Tag Archives: recession

There Is Consensus On How To Fix Economy

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“There was clearly something wrong with the U.S. economy long before the crash.”
Consensus
Consensus. Again and again, people who examine what went wrong with our economy leading up to the great recession come to the same conclusions! Study after study, book after book, statement after statement, op-ed after op-ed, organization after organization, expert after expert, all weighing in, all coming to the same conclusions. One after another voices speak up (click through for just a sampling), voicing their understanding of what happened to the economy, what caused the crash and what we have to do to fix things. One after another they voice the same conclusions: our economy was damaged by,

  • tax cuts for the rich combined with huge military budget increases (and wars) that led to budget deficits and increased inequality;
  • trade deals that damaged vital industries and led to trade deficits, layoffs and wage cuts;
  • deregulation of rules that protected working people, unions, vital economic sectors and the commons of public wealth;
  • and cuts in crucial areas of investment in our people and our economic future, including education & job training, infrastructure, energy, manufacturing, transportation and R&D into new technologies.

All of these betrayals of the social contract were enabled by the influence of big money on our political system, including huge sums spent on an infrastructure of corporate/conservative organizations designed to propagandize the public into accepting these changes – or at least keeping the victims from rebelling.
This Time, The AFL-CIO
This time the AFL-CIO offers their analysis, Fixing What Is Wrong With Our Economy. Here are a few excerpts – but if you have been paying attention you have heard all of this again and again from all directions:
The crash was the end-result of policy changes brought in with the “Reagan Revolution:”

The crash of 2008 and the Great Recession were inevitable consequences of three decades of economic policies designed by and for Wall Street and the wealthiest Americans. At the heart of the problem was the hollowing out of American manufacturing, the growing dysfunction of our financial sector and a rapid increase in economic inequality, all of which crippled the growth engine of the U.S. economy.

Trade deals and policy choices that sent jobs, factories and industries out of the country:

[. . .] The deindustrialization of America and the substitution of speculation for productive investment were not accidents, they were not inevitable, and they were not the outcome of natural forces. They were the predictable results of mistaken policy choices made by politicians of both parties for more than a generation. These policy choices had victims with first and last names: millions of displaced workers, shuttered factories and hollowed-out communities across the country hobbled by shrinking tax bases that no longer could support vital public services.

In The Way
The corporate/conservative propaganda apparatus (and its candidates for office) continue to demand even more tax cuts for the wealthy and cuts in the things our government does for We, the People:

[. . .] The Republican candidates pretend that tax cuts for corporations and the wealthy are the answer to wage stagnation and the economic crisis, but the Bush years taught us that these obscenely wasteful tax cuts only make the problem worse. They are the equivalent of eating our seed corn, because they starve the kind of public investment in education, infrastructure and innovation that is indispensable for long-term economic growth.

The Fix
Again and again experts tell us how to fix the problems we face in our economy and society: restore democracy’s (the 99%’s) controls over corporations (the 1%) and especially re-regulate the financial sector, reverse the taxation policies that led to budget deficits and extreme inequality, fix the trade deals and other policies that led to trade deficits and allow the wealthy to pit working people against each other, and invest heavily in our country and people again. That’s a start, anyway — get the influence of big money and big money’s propaganda machine out of our politics and maybe after a while We, the People can start addressing the rest of our problems again.
The AFL-CIO’s conclusions, from a summary of the analysis:

The statement outlines several significant steps that need to be taken to build an economy that can compete with world economic powers like Germany and China and that works for all, including:

  • Significant investment over the next decade in education and apprenticeship programs for young people, infrastructure, energy, manufacturing, transportation, skills training and new technologies;
  • A fair share from Wall Street and the wealthiest Americans, who have benefited most from the economic policies of the past 30 years—pass a financial speculation tax, let the Bush tax cuts for the wealthy expire and tax capital gains at the same rate as ordinary income;
  • Tackling the problems of wage stagnation and economic inequality by reforming labor laws so that all workers who want to form a union and bargain collectively have a fair opportunity to do so, making full employment the highest priority of our economic policy, increasing and indexing the minimum wage, shrinking the trade deficit and eliminating incentives for offshoring;
  • Reviving U.S. manufacturing by bringing the trade deficit under control, enhancing Buy America safeguards, aggressively enforcing trade laws and ending incentives for offshoring;
  • Once again regulating Wall Street, eliminating tax advantages for leveraged buyouts and finding other ways to favor strategic investment over short-term speculation;
  • And working toward a global New Deal that establishes minimum standards for the global economy, prevents a race to the bottom, creates vibrant consumer markets in the global South and creates new markets for advanced U.S. manufacturing.

