinks they will get a strong and safe return on investment based on brokering mortgages. how do the private banks get injections of funds from the government or from central banks?

further, it was a decision by the private sector banks internationally to liberalise their lending standards and create exciting new 'investment products' for specuvestors, not the central banks.

(reserve banks were set up in some countries as far back as the late 19th century to stop banking and economic crises from happening as the economy boomed and busted and there were massive runs on funds withdrawals which could not be met, and as in the Great Depression - they are supposed to be a self-regulating prudential authority - there is something here called APRA - Australian Prudential Regulatory Authority, which stepped in recently and told the banks to stop lending so freely to so many borderlline credit cases... which is one plank of the way to contain the boom...)

astrid,

shanghai will be quite high on my list if they fix the following problems:

1) Rampant pollution
In winter you feel like you are trapped in a gas chamber. I got sick often when I traveled to that parts of the world. The infrastructural development is sure amazing, and pretty much at par with HK, but the air pollution is unbearable.

Aside from that, they need to fix the quality of food. Even the foreign supermarket chains are selling expired food items or knockoffs, what can I say? Regardless of how good the money is, I won't compromise on my health.

2) Lack of a trustworthy legal system
I don't particularly care for democracy, nor do I hold a grudge against the communists, I can live in Singapore alright. But there is a sheer disrespect of law anywhere in China, and because I did some deals there, I got to see how nasty things could get.

If they fix these couple of problems, I probably will go to Shanghai before I head for Vancouver.

CA has a severe perennial shortage of entry level rental housing.

probably. altho it has more active 'affordable housing' programs than most places in australia, especially sydney, which has become incredibly laissez-faire and indifferent. even those places are probably a drop in the ocean though.

income tax in the UK and Australia has been progressive since its inception. to raise funds for govt, under a flat tax system, you would have to peg it relatively low so that low income earners have enough left to live on after tax, but then the govt is robbing itself as high income earners will be left with far more discretionary income than they need to live comfortably, and the govt will be unnecessarily reducing its own incomes. to peg it high will cause an unbearable burden on lower income earners. the overall effect of progressive tax is to raise about 30% of total income across the workforce, similar to setting a flat tax at 30%, but with a social justice weighting. either way, you can rest assured that the govt is definitely going to raise that money. flattening taxes might work, in peacetime, but you are currently not at peace. on the other hand, limiting the amount of money govt can raise might in turn discourage it from going off on adventures of neo-colonial conquest at great public expense...

but i don't think you can have wars and a flat tax system...

altho it has more active ‘affordable housing’ programs than most places in australia, especially sydney, which has become incredibly laissez-faire and indifferent.

Affordable housing program? It is a disgrace.

My friend looked at a "luxury" condo in Los Alto (around 1M). Of the 15 or so units, two are designated as "Below Market Rate" for lower-income people. Both are still vacant after more than a year. It is a complete waste of resources. They are doing it just for the sake of doing it. They are not helping anyone at all.

We need pro-growth laws instead. Just let the developers build whatever they want wherever they want and we will have affordable housing in no time.

I wouldn’t go that far. I do like BA’s open space. It’s so much nicer than LA because there’s all this green space.

Then I guess we will just have to pay the premium.

that’s not what happens in australia, and yet the boom here is worse than anywhere. funding for mortgages in most other countries comes direct from private sector lenders, and even pension funds. indeed from anyone who thinks they will get a strong and safe return on investment based on brokering mortgages. how do the private banks get injections of funds from the government or from central banks?

DS,

I can't speak for how things work in Oz, but here the Federal Reserve Bank ('the Fed') is clearly a prime cuplrit behind the current huge run-up in mortgage liquidity and erosion of lending standards (along with the GSEs, which essentially socialize mortgage risk). To fully explain how the Fed accomplished this would itself merit it's own dedicated thread (perhaps a future topic?).

In a nutshell, they basically lowered the Fed "discount" rate for member banks (pretty much any national bank/S&L is Fed chartered) to 1% for about 2 1/2 years. This meant that the rate at which member banks could borrow money was negative in real (inflation-adjusted) terms. This had the effect of pouring gasoline on the fire of speculation. Member banks were basically able to lend money out to anyone with (or without) a pulse and still turn a profit on the spread. Most of this money got funneled into subprime mortgage lending, which may not have been the Fed's original intent. In addition to setting the short-term "discount" rate, the Fed also has the power to literally "create" money by direct-depositing credit into its member banks' accounts.

