Saturday, December 29, 2012

Republicans and the Housing Crash

Recently I published a series of articles that argued for a fairer distribution of incomes and wealth in the USA. My articles contained data that clearly showed the extent of the problem. For example, since the housing crash, the lower 40% of Americans (125 million people) own only a pitiful 3/10 of 1% of the nation’s private wealth, and many millions now have negative net worth. Another example shown was that CEO’s now earn 400X the average worker’s income, a ratio that has increased from 40X to 400X over the last few decades.

Not only are these distributions immoral and unsustainable, but I am convinced that Mitt Romney lost the election to Obama because of these disparities, which was Obama’s main campaign message. The reaction to my articles by some conservative readers, and discussions with my friends about politics in general, have convinced me that people who still have good jobs and people who are comfortably retired, like me, have no idea of the extent of the suffering caused by the catastrophic housing bubble and crash – and that the after-effects of this disaster have not improved very much.

Many people have little sympathy for those who lost heavily in the crash. While it is true that some people took advantage of the bubble to gain ownership of homes they could not afford, and others acted foolishly by remortgaging their homes, I have lots of neighbors all around me who did nothing wrong and still lost all their equity. These folks are angry and despairing.

Relatively well-off Americans with conservative leanings absolutely must come to understand the fundamental changes caused by the housing crash that have and are occurring in this country – and must adjust their thinking to the new realities. If they do not, the conservative values that made this country great are finished, and this does not bode well for its future and for our grandchildren.

America's lost trillions

By Chris Isidore CNNMoney June 9, 2011

NEW YORK (CNNMoney) -- "One reason that the U.S. economy still struggles to achieve sustained growth is that Americans are a long way from recovering the trillions of dollars of household wealth lost during the Great Recession.

U.S. household wealth fell by about $16.4 trillion of net worth from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in the first quarter of 2009, according to figures from the Federal Reserve.

While a rebound in the stock market, an improved savings rate and consumer steps to reduce debt resulted in net worth gains since 2009, only a little more than half of that lost wealth - $8.7 trillion -- is back on household balance sheets.

That leaves American household wealth $7.7 trillion less than it was before the recession.

"The huge loss of consumption is due to loss of $8 trillion in bubble wealth," said Dean Baker, co-director of Center for Economic and Policy Research.

The gap that remains in household wealth is in stark contrast to the nation's gross national product, the broadest measure of economic activity, which has recovered all of the lost output of the recession. And the wealth gap helps to explain why consumers are still so reluctant to spend a full two years after the official end of the recession.

Much of the lost household wealth came from declines in the value of real estate, which dropped $6 trillion, or nearly 30% of its value, from the end of 2006 to the end of last year. And after posting modest gains in 2009 and the first half of 2010, the value of homes started to fall again in mid-2010.

Home prices double dip

The most recent figures from the Fed, released Thursday, showed real estate lost another $339 billion in value in the first quarter. That was partly offset by a $68 billion decline in the total owed on mortgages, the main driver of a $74 billion reduction in overall liabilities.

The stock market, which has come off its peaks recently, helped households by adding $885 billion in the value of stocks and mutual funds during the quarter. Overall net worth increased by $943 billion in the quarter.

Experts say the loss of wealth has been a transformative event for most Americans, changing their attitudes on spending, saving and the value of owning a home rather than renting.

"I think the absolute decline in household wealth resulted in a decline in confidence about the future," said Barbara Whitehead, director of the Templeton Center for Thrift and Generosity. "Most experts agree (that), over the long term, Americans are going to save more." She said that while she wants to see savings increase, in the near term it doesn't help get the economy going again.

During the bubble years, home values were an important source of income in many household budgets, as homeowners used home equity lines to supplement their stagnant wages. That activity resulted in the savings rate falling to nearly zero, as many Americans spent more than they brought home in after-tax income." CNNMoney
In the recent election, Obama reached these people and added them to his natural Democrat voting groups, while other, dispirited voters stayed home. Republicans had better recognize the disparities and the call for higher taxes, and come up with policies that people believe will help them get back on the track to a better future, where hard work, sacrifice and savings pay off, or forget about ever achieving majority status again.

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At 7:41 AM, Anonymous Anonymous said...