The American people aren’t stupid. Majorities are also coming to the same conclusions. The American Majority in poll after poll show agreement with these conclusions.
We have to reverse the corporate/conservative, anti-government, pro-1% policies that started about 35 years ago. All the charts show the changes, when the changes happened, and how those changes have worn away at our economy and our people — click through and see for yourself the story that the numbers tell: tax cuts, deregulation and outsourcing our jobs, factories and industries has not helped our economy or our people. Since then all the gains from the efforts of all of us have gone to fewer and fewer of us. Since then our infrastructure has fallen into disrepair. Since then our trade deficit has gotten worse and worse. Since then regular people — the 99% — have been falling further and further behind, democracy has eroded to the breaking point, with plutocracy — rule of, by and for the 1% — taking its place.
Our wealth is being extracted for the benefit of a few. We, the People must reassert control, or face further decline.
This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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Can’t Get By On $250K? Try Leaving Your Bubble!

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
The Washington Post ran a story how hard it is for a family making only $250K a year. Just who could a story like this be written by and for? How many ways does this story mislead its readers? If you want to write about hardship write some stories about and for the rest of us!
Over the weekend the Washington Post carried a story labeled as a “Fiscal Times” piece, Where does $250,000 a year go? Summary:

It’s the annual income that President Obama and others have repeatedly used to define what it means to be “rich” in America today. … Just how flush is a family of four with a $250,000 income?
… The bottom line: Living in high-tax areas on either coast can leave our $250,000-a-year family with little margin.

Richard Eskow hit the nail on the head in his post, A Quarter Of A Million Little Pieces: Pete Peterson & The Washington Post Have A New Fiscal James Frey, writing,

This “analysis” was written by someone named Karen Hube, and it’s based on two phony premises: First, that “President Obama and others have repeatedly used (that level of income) to define what it means to be ‘rich’ in America today,” and second, that it’s a hardship to get by on $250,000 a year.

(Please read Richard’s post, because he gets into what the Fiscal Times is, and why it carries stories like this one.)
The story claims that President Obama and others label them as “rich” because $250K would be the lower borderline if the Bush “tax cuts for the rich” expire. But this misleads readers because the family making $250,000 will NOT see any tax increase at all. If you understand how tax brackets work you know that only amounts above $250K get taxed the additional 4.6%, so someone making $250,001 will pay an additional tax of $0.046. Yes, that’s right, four point six cents. The amounts become large only with very (very) high incomes, but those incomes are so high that the additional tax is still almost nothing. A person making $1,000,000 would pay an additional tax of $2,875 a month on their $83,333 a month of income. (Sorry, it’s hard to write a number like that without shouting.)
So Who Is The Story For?
Just who is going to feel the pain of the people who “only” make $250K? The Joneses in the story actually have retirement savings and life and disability and health insurance! They have student loans to pay off because they went to expensive universities and they will have the high expenses to send their kids because their kids will, too. 98% of us understand that when we read this story. Since anyone who makes less than $250K is going to know better from their own experience than to believe what they read in this story, who is this story written for? Hint: the Washington Post is in … wait for it … Washington!
What about the rest of us? If $250K a year — the borderline for entering the top 2% — leaves the Joneses “with little margin” then shouldn’t there be 49 articles for every article like this, explaining how people who make less than $250K are doing — since that is almost all of us? Shouldn’t there be 49 articles about how 98% of us are not getting by, and have no margin at all?
Anti-Government
The story tries to make an anti-government point by claiming that taxes are squeezing the Joneses, complaining that the Joneses “only” take home $173K after all taxes (incl cell phone tax). (That is “only” $14.4K a month take-home.) But a careful reading shows that the opposite might be the case. It might really be limited government that is squeezing them:
College Costs: One of the factors in the cost analysis is college costs. They are paying off high student loans, and are getting ready to send kids to expensive collected. But college costs are so high because we have less government, because of tax cuts. This is clearly true in California, for example.
Child Care: Child care costs are high because government is “limited” in our conservative on-your-own society.
Health Care: The Joneses health insurance bill is another product of our on-you-own limited government here. Health care is covered anywhere else.
Retirement: The Joneses are saving a lot for their retirement. This drain on their income is high because in conservative America you are on your own. Corporations got rid of most pensions through the 401k scam, while the Social Security system is inadequate.
There are many other areas where limited government pouts a squeeze on people: insufficient transportation options and high energy costs due to fossil-fuel reliance among them.
They Did One For The Rest Of Us
To their credit the Post also has a story this weekend, In the U.S., Christmas remains a great divide, but the story misses the point by blaming the recession for the difficulties regular people face,