For more info, refer to Wikipedia:
http://en.wikipedia.org/wiki/Federal_reserve_bank

My friend looked at a “luxury” condo in Los Alto (around 1M). Of the 15 or so units, two are designated as “Below Market Rate” for lower-income people. Both are still vacant after more than a year. It is a complete waste of resources. They are doing it just for the sake of doing it. They are not helping anyone at all.

can you elaborate on that one? does that mean they are still too expensive? like 800K? i wouldn't call that affordable for low income earners, heh. are they supposed to be rentals only? does that mean if they pushed it up to 'market rates' they would immediately get tenants/buyers?

the problem here could be that you have to qualify for the apartment on a means tested basis, but they are still too expensive for anyone who passes the test. in that case, the developer also misses out on a return, so everyone takes some hurt. don't really undestand this situation at all...

Government-sponsored "affordable" housing measures, whether of the direct kind (government "projects", a-la Cabrini Green), or indirect (forcing developers to sell X-% of units at below-market price) have historically proven to be consistently miserable failures. Ditto for rent "control".

CA indeed has some of the most stringent "afforable housing" measures in the country (not to mention the worst anti-development NIMBY laws), but --surprise, surprise-- also has the LEAST affordable housing of any state in the country. This is what happens when you have government trying to decide winners and losers in the marketplace, and trying to dictate what kind & how much housing gets built.

Like Peter P says, just let the developers build whatever they want wherever they want and we will have affordable housing in no time.

can you elaborate on that one? does that mean they are still too expensive? like 800K? i wouldn’t call that affordable for low income earners, heh. are they supposed to be rentals only? does that mean if they pushed it up to ‘market rates’ they would immediately get tenants/buyers?

Exactly. They will still be way too expensive.

If they are at market rate, there should be no problem finding buyers.

We need to have affordable housing at market rate. We cannot distort the market or we will not accomplish much.

Increasing supply is the only way.

the Federal Reserve Bank (’the Fed’) is clearly a prime cuplrit behind the current huge run-up in mortgage liquidity and erosion of lending standards

i would have thought that the lenders actually offering the products would have been the prime culprits, as well as the specuvestors and other actors in the market. no-one is making them take the products, nor stopping the banks from offering them. it's like saying if there is a loaded gun in front of me, i can't resist the urge to pick it up and kill someone, so the gun manufacturer is at fault, and then the person that placed it on the table.

it's at best a complicated interaction of govt involvement and private sector practices and market outcomes. altho, yes, the idea of the fed is to maintain a stable economy and increase wellbeing across the board for people, so they are failing in that aim if their policies and practices ultimately result in a painful housing boom.

in the same vein, too, i disagree with tax deduction allowances on housing investment losses and reducing capital gains tax, so there are plenty of things govts are doing wrong from country to country. these have also helped fuel the boom, so wrong-headed govt actions can certainly be a factor. all the more need to elect the right people, or else keep agitating...

in the history of banking and the original prudential need to create central banks, apart from issuers of currency, see also the run of banking panics in the late 19th century, e.g.
http://en.wikipedia.org/wiki/Panic_of_1907

The 'mission statement' of the RBA reads as follows:

The Reserve Bank of Australia (RBA) is responsible for formulating and implementing monetary policy. The Board's obligations with respect to monetary policy are laid out in the Reserve Bank Act. Section 10(2) of the Act, which is often referred to as the Bank's 'charter', says:

"It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

(a) the stability of the currency of Australia;
(b) the maintenance of full employment in Australia; and
(c) the economic prosperity and welfare of the people of Australia."

How well they're carrying that out, and how you measure it, is a matter of opinion. (APRA has been pushed out of the RBA at arms length to regulate the lending institutions.)

Increasing supply is the only way.

I broadly disagree - I think there is plenty of supply, In fact, 10,000 people leave Sydney every year for affordability reasons, and everyone who is here could be comfortably housed with what's available. Although there could be a small supply/demand effect taking place. (Neoclassical economics pretty much says that all overpricing is a result of undersupply, I suppose.)

The problem to me is the inherent price-fixing nature and 'ratchet effect' of the market. Prices in housing tend to be inherently inelastic, except at bust time.

I believe the best approach is for an enlightened govt to step in and start regulating land prices to avoid booms. If they learned from the lessons of history, they would take price-setting out of the free market and peg prices to earnings and CPI. They're too laissez-faire. They should cut off the noses and ears of specuvestors, real estate agents and bank managers. That would bring the prices down in a hurry...

it’s like saying if there is a loaded gun in front of me, i can’t resist the urge to pick it up and kill someone, so the gun manufacturer is at fault, and then the person that placed it on the table.

Huh? Hey, are you trying to get another cheap dig at me for for being pro-gun again? ;-)

Gun control aside, if the Fed hands a banker tons of free money to lend, at virtually no risk to the bank, what do you think is going to happen? Lending money for profit isn't just something banks occasionally do, it's what they're SUPPOSED to do. Their shareholders would hold any bank officer responsible for failing to lend money on favorable terms.

The Fed is *well* aware of this fact, and were fully cognizant of the possible consequences of lending money to member banks at negative real rates. Greenspan may well go down in history as the most irresponsible Fed chief in history --if Bernanke doesn't top him.