Unlike you, I believe that Obama got elected because a very large segment of Americans receive some sort of federal government hand outs and those people not only want to keep those freebies but want more. It has nothing to do with disparities or calling for higher taxes. As long as this country continues to support those that don't work vs. those that are productive, this same problem is likely to continue and get worse under Democratic Party control.

Raising taxes on the rich has really nothing to due with the problem. It was a very clever Obama campaign strategy to pit the losers against winners, poor against rich, and to demonize those that have achieved financial success. It's so easy to do and many people fell for this false argument.

For all those who still think the rich are under taxed, you bought into the Obama campaign theme hook, line, and sinker. And if you still believe that taking from the rich is fair and redistibution of wealth is the solution, you probably should relocate to countrys that have done just that and see what the results have been.

At 2:37 AM, Anonymous Joe said...

I totally agree with your comment Anonymous. I really doubt if Obama would have taken sides against these dock workers if the strike hadn't been averted. He believes in class warfare only when it suits him. What's the difference between a fat cat making $400K and a dock worker making $300K other than the difference in their pay?

I don't mind paying higher taxes if the money is going to be used in the right way. You know, and I know that he's just wasting money. Russ, you've been saying this all along in your blog. So why should the rich pay more money in taxes? So he can spend it foolishly like he has been? Obama is smart. He has everyone believing that the rich guy is the bad guy and that they should pay more but ya know what? Everybody is going to wind up paying more. Obamacare alone has over twenty taxes that will kick in. One of them is the medical device tax which will have adverse effects on both the medical field as well as the veterinarian field. This alone is a job killer.
I'm sorry Russ but I don't buy into any of Obama's class warfare stunt. It was just a political ploy to get him elected and it worked. Right now, the folks are too dumbed down to see it but you mark my words,--they will soon feel it.

At 5:14 AM, Blogger RussWilcox said...

Anonymous and Joe, Marie Antoinette could have taken lessons from you. No society can survive with the disparities that recent trends and the housing crash have created. You are both largely missing the point. The only other remedy is confiscation, as occurred in Venezuala.

At 9:23 AM, Anonymous Joe said...

Just remember Russ, that this housing crash was caused by Democrats and a few Repubs. We have a damn fool in who occupies the WH who hasn't done anything right in the last four years. Everything he's touched so far has turned to dung. He keeps on talking about creating jobs when in all reality his policies have done nothing but destroy the job market. He's even using our tax dollars for advertisments for food stamps. How can he say he's using this money to create jobs when all he's doing is paying people not to work?
It's all a big political game to him. Heck, he wants to take this country over the cliff. It's a win win situation for him. It will give him the excuse to cut our defense system and use the money to support some big mammas on welfare with eight children who have three different fathers.

If something goes wrong he's going to blame the Republicans.

Instead of going after the fat cats of whom some of them have been paying more than their fare share of the taxes in this country, he needs to go after guys like Timothy "Turbo-tax" Gietner, Charley Rangel, and Jeffrey Immelt who haven't paid zilch in taxes. He wouldn't do that because bird of a feather all flock together.

At 6:39 AM, Anonymous Anonymous said...

Russ quoted a statement about loss of wealth by bottom of economic ladder. What Russ fails to accept is that the wealth attributed to housing was falsely inflated. It simply was not real wealth based on underlying values. So, the alleged loss was really an adjustment to real values of assets.

To say that others than the bottom did not loose is wrong. But others may not appear to have lost because they had more to start with. Or their investments were not based on unreal valuations of real estate.

Everyone loss. The looses of housing values are more easily seen in group that Russ tags, but that is not single cause of equity differences.

And the song that Russ sings is simply the song that Marxist have always sung...

At 8:52 AM, Blogger RussWilcox said...

My college law professor said something (in 1955) I will never forget, "All the restrictions on business have been reactions to abuses". There may be a lot worse in the wind than a fairer tax system. You can ignore the data and the suffering, and call me a Marxist all you want, but anyone who has read my blog over the years knows that is absurd.

At 2:15 PM, Anonymous Anonymous said...

Russ wrote without citation:
"Experts say the loss of wealth has been a transformative event for most Americans, changing their attitudes on spending, saving and the value of owning a home rather than renting."

And maybe a few learned to evaluate the economic value of their assets? Those that believe in the Marxist line that it is all the rich's fault will not. And the "sheeple" will continue go baa baa. That does not make their noise valid.