A new division is emerging in America between those who have moved on from the recession and those still caught in its grip.
This holiday season, those two worlds have been thrown into stark relief: At Tiffany’s, executives report that sales of their most expensive merchandise have grown by double digits. At Wal-Mart, executives point to shoppers flooding the stores at midnight every two weeks to buy baby formula the minute their unemployment checks hit their accounts. Neiman Marcus brought back $1.5 million fantasy gifts in its annual Christmas Wish Book. Family Dollar is making more room on its shelves for staples like groceries, the one category its customers reliably shop.

But many, many people with jobs are having a hard time buying baby formula, too, these days. It was like this for more and more people before the recession. In fact, many say that is why there is this bad economy. Where I live people go through my recycle bin looking for cans – and were doing so before the recession. People living on Social Security are having a very, very hard time while the people making $250K “with little margin” can talk casually about cutting the program in order to avoid having the cap lifted causing them to pay a bit more into the system.
The Post story attributes the divide to the “grip” of the recession and not to the problems caused by policies that have led to our intense concentration of wealth. The problem is that our economic system for thirty years has been increasingly rewarding a few at the very top, and not the rest of us. Tax cuts, bailouts and bonuses for them, government cutbacks and stagnant wages for us.
But flawed as it is, that is one down, only 48 more stories about the other 98% to go to catch up with the one about getting by on only $250K.
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JOBS: Romer, Leaving WH, Says More Stimulus Needed. Right Says Stimulus Killed Recovery

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
Before I start this post, let’s look at the actual situation. The economy is terrible, people are really hurting, they have been holding out and are starting to drop off the map. There are signs that with the stimulus fading things are starting to turn back down. But compared to what?
The overall jobs picture:
July Jobs Report
The manufacturing jobs picture:
July Jobs Report - Manufacturing Jobs
Finally, the huge deficits. The context of this next chart is that Bush’s last budget year left us with a $1.4 trillion deficit! The projected budgets from this President will cut this in half in the next few years.
PRESIDENT OBAMA'S PROPOSED BUDGET SLASHES DEFICIT IN HALF IN JUST FIVE YEARS
You can see for yourself from the pictures. (chart source) Under conservative policies everything was spiraling downwards. The stimulus clearly worked and stopped the death sprial, but was not enough. According to the Congressional Budget Office,

The massive U.S. stimulus package put millions of people to work and boosted national output by hundreds of billions of dollars in the second quarter, the nonpartisan Congressional Budget Office said on Tuesday. . . . CBO said President Barack Obama’s stimulus boosted real GDP in the quarter by between 1.7 percent and 4.5 percent, adding at least $200 billion in economic activity.
It raised employment by between 1.4 million and 3.3 million jobs during the second quarter of this year, CBO estimated.

