Monday, June 6, 2016

Housing: Part 157 - We can't win

The current national malaise is a sort of self-imposed vicious cycle imposed by anti-finance prejudice.

First, we have closed off the most productive cities to growth, putting a lid on growth and creating a ratcheting segregation by income.  Then we complain that powerful corporate interests are creating an unlevel playing field that leaves workers behind.  And all the greedy developers want to build is "market rate" units.  How is that going to help low income families?  So we keep the lid on it.

We demand that banks make more loans to low income households and minorities, then we complain when banks make more loans to low income households and minorities, even when the evidence isn't even clear that they did.

But, especially regarding the business cycle, think of how impossible it would be for the outcome to overturn our priors.  We complain that the most vulnerable families always take the worst of economic dislocations.  Yet, in 2007 and 2008, the banks were failing before unemployment significantly rose.  And it was homes in with higher prices that were falling in value first.

So, was the public jumping for joy?  Hey, the business cycle is more equitable!  Now it is powerful economic interests and high income households that suffered first!

No.  Instead, we complained about how those banks had it coming, how they must have been reckless.  So, obviously, we wouldn't just bail them out.  That would cause moral hazard.  How will they learn?

So, by 2008, the dislocation had spread.  Now, in 2008 and 2009, low priced home markets - lagging the banks and higher priced homes - really started collapsing.  More than 80% of foreclosures happened after September 2008.  Then we could start supporting the nominal economy.  We couldn't support credit markets to the neighborhoods where prices were collapsing - that would be predatory!  But, we could support the broader economy, because now people that can be victims were being harmed.  Unsurprisingly, this means that people in low priced homes, where we have almost completely shut down the market for new owner-occupiers, have fared the worst.  And, whose fault was it?  Why, those bankers!  They did this to us!  They are kicking people out of their homes!  Heartless.

Where is our William Jennings Bryan?  Where is the populist who wants the banks to lend and then wants those loans to be paid back?

I was with some otherwise upstanding, reasonable people recently, and the topic turned to corruption and greed in governance.  One person said, Say, that reminds me of a book I'm reading about how, since corporations only care about profits, they keep cutting back on wages and benefits and laying people off, because all the shareholders care about is money.  Say, said another, that reminds me of a report we saw recently about that mine owner in West Virginia who was so greedy he ignored the safety regulations and killed a bunch of his workers.  Why, said another, that reminds me of how Wal-Mart pays their workers so little.  Can you believe, they even put posters in their break room to help their workers get public benefits?  (Can you imagine, the evil?) You know, Costco makes good profits even though they pay their workers more.  Wal-Mart could do that too.  You're right, said another.  It's all about the money.  All they care about.

At that point, unable to help myself, my head exploded.  As I was picking up the pieces to try to stick it back together, I found the verbal description of this graph, to try to explain that there is no there, there.  That there is no creeping corporate grab of national income.  They are chasing hobgoblins.

Now, wait a minute!  We aren't blaming anyone.  We're just asking questions they said.

And, it occurred to me.  They were just asking questions and wondering things.  And, really, in terms of the facts they stated, none of them were technically false.  This is the problem with prejudice.  Our minds aren't built around natural checks and balances.  Our minds are built on connections and categories.  And the center of gravity in this country has moved to this place where corporation and billionaire and bank and greed and corruption are all, by definition, overlapping categories.  Oh, bankers?  Say, that reminds me of criminals!  Interesting.  You know, you've reminded me of highly paid CEOs who lay off people.  You don't say?  That makes me think of billionaires.  You know who came out of the housing bubble smelling like a rose?  Billionaires.  Well, you saw how the Fed was covering their butts, didn't you.  Systems rigged, I tell you.

That graph is a thing.  It's a fact.  A single fact.  There isn't a reasonable place to fit it in among all those associations.  What's a single fact next to a million associations, anyway?  What, is this guy going to try to argue that corporations don't want to maximize profits?  Is he going to argue that bankers weren't making a killing until their little housing Ponzi scheme fell apart?

Virtue among Western intellectuals is about correcting power imbalances.  That is the core focus of our time and place.  How can one possibly suggest that the way to repair our governance and extend abundance more broadly is to extend empathy to the owners - the power brokers - the greedy ones?  So the Fed is just supposed to watch the ticker tape every day so their greedy buddies on Wall Street never have to lose a penny?  And, then they will just keep leveraging up, because to them it's all about the money.  And they'll do the same thing to us again that they did last time.  Nope.  That's crazy.  They need to feel the pain.

The problem with prejudice is it gets built on a foundation of dense interconnected associations.  When ideological communities become fixated on prejudice, one of the services communities provide their members and one of the ways that communities cement their own norms into place is the shared reinforcement of these dense interconnections.  It is very difficult to reason people out of prejudice.  One either needs to have an intensive personal experience that overturns the mischaracterizations or some sort of conversion experience.  But so much of finance and economics is unseen.  That's the defining characteristic of finance and economics, really.  So, how will those intensive personal experiences happen?

There are many people who have had the experience of picking up and leaving their homes because they can't afford to live there any more.  But, what is seen is a greedy landlord or the high income workers moving in.  Many have the experience of paying twice in rent what they could pay on a mortgage for the same house.  Apparently, this hasn't led to a demand for unfettered lending.

Ironically in an age obsessed with inclusiveness, our divisiveness is what defines us.

PS.  I am afraid that a country full of the commenters on the post below simply cannot achieve equitable growth.  We are being ruled by prejudice.  Attribution error invades everything.  Few of these commenters have the slightest idea about the complex factors behind housing.  But, they know the system is rigged.  They know that debt is bad.  Money is behind everything.  It's why houses are too expensive.  (D'uh!  How could you deny that?)  They know that investors are at odds with the goals of the rest of the country.  They will not stand to let it happen.  "It" being anything that could possibly lead to a functional outcome.  Attribution error is all they have - including Reich.  There is nothing to argue against.   The only characteristic of their incoherent points of view is cynicism about everything they don't understand.  Low interest rates mean loose money.  Supply leads to high prices.  Investors make supply go down.  There is a tipping point in human community where when everyone around you is certain about so many things that are wrong, the beliefs themselves are insulation against correction.  What functional policy could these people possibly agree to that would normalize the housing market?

In some ways, it seems like the urban supply problem is the intractable problem and at least in the meantime, we can start to get credit policy and monetary policy right so that it doesn't just make the problem worse.  But, these comments, which really are a version of the public consensus, suggest that even that problem is intractable.

1 comment:

  1. Great post.

    Actually, I draw the ire of both conservatives and liberals when I point out that a publicly held company has fiduciary responsibilities to shareholders and not to the national interest.

    Patriotism is for saps and do-goodyism too.

    Nor should it.

    The national interest is the job of government.

    As for urban housing, it is hopeless. The wealthy and the literati occupy nice neighborhoods, and do not want to see them bulldozed.