June 29, 2008

CEPR's Dean Baker - "It would be the height of foolishness to create a house price support program to try to sustain the bubble"

"The housing bubble was an entirely preventable disaster. If the economists and other policy professionals who design economic and housing policy had not been asleep for the last decade, it could have been prevented.

Their incompetence will have serious impact on the living standards of a generation.

It would be the height of foolishness to create a house price support program to try to sustain the bubble.

The basic issue is that there is a huge excess supply at current prices. Unless we impose laws restricting construction to constrain supply, prices will continue to drop. At best, we may delay the decline and allow some current homeowners to sell at partially inflated prices so that the new buyers can enjoy the rest of the crash. That is not good policy.

- Dean Baker, June 2008


No bailout for losers said...

Do you guys think mozillo could use a couple gerbils why he he in the slammer? If him and casey are cell mates all will be fine.

The truth is the govt was alseep at the wheel all along as usual.Now they are going to bail out all the bankers with printed money.So you think inflation is bad now wait till the shit really hits the fan.

Anonymous said...

The government should step in and help people who are about to lose their home. If the real estate market is not bailed out then we are looking at another Great Depression. Yes, it is that serious.

Anonymous said...

Is there anything to the fact that liberal economists like Krugman and Dean Baker saw the housing bubble and people like larry kudlow didn't?

Anonymous said...

Tax break for re-zoning residential back to farmland.

Subdivisions are really dumb, most ineffiecent type of housing creating ever by mankind.

Either live in the country and live in the city.

Anonymous said...

"Restricting Construction" always leads to higher prices. It's called supply and demand. Just ask the people in coastal communties where the rich get in and lock the poor out. There is no way around that situation.

Anonymous said...

That is the most concise statement regarding the bubble and any plans to bail out bubble losers I've read.

Mark said...

Obama and the democrat controlled senate and the democrat controlled house totally disagree...

Anonymous said...

Don't Worry be Happy and Party like it's 1929.

Anonymous said...

there is no way to sustain the bubble short of income inflation.
no sign of that !

Reality said...

Kuttner has it exactly wrong on the Great Depression, just as the corrupt public education system is designed to do on the subject. Hoover administration did intervene. Remember Smoot-Hawley Tarrif Act that was supposed protect American producers? It ended up hurting other American producers even more, as the tarrifs barriers faced prompt payback in kind from other countries; Remember the Hoover Dam? It's not called FDR Dam because the big government public works program wasn't started by FDR. It was launched by Hoover. FDR's cronies just made sure that Democrats got preferential hiring on the job site, including the scribes paid by the government's Ministry of Truth to cover the work progress. What's ironic was that Hoover's government interventions attracted so much public animosity that FDR won election on a platform of cutting out Hoover's programs and "committees," reducing the size of government, balancing the government budget, and maintaining gold standard. Of course, FDR did none of that after getting elected. The only government reduction FDR did was legalizing alcohol . . . which had a temporary euphoric effect. Then the economy was back to tanking by 1934, got really worse by 1937 . . . then FDR was off looking for a war to fight in order to divert public attention and reduce statistic unemployment rate (the slaves and the dead young men in the military would stop showing up as government unemployment statistic).

There were depressions in the 19th century . . . and in 1907, and in 1920. All of them were short-lived events as market quickly washed out the excess. Hoover and FDR turned a depression into The Great Depression precisely because of their interventions . . . just like government social workers intervening in inner cities to fight poverty led to generational broken families on top poverty; just like government intervention in Iraq to keep oil price down ended up with highest oil price ever. The Great Depression did not end until after WWII, when Truman quietly removed those government committees and direct interventions set up by Hoover and FDR. We are still living with the legacies Hoover and FDR's mistakes: the long term liabilities resulting from entitlement programs, for example.

Anonymous said...

re Kuttner's piece:

Sure is a treat to see Socialism For Stockholders emerge under a smokescreen of "we're all in this together."

CHRIST was that pathetic.

"...This substantial "haircut" would come at the expense of financiers..."

A more cynical person might think him dishonest.

OF COURSE the banks will shovel us their worst.

Wasn't that the plan all along?

wawawa said...

Hi Fellows: How about this !!?

Ben Bernanke, the chairman of the United States Federal Reserve Bank, faces a general investigation by the International Monetary Fund. Just one more example of the Fed losing its power.
Another problem for Mr. Dollar is that it will be several months before his actions take effect. Officials with the International Monetary Fund (IMF) have informed Bernanke about a plan that would have been unheard-of in the past: a general examination of the US financial system. The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system.
As part of the assessment, the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team. They will be required to answer the questions they are asked during interviews. Their databases will be subjected to so-called stress tests -- worst-case scenarios designed to simulate the broader effects of failures of other major financial institutions or a continuing decline of the dollar.
Under its bylaws, the IMF is charged with the supervision of the international monetary system. Roughly two-thirds of IMF members -- but never the United States -- have already endured this painful procedure.
For seven years, US President George W. Bush refused to allow the IMF to conduct its assessment. Even now, he has only given the IMF board his consent under one important condition. The review can begin in Bush's last year in office, but it may not be completed until he has left the White House. This is bad news for the Fed chairman.