The stimulus worked but was not enough. Economists Agree: Stimulus Created Nearly 3 Million Jobs,

Eighteen months later, the consensus among economists is that the stimulus worked in staving off a rerun of the 1930s. [. . .] It’s no surprise that the administration would proclaim its own policies a success. But its verdict is backed by economists at Goldman Sachs, IHS Global Insight, JPMorgan Chase and Macroeconomic Advisers, who say the stimulus boosted gross domestic product by 2.1% to 2.7%.

The stimulus worked but was not enough.
What Now?
In the context of this picture of the economy, President Obama’s economic advisor Christine Romer is stepping down. In her departing speech she said that the economy needs more stimulus to get us to the point where private business is again driving the economy. Romer Calls for More Stimulus,

U.S. Council of Economic Advisers Chairman Christina Romer, in her final speech before stepping down, called on the country to stomach new stimulus measures to lift the lackluster economy, even in the face of growing fears about the nation’s deficit.
“Concern about the deficit cannot be an excuse for leaving unemployed workers to suffer,”

The clear conclusion from all available evidence: The stimulus worked, but it was not enough. In addition, in an effort “to attract Republican votes” that never came, 1/3 of the stimulus was wasted on tax cuts that leave nothing behind but debt. Much of the package was emergency relief for the unemployed, the states, and other emergency safety net programs but won’t contribute to job-creation and reviving business. Only a fraction went to infrastructure, which is the soil in which business thrives and the country maintains its worldwide competitiveness,

The American Society of Civil Engineers puts the bill’s infrastructure spending at $71.8 billion, or less than one-tenth of the package.

The stimulus worked but was not enough. Economists are calling for more stimulus and extending unemployment benefits.
What The Right Says
Meanwhile conservatives are placing their bets on benefiting from a worsening economy, and so are blocking things that might help. Conservatives correctly believe that the worse the economy is doing, the better the chances that they will pick up more House and Senate seats in the coming elections. So it is in their interests to make sure that is what happens. Capitalizing on the shock the nation felt when it heard about the size of the deficit the previous administration left behind, conservatives are trying to block attempts to add stimulus.
And with the original not-enough stimulus fading, the right is trying to drive a narrative that “government spending kills jobs.” This follows decades of “tax and spend” rhetoric that claims that “taxes take money out of the economy,” “government spending slows the economy” and similar nonsense. The original “starve the beast” plan to kill government and democracy by denying them the funds they need is on the verge of succeeding.
To drive this strategy they claim that it is the stimulus itself which has kept the economy from recovering. Newt Gingrich, in Fire the Job Killers,

The big government stimulus bill, the tax increases of the health bill, the plan to let the 2003 tax cuts expire, and the massive growth of government under the Obama Administration are all actions directly attributable to this administration which have killed jobs.

Gingrich even claims that helping the unemployed, not the recession, is the cause of the unemployment!

A few weeks ago in this newsletter, I cited a study by Robert Barro which estimated that without the extension of unemployment benefits to 99 weeks, the unemployment rate would be 6.8% instead of 9.5%.

Republican House leader John Boehner recently gave a speech on his economic plan in which he said that the economy is “stalled by ‘stimulus’ spending” and “each dollar the government collects is taken directly out of the private sector.” (An NDN study found that following the Boehner economic plan will add $4.188 trillion to the debt.)
Some other voices on the right:
Murdoch’s NY Post: Romer admits stimulus failed

Dr. Christina Romer is leaving the Obama administration, and in her final speech she admits that the stimulus did not work to revivie the economy as she had hoped and as President Obama promised.

Malkin’s Hot Ait: Romer: We had no clue … and still don’t

Instead of cutting taxes (especially capital gains taxes) and reducing regulation to entice new investment, Barack Obama and Congressional Democrats chose to chase a government takeover of health care, a massive tax on energy production that would penalize expansion and growth, and expanding the jurisdiction on Wall Street of the same agencies that had watched the collapse come and did nothing about it.

