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.

How Long Will The Right Let Us Love Obama?

Co-written with James Boyce, first published at Huffington Post.
Senator Barack Obama is a man to be admired, respected and liked. He is more than worthy of consideration for the Democratic Nomination in 2008 and if we were advising Senator Obama, and his equally impressive wife Michelle, our advice would be to run, and run now. A Vice Presidency certainly looks attractive on one’s resume, and a national campaign brings valuable experience.
Senator Obama is admired and he is loved. Look at the recent favorability polls and there he is, the Number One Democrat in America. But why? Why is a junior Senator, nationally a virtual unknown just two years ago, now at the top of the national favorability ratings? Is it because of his new book? His great 2004 Convention Speech? His appearance on Oprah? All of these, of course, but in fairness, does Barack Obama truly deserve to be the Democratic leader with the highest national favorability in a recent poll? Hardly.
With complete respect to Senator Obama, where are the long-time Democratic leaders who have dedicated their lives to the service of our country? Where are the other possible Presidential contenders? What about Bill Clinton, Al Gore and John Kerry? Where are Hillary Clinton, Nancy Pelosi or Harry Reid? Are they not leaders that deserve at the very least to have decent favorability ratings?
Why is Barack Obama “favorable” and not any of the better-known Democratic leaders? And why – of all people is Rudy Guiliani at the top of the list as the Number One leader in our country? The answer is simple, and dramatic.

Continue reading

Restore The Fairness Doctrine!

It is time to restore the Fairness Doctrine!
How many of you have heard of the Fairness Doctrine? Public broadcasters are licensed to use OUR airwaves. It used to be that in order to be licensed they were required to serve the public interest. One part of that public interest was to present a balanced view of different political viewpoints and to cover controversial issues of public importance. This “Fairness Doctrine” requirement was intended to protect the public from the possibility of moneyed interests buying up all of the information sources, leaving the public hearing only their viewpoint.
There was also a personal attack rule, which required stations to notify people or groups who were attacked on their broadcasts and give them the opportunity to respond on the air. And, candidates were given the opportunity to respond to attacks or endorsements of opponents.
Ronald Reagan’s FCC stopped enforcing and then got rid of the Fairness Doctrine. Congress restored it but Reagan vetoed that. Under President George HW Bush Congress again restored it but it was vetoed. Then, under President Clinton the House passed it but the Republicans in the Senate blocked it with a filibuster. In the last six years Republicans controlled the House, Senate and Presidency and were quite happy with broadcasters presenting only a narrow corporate viewpoint, and allowing personal attacks to go unanswered.
It is time to restore the Fairness Doctrine!
Restoring the Fairness Doctrine would open up America’s “marketplace of ideas.” It would help to restore civility to our public discourse. It would help restore our democracy.
If the Fairness Doctrine were restored we would begin to see a variety of issues covered by the broadcast media, from a variety of perspectives. Currently we only see subjects that the corporate world is interested in, covered from a pro-corporate perspective. Imagine the effect on the country if the public were exposed to a variety of viewpoints on issues like trade, consumer protection, sustainability, unions, health care, global warming and energy, religion, the environment, nutrition, and SO MANY other issues!
Imagine the effect on our civic discourse if stations had to give time for a response to everyone that Rush Limbaugh or Ann Coulter smeared on the air!
It is time to restore the Fairness Doctrine!

zv7qrnb