Double Bubble. Double Trouble.

Last August, we wrote about the double bubble in the housing market: a more traditional bubble, then over-inflated by a massive asset bubble that drove prices up and up and up. The bigger the bubble, the bigger the pop.
In that post we wrote,

In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy’s effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it’s the other way around: prices are about to start dropping.

And so here we are. Yesterday’s news of a mind-boggling 50,000+ jobs lost in a single day brings us now to the start of this second bubble popping. Because for all of economic talk about housing markets and prices and fancy new mortgages that were created, at its economic base, housing prices are just about the simplest thing in the world.
When people make more money, or more people move into a market, housing prices slowly go up. When people make less money, or people move out of a market, housing prices slowly go down.
The housing bubble popped, leading to recession, and the recession is now going to lead to a further decline in housing prices. Where will that lead?
The problem at the root of the housing asset bubble is that over the last few decades — since Reagan and the Republican free-market supply-side, trickle-down policies took over — Americans have not been earning more, they’ve just been able to buy more thanks to a litany of mortgage and other debt-raising products that compensate for the lack of earnings.
People used to be required to put 20% down before they could buy a house. How many people do you know, honestly, that have 20% to put down on a house now? How many do you know that actually have 20% equity accrued in the house they already own? We’re betting not many.
That 20% down payment requirement kept housing prices in check. But that became a 15% requirement, then 10%, then 5% then a negative 10% requirement, where you could actually get a mortgage for 110% of the value of your house. Well, they helped inflate the bubble.
On top of that, loan standards used to require that people spend no more than 25-28% of their income on housing expenses. This also kept prices in check. This was also set aside, and “liar loans” further inflated the bubble. Now that all has to be undone.
Last August, real estate experts were claiming that 2009 was to be the bottom of the market, and housing prices were going to head back up. Just like they claimed that 2008 was going to be the bottom and that 2007 was when the market would turn.
Sadly, the chances of real estate prices turning back up, in real dollar terms, has vanished for the next decade at least. There are two coherent facts behind this.
First, the size of the bubble means that someone who bought a house for $500,000 in 2005 is already 20-25% down in the price of the house. Factor in inflation, and it’s closer to 35 – 40% down right now, four years later. Of the millions of Americans who will lose their jobs this year, many will be unable to cover their mortgages. And foreclosures, short sales, sales right before the short sales, these will continue to increase, driving prices down even further. This all means there is little demand for high-priced houses.
Second, the bubble caused a building boom, and along with all the foreclosures there is now a huge supply of houses and condos waiting to be sold. And only then will the “shadow” market of people waiting on the sidelines for a better market in which to sell their houses kick in.
Only after all of these factors are cleared will market conditions even start to return to normal.
By 2010, perhaps 2011, perhaps we will see signs of a bottom of the real estate market, with prices having returned to their historical norms at a level that many suggest is 30-35% below where they are today.
For many, this will be personal financially troubling, even disastrous. From an economic point of view, it is the fundamental principal of supply, demand, and income proving to be true again, and a return to economic reality.
What can be done about it? The root cause of this and many other problems in our economy is the stagnation of incomes that began when Reagan was elected. Republican policies brought a massive concentration of wealth at the top with a select few reaping all of the benefits of our economic system. But this double-bubble collapsing-economy problem is costing their wealth as well. Trickle-down doesn’t, and when the rest of us are tapped out by misguided policies like these it spells disaster for everyone.

The media owners get the journalists they want

UPDATE: For the record, I’ve made the point below dozens or hundreds of times. Hardly anyone ever agrees, and often no one disagrees either. Apparently the idea is just unthinkable, probably because of the Chomsky cooties. (Have I ever mentioned that I hate liberals?)

At the moment we’re having another episode of the same old grumbling about the media, and as always, I think people are missing the point. Below is an edited and enlarged version of a comment I made to the post linked above:
I’m really becoming a nag on this question, but “journalistic incompetence, laziness, and the knowing distribution of unadulterated bullshit” are management problems. The journalists whose names and faces we see are doing exactly the jobs they were hired to do. When Jonah Goldberg or William Kristol gets hired by a major newspaper, it’s not because the person who hired him has made a mistake.
The reason why there’s a journalism groupthink problem is that there’s a management groupthink problem. For a long time now, up-and-coming people in the business have been seeing dishonest, frivolous journalists hired and promoted while better journalists are deadended or fired, and they have learned to conform their work to what their bosses want.
The interests and ideologies of the owners and publishers of the various media have overwhelmed whatever journalistic standards they ever had, and their primary interest is low taxes.
The Republicans’ extraordinary emphasis on the inheritance tax, which affects onlt 0.5% of the population can be explained in large part by the fact that the owners of the old privately-owned newspapers (the Washington Post, the New York Times,the Seattle Times, and others) are among that 0.5%

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Investigating Bush Crimes

Ivan Eland of the Independent Institute says Prosecute George W. Bush for Illegal Acts. The piece begins,

The Obama administration is reluctant to turn over too many rocks in the Bush administration’s conduct in the War on Terror. Obama has pledged to reach a post-partisan nirvana, and Republicans could condemn any investigation of Bush administration abuse of the republic as a partisan witch-hunt. Also, the Obama administration has a conflict of interest in pursuing investigations and prosecutions against Bush administration officials because now that Obama is president, he may not want to entirely discredit Bush’s precedents, which significantly expanded executive powers.