Except, of course, 1/3 of the stimulus was tax cuts. (Further proving that tax cuts leave nothing behind but more debt.)
These are just a few samples from the drumbeat.
America faces a choice. The stimulus worked but was not enough. So we can proceed with “reality-based” solutions that have helped, and demand more stimulus, or we can go back to conservative policies that killed the economy.
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The Bonuses and the Damage They Do

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
This is a story we are all too familiar with: Wall Street vs. Main Street. Irresponsible behavior leads to bonuses for Wall Street while working hard and playing by the rules leads to unemployment and foreclosure for Main Street.
You’ve heard the elements of the story: For quite some time Wall Street and the banks were operating irresponsibly, fomenting a huge credit bubble which led to the financial collapse. At the end of 2008 millions and millions of regular people – popularly known as “Main Street” – began losing their jobs, losing their houses, losing their savings and forgetting about ever retiring.
Wall Street: Huge Wall Street bonuses are in the news: Bank Bonus Tab: $33 Billion

Nine banks that received government aid money paid out bonuses of nearly $33 billion last year — including more than $1 million apiece to nearly 5,000 employees — despite huge losses that plunged the U.S. into economic turmoil.
… The nine firms in the report had combined 2008 losses of nearly $100 billion. That helped push the financial system to the brink, leading the government to inject $175 billion into the firms through its Troubled Asset Relief Program.

The Cost: The same amount, used for the people, would bring over 2.5 million good-paying jobs.
The “financial collapse” bonus pool is $33 billion. For comparison, look at what $30 billion could buy for We, the People, if only we had some control over things. $30 billion is the amount requested in Senator Sherrod Brown’s (D-Ohio) Impact Act. $30 billion = more than 2.5 million jobs:

“IMPACT (Investments for Manufacturing Progress and Clean Technology) creates a $30 billion Manufacturing Revolving Loan Fund to help small and medium-sized manufacturers finance retooling, shift design, and improve energy efficiency.
. . . the IMPACT Act could create 680,000 direct manufacturing jobs nationally and 1,972,000 indirect jobs over the next five years.”

Gas Prices and Bonuses: Do you remember those soaring gas prices that hit Main Street so hard last year. They play a part in this bonus story. For some background, see Matt Taibbi’s Rolling Stone piece, Inside The Great American Bubble Machine,

So what caused the huge spike in oil prices? Take a wild guess. . . . [Wall Street] persuad[ed] pension funds and other large institutional investors to invest in oil . . . The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
[. . .] But it wasn’t the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country’s commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

This fits our story because the top bonus-getter this time around is Andrew J. Hall. Hall “earned” it by helping to run up the price of oil last year. Hall is getting a $100 million bonus. (Thanks to previous years’ bonuses Hall already owns a 1000-year-old castle called Schloss Derneberg. Go look at some of the pictures of what these nice Wall Street bonuses can buy.)
Here’s some more bonus news: Goldman may pay out largest bonus pool ever,

Looks like things are back to normal, or perhaps even better, at Goldman Sachs Group Inc. (NYSE:GS) as the firm is reportedly on track to pay out its largest bonus pool in the firm’s 140-year history thanks to soaring profits in the first half of 2009.

Yes, that’s right “back to normal.” Huge bonuses, in some cases the largest ever.

Continue reading →

Today’s Housing Bubble Post – Back To Issuing Warnings

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Oddly enough I find myself back in the position of warning that the housing market may be heading to a terrible crash in the near-future. The bubble mentality has not changed at all and appears to be restarting in the very places where the bubbles were the worst. This is probably because people got used to unaffordable prices and think that a drop from unaffordable to just really, really expensive is a buying opportunity. Meanwhile government and the real estate industry are trying to “reignite” the market — hoping that starting another bubble will put off the reckoning.
People still think that what we are going through a temporary “correction” and that real estate prices are going to “go back up,” that houses are “cheap” now, that they should “snap them up” before they are “priced out.” They still think real estate is the path to wealth, instead of somewhat of a burden that should only be undertaken under certain circumstances. Namely, when you plan to live there for a long, long time, and you’ll pay less (including closing costs, taxes, insurance, maintenance, possible price depreciation, etc.) than rent.
Here’s what I am talking about. Combine this,

As of March 1, investors can now buy 10 homes (up from four) with Fannie Mae-backed mortgages. That’s also stimulating demand.