Peter T said...

Dean Baker is correct also here, as he often is, for example on the housing bubble since 2003 when he became a renter.

screwchina said...

This isn't about reason or foolishness. This is about politics. There are more homeowners than renters. Easy math for a pol.

Of course in the long-term, everyone is going to pay big for this. if the U.S. government had a whole bunch of money sitting around doing nothing, then maybe I could see how they could conceive a bailout. I would not agree, but I could imagine they would come up with something so stupid. But the U.S. gov't is broke. No money. They have to borrow and/or devalue the dollar more. This is just going to get worse. Lots worse.

Just let house prices fall NOW. Why torture the market with this? Just rip the band-aid off. The free market can take it.

abb said...

He says it was a "preventable disaster". He's half right.

The disaster was PURPOSELY caused.

This is an attempt at consolidating power. A few of the goals:
- regional or global monopoly on money (North American Central Bank or Global Central Bank)
- destroy sovereignty of the US
- kill the public's belief in capitalism
- increase the power of the UN or another global governmental body

We're just barely in the beginning stages of the pain. The people will cry out for the above "solutions".

The success of the above is 100% dependent on US. Will enough people grow up and stop relying on Daddy err... government.

SeattleMoose said...

I don't think anyone was asleep at the wheel. Those who helped fuel the bubble do what they always do....buy low, sell high, and get out before the @#$% hits the fan.

And regulators....what do you think bribes are for?

Anonymous said...

"...If the real estate market is not bailed out then we are looking at another Great Depression..."

Ah; and there lies the Blackmail: either knuckle under and let the architects hand us their losses, or suffer as a society in whole.


Only one problem though. We are so broke we have to print the money. The best laugh is that we taxpayers will eat all the bad debt, and there will still be a depression.

k.w. - Southern Ca. said...

Well, as someone who lives in a coastal community, we're being hit hard here as well.

Over the past few years, people financed their way in any way they could to live along the coast, the difference being that *now* most of the places built here are (1)Way over-valued, and (2)poorly constructed.

There was alot of over-construction in these areas as well, every hillside along the coast is littered with these poorly constructed shacks.

This area is not immune to price decreases either, and anyone who thinks so must be out on the beach, with their head in the sand.

Anonymous said...
"Restricting Construction" always leads to higher prices. It's called supply and demand. Just ask the people in coastal communties where the rich get in and lock the poor out. There is no way around that situation.

Joe said...

I could not agree more with Mr. Baker's assessment of the bailout legislation before the congress. It's absurd for the government to pursue a policy of proping up real estate prices in already inflated areas. Equally absurd is the federal reserve's dovish stance on inflation that attempts to ease the burden on overstretched homeowners via rising inflation and thus less real house price declines.

Anonymous said...

Enter amnesty to 20 million illegals so they can now help to absorb supply.

Those nasty Dems aren't giving amnesty to millions of illegals because they're cute.

Anonymous said...

Just another Enron on the feet of GW Bush. It is kind of ironic that the same banking players - JP Morgan Chase, Citi, Merrill etc. that were "questioned" about their ties with Enron, are the same players that are involved in this mess. I was watching a movie called "Enron - The smartest guys in the room" and it was amazing to see the same guys involved in that debacle that are involved in this one. And, of course there was GW with "Kenny Boy". Now I hear he is moving troops in to Afghanistan and Iran. More war we can't afford, more oil price spikes, more people dying for no reason. I have heard many say "How much damage can he do in the remaining 6 months?" the answer is ALOT. He and the military industrial complex will squeeze every last dollar and life out of us they can.

Just think, we impeached Clinton for having an affair. GW Bush has trashed the Bill of Rights, killed 3000 plus soldiers under false pretenses, destroyed the domestic economy, sold out our workers to the chinese, put us in 2 energy crisis (Deregulation of Cali power markets, current oil crisis), botched a natural disaster (Katrina - Rita) and now possibly a war with Iran, and NO ONE has spoke about any kind of impeachment. Frankly, we all are getting the type of Government we deserve. Continue to do nothing but bitch on a blog about everything and nothing will get done. Go out and vote all the bums out in November - then something may get done. Don't believe all the hype that the dems will raise your taxes - so what! I would much rather pay higher taxes than to be shipping 1 BILLION a month to Iraq and pay Haliburton and other military contractors hourdes of money to KILL PEOPLE under the guise of a BS War on Terror. Wake up folks, this is about control and profit for a few - nothing less, nothing more.

Reality said...

"I would much rather pay higher taxes than to be shipping 1 BILLION a month to Iraq and pay Haliburton and other military contractors hourdes of money to KILL PEOPLE under the guise of a BS War on Terror. "

That's a false dichotomy. With more taxes and more foreign aid, you are guaranteed to have more foreign wars on the road! You see, foreign aid literally destroys the local economy: Palestinian farmers and producers are put out of business with all the torrent of aid material and money; the only survival strategy there is signing up with the local thugs so as to get a slice of that pie from above. It's the same old story as what welfare money and war on drugs have done to inner cities.