Citibank Uses TARP Money To Buy New Jet

Remember when the Bushies came to the Congress, demanding $700 billion in 48 hours? And remember how the Congress gave in and took out many of the taxpayer protections?
Citibank is using some of the money to buy a new jet for executives. It’s not even American-made. Why would you expect anything different?

The French-made luxury jet seats up to 12 in a plush interior with leather seats, sofas and a customizable entertainment center, according to Dassault’s sales literature. It can cruise 5,950 miles before refueling and has a top speed of 559 mph.
There are just nine of these top-of-the-line models in the United States, with Dassault’s European factory churning out three to four 7Xs a month.

Today’s Layoff News

Just today:
Caterpillar to slash 20,000 jobs as profit falls
GM to lay off 2,000 workers, cut production
Sprint to eliminate 8,000 jobs
Home Depot cutting 7,000 jobs
Allbritton Communication Announces Massive Job Cuts
Deere to lay off nearly 700 workers
Harley-Davidson plans 425 local job cuts
Thermadyne laying off 110
Pfizer-Wyeth merger to mean job cuts: “…announced a cost-cutting initiative that will include the elimination of more than 8,000 jobs. ”
That was TODAY. Actually, it’s early yet.
And just the other day: Microsoft plans 5,000 job cuts
Starbucks to Lay Off 1,000

Tax Cuts – Already Tried and Failed

At Economists View, The 2003 “Jobs and Growth” Plan (Tax Cuts) Didn’t Work, Mark Thoma looks at Tax cut approach has already been tried and failed as stimulus by Lawrence Mishel at the Economic Policy Institute,

[. . .] Even worse were the Bush tax cuts of 2003, which the administration claimed would generate 1.4 million jobs on top of the 4.1 million jobs that were expected to be generated over the eighteen months following June 2003.
See: http://www.jobwatch.org/creating/bkg/cea_on_bush_tax_cuts_20030204_macro_effects.pdf
EPI tracked the initiative’s effectiveness through a website, www.jobwatch.org, and found that it fell far short of its goals. Not only did the promised 1.4 million additional jobs not appear, but the 4.1 million jobs expected with no action also failed to materialize. In all, only 2.4 million jobs were created—1.7 million short of the administration’s projection without their new policy. Thus, by the Bush administration’s own metrics the tax cut program fell short by a total of 3.1 million jobs (149,000 pr month).

Thoma writes,

They already screwed this up once, the initial tax cut stimulus package put into place last spring was too small and poorly targeted, it had all sorts of problems all in the name of appeasing this same group – and here they are trying to muck up the process once again, to hold jobs hostage while they try to get tax cuts in place, even though something like 40% of the package is already devoted to tax cuts. Camel, tent, nose.

One Of The Ways FDR Saved Us

Republicans are trying to tell people that FDR’s policies made the economy worse.
So think about this: Where would we be today if FDR hadn’t implemented federal bank deposit insurance? Would there be a single bank left in the country today?
That is JUST ONE of the ways that FDR’s policies and regulations helped us this time.

Times Change, Some Industries Don’t Want To

I wrote a post yesterday, MPAA vs RealDVD — Why You Care, about the Motion Picture Association of America (MPAA)’s lawsuit to keep the product RealDVD off the market. This post is a continuation of that story.
The movie industry has had a good thing going. They put movies onto DVDs, and people have to have the actual DVD in order to watch the movie. There has even been a law passed called the Digital Millennium Copyright Act (DMCA) that makes it illegal to sell hardware or software that lets people make copies of DVDs. This grants a monopoly on a revenue stream. As far as this works to promote creativity and innovation, and makes sure that people are paid for their work, this is a good and necessary use of government power. But keep in mind that this is a use of government power to direct a revenue stream to certain people, and therefore must be closely monitored because this creates an interest to prevent innovation as well as to promote it. It’s a good thing that MPAA naturally wants to keep going – a legal monopoly that forces people and companies to pay and pay and pay. Them.
Now a company has a product, RealDVD, that lets you copy your DVD onto your computer. Not to burn it and make copies for others, just for YOU to see it yourself. With products like this, if you get a scratch or lose your DVD, you can still watch it on your computer without having to buy the DVD again.
The MPAA has sued to keep the RealDVD technology from the public. They say RealDVD violates copyright law because it lets you see a movie that you purchased or rented even after it is transferred off of the DVD. This lawsuit denies the reality that today a movie is digitized. This is what a DVD really is, a place where the digitized file is kept. It can be on a USB drive or other device that can be copied, and the DMCA outlaws this. This digitization can bring tremendous flexibility to the user in how they can choose to see the movie. And it is the foundation for innovation that brings benefits to consumers. The MPAA lawsuit fights this innovation.Engadget says, “it’s sadly clear to us that Hollywood’s fight here is against consumers having flexibility with their media”.
If this is about stopping people from watching their movies on their computer without having to have the actual DVD present, then MPAA is trying to fit customers into their business model, not the other way around. This blocks innovation and is not filling the needs or solving the problems for customers — this is making customers sacrifice to solve MPAA’s problems. They are saying that because there might be a way that a product could be used to make illegitimate copies, customers should be assumed to be criminals and the innovation should be blocked.
But this suit may be be about the MPAA keeping control over innovation — in other words it may be about MPAA abusing this law to press for license fees. This is not the purpose of copyright as spelled out in our Constitution. By holding up RealDVD MPAA may be trying to get the company to decide to just pay them a license fee to get them off their back. If that is the case this isn’t an argument over the definition of piracy at all, it is an abuse of the law and court system. The purpose of copyright law is to promote innovation by making sure revenue flows to the innovator.