With this, Some of Us Still Think They Can Get Rich Quick from the Real Estate Bubble,

… the ad offered a mouthwatering menu of claims on “How to cash in on the biggest real estate liquidation sale in our entire United States history” and “how to maximize your profit with lucrative foreclosures.”

And this:

Option ARM rates are going to be recasting soon and in increasing numbers. That’s the magic moment when people can no longer make minimum payments, when they can longer make interest-only or neg-amortization payments.
When that magic moment comes, all of those people are going to look at how high their now unaffordable mortgage payments are. Then they’ll look at how much their house is actually worth relative to how much though owe. Then, maybe, they’ll try one of the various initiatives to modify their mortgage terms. And then, quite likely, they’ll jut walk away. [. . .] as the chart tells us, hasn’t even really started yet.

recast.png

What that chart shows is that the foreclosure problem is about to get a lot worse. Two more huge waves of “resets” are coming. Many, many, many more homes are about to reach a point of unaffordability for a lot of their owners, one way or another those homes will also be for sale, on top of the huge inventory that already sits unsold, and this will drive prices down even further, which will trigger even more problems.
Here is what I am saying: As long as a house is considered an “investment” instead of a place to live for a long time we will continue to be in a world of hurt. Real estate does not always go up.
Here is why prices can’t go up any time soon: There is a huge inventory of unsold houses. The houses that were built in the last decade are too big for regular people to be able to afford to heat and cool — and energy prices are going up. The water for the lawns will cost more and more. The gas to get to the malls and any jobs that might exist (good luck) will cost more and more. The “boomers” are retiring and selling their houses. The median price in many areas is still way above affordability by a medium-income family. You won’t get sufficient “positive cash flow” over your payments from the rent you’ll receive if you are renting the house.
The psychology of this is just like the stock market bubble. Things won’t get better until the bubble mentality of “it always goes up” is shaken out of people. Like I said the other day

In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.
Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

Unemployment in my area is 11.2% and people are “snapping up” houses that are “cheap” at $580,000 because they were at $850,000 a year or two ago. But the median income here can’t support that. It couldn’t even support $350,000 before unemployment went up.
Here’s the thing. After the stock market crash the Fed intentionally created the housing bubble to prop up the economy for a few more years. Now the consequences have arrived. If you are thinking of buying a house as an “investment” ask yourself who is going to buy it from you at a higher price, and how they are going to get that money. Will that housing demand come from a healthy job market in which people are getting raises?
Don’t bet on it.

Stunning New Budget Demands From California’s Republicans

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This post originally appeared at Speak Out California
Tuesday I wrote that Republicans were demanding mass layoffs of public employees — during a recession. And they are getting away with it because the state’s corporate-owned media outlets are not explaining to the public what is going on.
The history of how we got to this point of budget stalemate is that Republicans in the legislature have blocked every single budget and gone back on their own Governor and every negotiated compromise, demanding that all budget shortfalls be solved by laying off teachers, construction workers, DMV workers, firefighters, etc. And through the whole process they have refused to offer any plan for the cuts they demand. But this is explained to the voters as a problem caused by “both sides” or “the legislature” or “refusing to work together” or to “reach a compromise” or “pointing fingers.” Some even manage to blame the Democrats for not completely caving in to every single demand! The result is that effective public pressure does not develop to get this solved.
Now, rather than compromise and work with the Democrats and the Governor, they have come up with a new list of demands, on top of their previous demands. And this list is really something:

“Democrats have to capitulate to GOP demands for the 8-hour work day, meal breaks, looser environmental regulations, permanent budget cuts and a stiff spending cap, among other things.
Then, and only then, will Republicans come to the table to discuss — but not necessarily agree to — new taxes”

