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By: HBC Tue, 15 Jun 2010 19:34:26 +0000 Silly me. For a moment there I actually thought I was dealing with people who can tell the difference between social democracy (socialism, even) and communist dictatorship, not to mention the fine line between white-collar econocide and mass murder. George HW Bush did more damage to America’s political vocabulary than even I’d anticipated. For all that this may have been a lapse on my part, at least the other Dan (Hess, bless ‘im) didn’t completely miss the boat.

And now to this.

Given that bipartisan budgetary priorities are set to continually rewarding sophisticated issuers of massive quantities of questionable loans spun into questionable financial instruments. the entire US economy, housing and all, is tracking toward another merciless disaster. It’d take you a million years of earning a million dollars a year and giving it all to the government to shave ten percent off just the recent downside to investment bank handouts.

For sheer soviet-esque disloyalty to free market principle, what already took place between Treasury and banksters was appalling enough, hard to beat in the iniquity stakes. The scope of collateral vandalism and lasting damage to the market is only gradually becoming apparent to all. Go ahead and check out the news at Faint of heart, take note: none of it is uplifting, and no end in sight.

What happens next, as the immense shadow inventory swept under the rug at prior Treasury/bankster love trysts starts looming to the fore, is destined to inflict another >20% injury on home equity values. Homesteaders across the board are looking at decades of relative economic servitude, growing despair and plummeting influence over the asset value of their real estate investment. Despite what both mainstream parties seem to be saying, that can’t be a good thing.

But chin up, sez the optimist in me, no matter how much externality and suspension of disbelief it may take, together we can ride this one out. Look on the bright side. There’ll be exceptions, such as the bulletproof enclaves where “investment” bankers and their political facilitators reside. Funny how their money’s safe as houses. It’s as if bankers were in a union or something.

Frankly, it’s too bad regular humans aren’t quite as united. But they could be.

By: Danny_Black Tue, 15 Jun 2010 04:04:01 +0000 HBC, I think you’ll find mass murder more in line with socialists… Mao, Castro, Stalin, Pol Pot, Ho Chi Minh etc. Yet to see 25 million die in the US as a result of MBSes.

DanHess, business cycles are part of capitalism.. until you find a way to outlaw stupidity and greed they always will be.

By: DanHess Mon, 14 Jun 2010 18:33:34 +0000 @HBC – thanks for the acknowledgement. If you built a home to Austrian standards, you a terrific craftsman indeed!

Yes it is painful for those who have seen the construction process in Europe to watch a house go up here. A well built house ought to be able to last for centuries! My uncle who owns a successful roofing company there installs on ordinary homes materials we reserve for million-dollar mansions.

I do worry about socialist spending particularly as it pertains to Europe now. I am saddened because I do love Austria, and I expect a terribly painful outcome throughout Europe in the coming collision of demographic decline and social spending. This is of course an old and widely reported story, but the collision has barely even begun. It is certain that many social promises will have be broken because a diminishing workforce will be unable to support it.

My view is, at least the disasters caused by capitalists tend to be cyclical rather than secular in nature. When governments spend in ways that are unsustainable, there tends not to be correction until the sovereign finances collapse. The USSR ran for 70 years and then experienced total economic collapse along with a collapse of life expectancies. Europe will certainly not fare that badly but I will be surprised if life expectances do not contract at least a little in the severe austerity ahead.

By: HBC Mon, 14 Jun 2010 16:45:09 +0000 You make some good points, Dan (Hess, that is, not the hot-head) and funny you should mention Austria where I built a nice house some time ago just down the road from Arnold’s ancestral stomping ground. A few years after I sold it, the new owners added a third floor without the slightest hitch in the structural integrity department. Putting this mildly, its value is now substantial indeed, its owner-occupants at peace with the universe.

I like the idea of home improvement in general, and developed an (I think) interesting procedural model by which even upside-down home owners and bona fide realtors can add value to properties in which they hold legitimate interest. I’m not saying it would rescue the entire housing market but it can only help and FWIW is being adopted overseas.

Obstacles to its being adopted in the United States do not however start and end with the carefree “good enough” approach we see here taken in original construction which severely limits vertical expansion – an alarming number of physically qualifying homes might has well have been built on quicksand when it comes to financing.

Many – and I mean far too many – of the banks and realtors involved have absolutely no interest of any longevity in the objective value of any property whose acquisition they prompted, only in the paper value of the initial deal and, as it relates to the buyer’s end of the deal, no further.

This market has failure built-in. Homes having become financial widgets stand little chance of being improved upon much less happily dwelt in, a circumstance from which nobody – not even lenders – can possibly derive great long-term satisfaction.

And Dan…

Far be it from me to admonish you for holding an opinion, but your casual crack at socialism (because I disagree about its prevalence?) prompts me to point out that whatever its potential downside, socialism never did anything like MBS rackets to wreck an otherwise sound-ish economy. Not yet, anyway.

By: DanHess Mon, 14 Jun 2010 15:32:57 +0000 For those who are handy, the ability to bank you free time in the form of home improvement (tax-free of course) is a big deal. In my ancestral Austria, where tax rates are ridiculous in support of socialism, a high percentage of people build their own homes over a period of years, since their labor is worth so much less in the marketplace after taxes.

@D_B, I have found that many things I have done on my home were discretionary, from the kitchen to bathrooms. New energy efficient windows, attic insulation, an attic fan, ceiling fans, and high efficiency appliances are all examples of investments I made which are each realizing a 10% or greater real return for the lifetime of the investment because of utility savings. In each case, I have been able to see the savings appear. That insulation will be just fine 50 years from now. None of these investments are avilable to renters.

By: Danny_Black Mon, 14 Jun 2010 14:46:08 +0000 DanHess, of this assumes the “upgrade” is voluntary and a large portion of the ongoing costs of running a home are not.

Also for the elderly it will mean a significant portion of their wealth will be tied up in a highly illiquid investment with significant ongoing costs and substantial price risk, opportunity cost and regulatory risk. On the other hand you can’t live in an ETF. It is a matter of balancing risks vs returns and for some reason with housing, people ALWAYS undervalue the risks and overstate the returns.

By: DanHess Mon, 14 Jun 2010 13:43:44 +0000 Another big benefit of homeownership is the opportunity to improve or not improve your home as your budget allows. As any homeowner knows, there is enormous flexibility here. If your present finances are tight, you ride it out and leave your house alone. When that bonus comes in, or that inheritance check from an uncle arrives, you get the roof done or get that addition you had been holding off on. Indeed homeowners can bank wealth in a way that is unavailable to renters.

This is a huge benefit for the elderly. With a home they own clear, and a limited income, they can do only basic repairs or changes and let the home age gracefully with them.

Renters have no discretion on this. If their finances improve and they want residential upgrades, they must move, an enormous task if they have a family. Conversely, if the property owner has plans for upgrades, low income people may be squeezed for things they would be willing to do without.