Tuesday, April 1, 2008

Economic Collapse: A Golden Opportunity?


In a bipartisan effort to stem the tide of home foreclosures that are threatening to bring down the American economy, members from both parties in Congress are working on new legislation to assist struggling homeowners. Some ideas being tossed around are:
  • 200 million dollars to expand counseling programs for those at risk of foreclosure
  • 10 billion dollars in tax-exempt bonds for local housing authorities to refinance subprime loans.
  • 4 billion dollars in grants to local governments to buy foreclosed properties.
  • 15,000 in tax credits for the purchase of foreclosed homes currently sitting vacant on the market. (NYT 4/2/08].

My basic problem with legislation of this sort is that I question whether it will really help those who deserve assistance the most - poor and working class families that were suckered into taking on mortgages that they really couldn't afford. Instead, it seems like a gift to the irresponsible banks and mortgage companies that pushed subprime loans in the first place, since they are not really being asked to take serious losses for their risky behavior.

With the exception of the first proposal, which has some merits, the legislation being offered will ultimately do nothing more than fuel another round of speculation in the housing market. Haven't we had enough gambling already in the housing market? Do we really need vulturous housing speculators to try to profit yet again from the misery of beleaguered homeowners? Aren't these many of the same people who brought on the housing crisis in the first place?

I have two additional - and prehaps more fundamental - problems with legislation of this sort: first, it makes prudent taxpayers, who have done the right thing by living within their means, foot the bill for those who were reckless and irresponsible in their behavior. Most Americans are hardworking and live fairly frugal lives, usually purchasing homes that they can reasonably afford given their levels of income. Many of these noble creatures probably would have loved to have been able to move into more spacious homes in more attractive communities, but recognized the imprudence of stretching their resources too thin. In short, these people, who ought to be rewarded for their fiscal responsibility, would actually be punished by having to bail out their recklessly selfish neighbors.

Second, the legislation being proposed fails to recognize a basic problem with the American economy that everyone is afraid to acknowledge--namely, that it is fundamentally unsound and needs to be dramatically reformed if it is to survive in the 21st century. The kind of freemarket capitalism that we advocate here in the U.S. is almost exclusively focused on short-term (i.e., quarterly) growth at the expense of long-term economic sustainability. In order to achieve the exorbident levels of growth that corporations have come to expect, Americans since the 1970s have been conned into spending more and more of their disposible income on crap they don't really need. Once Americans went though all of their savings to buy bigger homes, flashier cars, and more stylish refrigerators, multinational corporations had to figure out a way to keep them consuming when the logical thing for Americans to have done would have been to reduce consumption and pay off their debt.

This is where cheap credit came into play - mainly in the form of easily attainable credit cards and home equity loans. But now Americans have been driven into the highest levels of personal debt since the depression, and they can't tap into the equity in their homes because they are worth less than they paid for them.

In short, the "hens have come home to roost," and the result must inevitably be a collapse of our finacial systems, one of the most severe recessions that we have seen in some time, and large-scale suffering for the most vulnerable Americans. The very nature of American free-market capitalism necessitates this end. Pray to whatever gods you worship for deliverance, but nothing short of a miracle will save our economy.

I am convinced that there will be an economic melt-down during the next few years. But that doesn't mean that everyone need suffer equally. Those Americans who have practiced the art of voluntary simplicity already know how to survive in a world where goods become more expensive, jobs more scarce, and earning more meager. Those who know how to live happily with less will do just fine. And one positive thing that could come out of this economic crisis is that even more Americans will come to the realization that the consumptive lifestyle neither brings happiness nor peace. Rather than looking at the housing crisis as an unmitigated disaster, then, we should perhaps begin to see it for what it really is: a golden opportunity for all of us to reconsider how we our living our lives and take the necessary steps to live more simply and sanely.

4 comments:

  1. Although I agree that there are some problems with the American economy, it is still the strongest economy in the history of the world and will continue to be so for some time.