Even if Democrats agree to all of the new demands, then the Republicans demand that we “sell state property!” Note that the entire list of new demands involves more tax cuts for businesses, revoking labor laws, removing environmental protections, removing worker and consumer safety regulations, making a very few wealthy people richer through lower pay for working people, etc. They even want to get rid of meal breaks and overtime pay for employees! These demands have nothing to do with helping regular Californians get through the day, they are about making things harder and less safe for us, just to make a few people ever richer. These stunning new demands have nothing to do with the budget.
This is an attempt to apply the 2/3 requirement to remove existing laws that have been in place for years, agreed to by majority votes of the Legislature, signed by the Governor, that are now established (and well-accepted) practices of the state.
In an interesting observation, David Dayen at Calitics asks if these demands possibly violate Section 86 of the California Penal Code. Take a look at his argument.
One thing for sure, this is not the time for Democrats to cave in to extortion like this. This extortion comes because Democrats have enabled the power to do this by trying to work with the other party to fairly govern the state and compromising in the face of these tactics in the past. But these are not negotiations with an opposition that is interested in governing, so this time Democrats have to put their foot down and protect Californians and protect our form of government. WE elected them and WE made them a majority for a reason. WE want our government to function, not to be hijacked to serve only the interests of a wealthy few.
Click through to Speak Out California

Today’s Housing Bubble Post — When Will Prices Stabilize?

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I’m hearing a lot of talk about plans to “stabilize” or “prop up” housing prices. Plans include cutting interest rates, providing tax credits, etc. in order to “keep prices from dropping too far.”
Here is a news flash: after a speculative bubble prices always revert to the mean. You can’t stabilize prices any other way except by letting them fall until they are back where they should be again.
Housing prices will “reach a bottom” and “stabilize” when the following occur:
Prices will revert to the mean. After a speculative bubble prices always revert to the mean. This is another way of saying they go back to where they should be. When there was a bubble in tulip bulbs prices went back to where they should be, which was not much above zero. Remember “dot com” stocks? They fell to reflect the actual value of the companies. Many of those companies weren’t worth anything.
Prices will stabilize when supply does not exceed demand. Currently there is a HUGE inventory of unsold, foreclosed, newly-built, unfinished or whatever houses on the market. There are speculators still sitting on two, three and more houses. And there is another supply of people waiting for a “better time” to sell. At the same time there is almost no demand, because people understand that prices are falling, and they will lose their future if they buy a house at these inflated prices. AND lenders are starting to want to know if the buyer can pay back the loan, which means fewer loans for buying houses. (Especially if they start getting honest appraisals again!)
Prices will stabilize when the price of a house reflects the local rents people are paying. That is when it makes sense for a landlord to buy a property. when they can make money on the rent.
Prices will stabilize when the average-priced house in the area is affordable by the average-income person in the area.
Prices will fall to the point where houses are worth what they are worth when purchased for what they are meant for. This means that a psychological change has to occur and people stop thinking of a house as an “investment” or a savings account, and merely as a place to live.
A house is a place to live. That is what a house is. When everyone involved comes to understand a house as a place to live housing prices will stabilize. Part of that understanding involves understanding that people should never pay more than 25-28% of their income on housing expenses. (That’s mortgage payment, insurance and property taxes added together. In some regions you should add heating and cooling costs to that.)
The bad news is that this means prices in many areas still have a long, long way to fall. In the San Francisco Bay Area, for example, two bedroom houses in bad neighborhoods are still being offered for $500,000. This means a $100,000 down payment, and monthly payments of $2400 PLUS insurance PLUS maybe $500 a month in property taxes. This means you have to have $100,000 in the bank and an income of more than $12,000 a MONTH to be able to buy a two bedroom house in a bad neighborhood. And this means that prices have a long, long way to fall.

Today’s Housing Bubble Post — Home Prices Falling At Record Rate

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Home prices fell at record pace in first quarter,

Prices of single-family homes plunged a record 14.1 percent in the first quarter from a year earlier, marking a pace five times faster than the last housing recession, according to the Standard & Poor’s/Case Shiller national home price index reported on Tuesday.
. . . Falling home prices have become the scourge of the housing market that is seeing its worst downturn since the 1930s. Home values since last year have been dropping below balances owed on many mortgages, leaving borrowers with no equity and more likely to succumb to foreclosure.

