Tag Archives: housing

Nouveau Capitalism

The Merriam-Webster dictionary should add the following entry.

Word: Nouveau capitalism (nou·veau cap·i·tal·ism)
Pronunciation: \nÃŒ-vō-ka-pÉ?-tÉ?-liz-É?m\
Function: noun
Date: 2008
: a capitalist economic system characterized by all the risks taken by the state and all of the rewards taken by private parties.
related:

There are several examples of nouveau capitalism in the news during the past few weeks.

First, the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac were placed into conservatorship by the U.S. government. Both GSEs were and are publicly trade private companies whose debts were guaranteed by the U.S. government. That fact was a moral hazard since the companies’ actions were distorted knowing they could take high risks with little personal repercussions. Well, one good thing did happen in that the existing shareholders’ stock values were diluted when the government took a 79% share of each company as they entered conservatorship.

Then, the Federal Reserve Bank and U.S. Treasury provided an $85 billion loan to the giant insurance company A.I.G. in return for 80% stock, a move that, in effect, it nationalized A.I.G. and likewise diluted existing shareholder value.

Now, the Treasury wants to buy all the toxic, bad debt from the credit and money markets.

$700 Billion Is Sought for Wall Street in Massive Bailout – NYTimes.com.

The ambitious effort to transfer the bad debts of Wall Street, at least temporarily, into the obligations of American taxpayers, was first put forward by the administration late last week, after a series of bold interventions on behalf of ailing private firms seemed unlikely to prevent a crash of world financial markets.

A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent so far in direct costs on the Iraq war and more than the Pentagonâ??s total yearly budget appropriation. Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States.

Whatever is spent will add to a budget deficit already projected at more than $500 billion next year. And it comes on top of the $85 billion government rescue of the insurance giant, American International Group, and a plan to spend up to $200 billion to shore up the mortgage finance giants, Fannie Mae and Freddie Mac.

Well, seriously folks, the bailout proposed by the Bush administration is more than a bailout. It proposes to take only the most toxic debt off the hands of those holding it. That means, we’ll be left holding the bag entirely while the rewards of better debt will be left in private hands. There has to be a better way. I’m certain of it. I’d like to see the investment bankers and those who profited off the toxic debt cough up some most of their gains as a result of this plan.  Otherwise, what will make people think twice about the consequences of their actions in the future? Why can’t the government just accept all debt from a given portfolio, good and bad? I can barely wait to see how economists and financial industry watchers react to the bailout. I’d also like to hear how Bush, McCain, and Obama, Congress, etc. expect to pay for this. More tax cuts?

btw: if you’re wondering why I’m spending time reading/writing about this when I have other, higher priorities, Fannie/Freddie are subjects of a tax policy paper I’m writing. That, and I can’t help but chime in; that’s my son’s future they’re pissing away. 😉

My First Pottytunity

Foreclosure Maps

These foreclosure heat maps are very interesting.

Midwest, centered on Michigan

Los Angeles (all red!)

SF Bay area (notice that even the Silicon Valley has a lot of red)

Colorado and parts of the midwest

Areas in red mean at least 1 of 600 homes are in foreclosure. Many areas of California have 1 in 150 homes in foreclosure. LA seems especially hard hit (includes the O.C.)

zoom in, zoom out. look in other areas. enjoy.

Aging Boomers could further burst housing bubble

The bad credit and housing markets has helped to breath new life into an old story – that boomers retiring (or dying) will lead housing prices down, starting by about 2010. It is worth reading.

Aging Boomers could burst housing bubble – SF Chronicle

“[A]according to a study by two University of Southern California researchers, a bubble of even more monumental proportions lies just ahead. They call it the “generational housing bubble,” and maintain that it will be fueled by the same Baby Boomers who have been bidding up prices since 1970 as they moved higher and higher on the housing ladder.

Now, though, the 78 million Boomers are about to enter the years when people tend to become sellers rather than buyers. And as a result, they expect “many more homes (will be) available for sale than there are buyers for them.”

Myers’ and Ryu’s foreboding prophecies bring to mind a 1989 study by a pair of Harvard economists, who predicted a 47 percent decline in housing prices during the 1990s because Boomers would stop buying as they aged. Housing-industry economists lambasted that forecast as pure poppycock, and it eventually blew up in smoke.

Mankiw and Weil “may have miscalculated the timing of the decline, predicting its beginning 20 years or more prematurely,” the new study says. “But the Baby Boomers will finally start retiring from the housing market.”

….

Myers and Ryu project that the ratio of those 65 and over to people 25 to 64 will surge 30 percent in the decade between 2010 to 2020 and 29 percent more in the 2020s, altering the delicate balance between buyers to sellers for the foreseeable future.

Historically, seniors don’t become net sellers in Arizona, Florida and Nevada until they reach 75. In 12 other states – Arkansas, Colorado, Delaware, Georgia, Hawaii, Idaho, New Mexico, North Carolina, Oregon, South Carolina, Tennessee and Utah – they become net sellers when they hit 70.

But the opposite is true in 13 other states – Alaska, California, Connecticut, Illinois, Indiana, New Jersey, New York, Maryland, Massachusetts, Michigan, Minnesota, Ohio and Rhode Island. In those states, the crossover point starts at age 55.”