Your TARP Dollars At Work

Merrill Lynch used TARP funds to give out $4 billion in bonuses.
According to the Financial Times

Last week, BofA said it would be receiving $20bn in Tarp money, in addition to the $25bn that had been earmarked for it and Merrill last year. It was then revealed that Merrill had suffered a $21.5bn operating loss in the fourth quarter.
Despite the magnitude of the losses, Merrill had set aside $15bn for 2008 compensation, a sum that was only 6 per cent lower than the total in 2007, when the investment bank’s losses were smaller.
The bulk of $15bn in compensation was paid out as salary and benefits throughout the course of the year. A person familiar with the matter estimated that about $3bn to $4bn was paid out in bonuses in December.
Nancy Bush, an analyst with NAB Research, described the size of the 2008 Merrill bonus payments as “ridiculous”.

MPAA vs RealDVD — Why You Care

The Motion Picture Association of America (MPAA) is suing to stop RealPlayer’s RealDVD from being sold to computer owners. RealDVD lets you make backup copies of your movie DVDs onto your computer. It doesn’t let you make new DVDs or share the files from your computer with others — it just lets you keep for yourself a backup. MPAA says this means computer users “steal” movies.
Why do you care? This affects you because it is another case of big corporations using their ability to influence our government to gain financial advantages that cost us money and convenience.
The MPAA sues people and companies that they say are “stealing” their movies. Of course within reason this is necessary and proper. But in their efforts to protect movie company profits, MPAA has been going too far, acting similarly to the infamous Recording Industry Association of America (RIAA), the recording industry group that sues anyone they suspect may have downloaded a tune, in order to make an example of them. (See MPAA Sues Grandfather for $600,000. His 12-year-old son had downloaded a movie.)
But fear that people are “stealing” may not be the real reason behind this lawsuit. In Why Hollywood Hates RealDVD, Electronic Frontier Foundation Senior Staff Attorney Fred von Lohmann writes that this is about a strategy to force Real and others to pay license fees to MPAA when they come up with new technologies. He writes that MPAA’s position,

“. . . forces technology companies to enter into license agreements before they build products that can play movies. . . . Those license agreements, in turn, define what the devices can and can’t do, thereby protecting Hollywood business models from disruptive innovation.”

This fight traces back to the 1998 Digital Millennium Copyright Act (DMCA). The DMCA limits how technology can be used, even limiting researchers from studying various kinds of computer encryption and other algorithms. Basically, it says that companies can’t make products that enable people to distribute their own copies of copyrighted material. Copyrighted music and movies contain code that tells the computer that this file can’t be copied, and computers and programs have to contain code that recognizes this.
Copyright, according to our constitution, is intended to “promot[ing] the progress of science and useful arts”. The idea was to grant a legal monopoly on profiting from this kind of work for a few years to provide an incentive and reward for scientific research and creativity. This means the government uses its power to stop competition. As it applies to the arts this is how authors, musicians, filmmakers and others are able to make a living at all and that is why it is in the Constitution. But like so many corporate-inspired distortions of our laws and values in the last several years, the DMCA is primarily about benefiting big, established corporations and blocking rather than promoting innovation. In fact, when used like this it stifles innovation.
Something we have seen in recent years is businesses misusing legal tactics to increase profits. In other words, using their money-bought influence over our government to get special favors such as tax breaks, subsidies, grants of monopolies, “no-bid” contracts, etc.
Lawrence Lessig is a Professor of Law at Stanford Law School and founder of the school’s Center for Internet and Society. He teaches and writes in the areas of constitutional law, contracts, and the law of cyberspace. In 1999 he said, “This is law and code conspiring to tilt market forces quite decidedly in one direction rather than another.”
More recently Lessig has written

“. . . when the D.M.C.A. protects technology that in turn protects copyrighted material, it often protects much more broadly than copyright law does. It makes criminal what copyright law would forgive.”

So here we have MPAA suing to block people from being able to get the RealDVD program, which lets people keep a backup on their own computer in case their DVD gets scratched or lost. (Unless they pay MPAA licensing fees – wink wink, nod nod.) MPAA also wants to make people buy new DVDs. But people want to make backups in case they scratch or lose their DVDs.
This case comes to court soon, keep an eye on it.

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