And this is before the ripple effects of recession hit. They will ripple out from this to construction, automobiles, etc. And then the resulting job cuts will ripple back to the housing market. The fallout from the housing bubble’s bursting is still only just beginning.

Today’s Housing Bubble Post — Here We Go Again!

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Haven’t had enough of foreclosures and financial crises? Don’t worry, there’s more to come. This pretty much guarantees it: Fannie Mae eases down payment rules,

Fannie Mae said Friday it is easing rules on down payments on home mortgages, replacing a policy that required higher payments in markets where home prices are declining.

Today’s Housing Bubble Post — How Low?

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This morning I wrote,

We’ll see a bottom when the average person can afford to buy an average house – and wants to. We are a long, long, long way from that now — and keep in mind that we’re about to see a big reduction in what the average person can afford as the recession takes hold.

CNN’s Money.com today: No brakes on housing prices8

As housing price losses extend, he said, the fall-off in demand for homes will deepen. And Schiff expects to see a national price decline of 30% – and by as much as 50% in the worst hit markets.

50%? In my area a 50% drop from the peak would bring houses down to maybe $400K. Will the average person around here be able to afford a $400K house a year from now, after a year of recession and after a tightening of loan standards? Not a chance. The price runup here saw a tripling to quadrupling of prices. And then they build thousands and thousands of houses in areas surrounding the SF Bay. So prices will have to fall by more than 50% – and the recession will have to end, and loans have to be available, and gas prices will have to fall a lot so commuters can drive to these houses – before houses will start selling again. Sorry for the bad news.
Yes, I do understand the cascading implications of that. It means that pretty much everyone who bought a house (or borrowed money on their home equity) since about 2001 – at least in this area – is going to be owing more on their mortgage than the house is worth. In many cases they will owe a LOT more. And they will decide to either be “good consumers” and sacrifice to protect the bank’s profits by making payments for 30 years on a house that is worth hundreds of thousands less than they owe (while their neighbors move in to the foreclosed house next door with payments that are less than half what they are paying), or they will make an economic decision to “walk away,” giving the house back to the bank, and make a fresh start. What do you think most people will do?

Today’s Housing Bubble Post — Prices Down 12.7% Feb. Year Over Year

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It’s just getting started and home prices dropped 12.7% in February from the previous year. Home prices fall record 12.7% in past year, Case-Shiller say,

The decline in U.S. home prices quickened in February, with prices down a record 12.7% in the past year for 20 key cities, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s. “There is no sign of a bottom in the numbers,” said David M. Blitzer, chairman of the index committee at Standard & Poor’s. Prices in 19 of the 20 cities have fallen over the past year, with prices in all 20 cities falling month-to-month for six straight months. The biggest declines were in Las Vegas and Miami, with declines of more than 20% in the past year. Prices in Charlotte, N.C., are up 1.5%.

Remember, this is before the impact of a recession on housing sales.
When will we see a “bottom?” (The point where prices stop falling.) We’re nowhere near a bottom. We’ll see a bottom when the average person can afford to buy an average house – and wants to. We are a long, long, long way from that now — and keep in mind that we’re about to see a big reduction in what the average person can afford as the recession takes hold.

Today’s Housing Bubble Post — Sales Drop To Lowest Level In 16 1/2 Years

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New home sales plunge to lowest level in 16 1/2 years,

Sales of new homes plunged in March to the slowest pace in 16 1/2 years as a two-year housing downturn extended into the start of another spring sales season. The median price of a new home in March compared to a year ago fell at the fastest clip in 38 years.
. . . The median price of a home sold in March dropped by 13.3 percent compared with March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.

This made me laugh out loud:

Some analysts said they believe the slide in sales may be close to ending although they said any rebound is likely to be slow and anemic with prices continuing to fall, possibly until this time next year.

Listen, the problems we have seen so far have come about BEFORE the economic slowdown. Think about what that means. These foreclosures and people otherwise needing to sell their houses, etc., are not the result of a stressed economy. And we’re just beginning to have a stressed economy. So we haven’t even started to see the usual problems that come from layoffs, etc. So no, I don’t think we are at a “bottom.” Sheesh.