    Your pessimism and lack of faith in the wisdom of free-market principles is what is going to drive this economy into recession. And your solutions for dealing with our economic problems are fairly bizarre. If you really want to "save" the economy go out and spend some of the money that you are hording!

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  2. I am interested in meeting some of these Americans who pratice this art of voluntary simplicity. I believe should a research study be done on these serene, tranquil creatures we would find one of three thing: they are struggling, refuse to admit and feel deprived; have made the credit mistake previously or that they have security through family or other wealth. The goverment should bail this mess out because the goverment created this mess and every American has a part of it. The "tripling of the Stock Market" so succesfully started during the Clinton administration is not without it's costs. Those days started the fund craze in which discretionary income was invested in various funds and intially showed big returns but after all the markets had be conquered what was left? There is only so much to grab and so the goverment eased restrictions on borrowing, changed the laws and allowed this mess to occur but why did they do this? Because those "American living frugal lives" had invested in funds through investment banks and wanted a return on their money and most of the time more than what was reasonable, this caused changes in how mortagages where given and low and behold the market kept climbing. This housing crunch is not a problem of the poor, they are just the most recent and visible victims of an unrealistic society. The are the only real victims because the only way to gain at thier level is home ownership. There are no more prudent savings establishments, Americans attempting to save money at an even conservative rate are forced to buy funds because savings accounts of the bygone days are paying 1 percent interest. That was the result of the Saving and Loan scandal that the government and many frugal Americans allowed to happen. The Goverment is the people and as long as the people make money they look the other way. This is a problem because if those frugal Americans look at their retirement funds they may find that they are neck deep in sub-prime mortgages and don't even know it.They are probably not interested to find out as long as their funds show return, just like Enron. There are no victims just volunteers in this and nobody's hands are completely clean therefore it is an American problem not just a foreclosed homeowners problem. You the members of the "blameless generation" need to look in the mirror see your face and then look at what surrounds it because all that is yours too.

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  3. You got a cool blog. Lets exchange links. I am already linking to you.

    http://a-global-warming-blog.blogspot.com/

    ReplyDelete
  4. Narcissus:

    Exactly what neighborhood of Fantasyland do you live in? "(The American economy) is still the strongest economy in the history of the world and will continue to be so for some time."

    Where, exactly, did you get that data? Was that statement based on any objective data at all, or are you completely blowing smoke out of your butt?

    In terms of per capita gross domestic product, the United States is currently the 9th strongest economy in the world (still not bad), behind:
    1] Luxembourg
    2] Norway (modified socialist economy)
    3] Qatar
    4] Iceland
    5] Ireland
    6] Denmark (modified socialist economy)
    7] Switzerland
    8] Sweden
    (note: the United Kingdon comes in at #11, which really pisses them off; not so much because they missed the top ten as it is because they're behind Ireland.)

    You express disdain that Mike exhibits a "pessimism and lack of faith in the wisdom of free-market principles" and that this pessimism "is what is going to drive this economy into recession."

    You're kidding, right? I mean, you're not serious, right?

    Tell me, what, exactly, do you know about free-market principles? Have you read Adam Smith's "The Wealth of Nations?" Is the economy of the United States, at this moment, operating under "free-market principles?" Oh, yes, you say? Is that so? In other words, the economy in 2008 is operating fundamentally the same as it did in 1776 when "Wealth" was published? All of the variables he described when rationalizing the free-market approach are the same now as they were then, and "capitalism" as we play the game today is essentially the same as the "capitalism" described in Smith's book?

    I don't think so.

    There is nothing "free" about a market that is rationalized by gambles on risk and reward of the stock market; nothing "free" about a market that is supported and regulated by global, non-governmental financial institutions like the IMF, the WTO, and the World Bank; nothing free about a global culture of consumption that is motivated not by rational need, as described in "Wealth of Nations," but by artificially created emotional desires, the product of image-based advertaising culture.

    There is nothing "bizarre" about Dr. Russo's prescriptions. There is a LOT that is bizarre about your close-mindedness.

    ReplyDelete

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