Those that appreciate the truth to Sowell's comment:
The first law of economics is scarcity: There
is never enough of anything to satisfy all
those who want it. The first lesson of politics
is to disregard the first lesson of economics.”
Thomas Sowell

You cannot satisfy the wants of all. Saying you can is Marxist hubris. Believing you can is fails to grasp the truth.

At 2:28 PM, Anonymous Anonymous said...

Herein it was said, "CEO’s now earn 400X the average worker’s income, a ratio that has increased from 40X to 400X over the last few decades."

What does corporate governance have to do tax laws?

At 2:31 PM, Anonymous Anonymous said...

Russ Wilcox said, "The only other remedy is confiscation, as occurred in Venezuala."

So you are a Marxist!

At 4:02 AM, Anonymous Anonymous said...

Acquiesce to Russ.

Yes the amount paid to chief executives is large and appears to be disproportionate.

The problem using tax laws to equalized the problem.

There is a huge difference between paying those guys who created large and new corporations who by the way employ many, and hired guns to come into an executive job and are paid huge amounts by a board who often represent others than the employees.

Marxism by its many names, such as Socialism, Progressivism, Communism, Statism, et. al. is not the answer. Show me another country that has achieved as much for all as USA under its semi capitalist system?

But I can show you many examples of making the lives of many miserable under the Marxist systems.

Some may point to current Russian progress. Where was that progress under Communism? What they have today is termed 'Oligarchical Capitalism', but it is no longer Marxism.

Who are the rich that will be penalized under Obamaism? It will be the guys and gals who sacrificed much for a dream of their own business. Yes, many small business owners earn $500,000.00 a year. But usually only after many years of brutal work and near starvation. Their income is fair as reward for their efforts.

And it should be noted that sometimes those who worked for them also do well.

Running around saying that the tax system should be used for redistribution of wealth is simply wrong. It is wrong because it penalizes those who work to achieve. It is wrong because it creates an environment that others who would aspire, say, 'What is the use of working that hard.'

Redistribution of income is a huge disincentive to humans. It fails to grasp that we are not all created equal nor are we equally tagged with luck.

Demanding redistribution of wealth is hubris of Marxism and the way of making us all slaves.

Creating an environment for economic freedom and free markets without government intervention has been demonstrated to make the pie bigger for all.

Government cannot guarentee continued sucess of past, only people wanting to suceed can.

And it is a given that all do not want to pay the price of suceeding, just want security.

Recongize the difference between 'Sheeple' and the 'Black Sheep'.

And preach that difference, not Maxist hubris.

At 5:47 AM, Blogger RussWilcox said...

We conservatives often accuse liberals of name-calling. It seems some conservatives do the same thing. we have had a progressive income tax system almost from the outset, and a maximum tax rate as high as 70% as late as 1981. The top rate now is 35%. There is nothing Marxist about it. Stop calling names and look at the facts; the crash not only destroyed equity, it destroyed millions of good jobs (like construction and leisure) that have not come back. the real unemployment rate is about 18%.

At 9:39 AM, Anonymous Anonymous said...

Some of your readers don't see the absurdity in calling you a Marxist. They don't seem to believe that fairness should play any role in determining the distribution of wealth in a capitalist system. The logical extension of that belief would be a society of owners and serfs with a few professionals (doctors & lawyers)thrown in. That's a system that prevailed in imperial Russia. One that was ultimately unsustainable there, and one that very few of us want to see recreated here. If CEO compensation of 400x the average worker's salary is OK, where is the boundary? At some point the discrepancy becomes intolerable to the masses and the system explodes.

At 11:09 AM, Anonymous Anonymous said...

It was said, " If CEO compensation of 400x the average worker's salary is OK, where is the boundary?"

The issue is who decides the boundary.

It was further said," a system that prevailed in imperial Russia" was "a society of owners and serfs with a few professionals."

Study Marxism or Socialism and find that in there simplest structure replaces the king and his court with bureaucrats.

Fairness is a term used to sell socialism to the masses. There is nothing fair in unnamed bureaucrats deciding what compensation is fair. They will pay themselves first.

The United States was founded on a different concept. It was founded on property rights. It was not founded on any fair distribution of property.

Yes there are inequities in the distribution of assets under free market capitalism. But who is decide fairness? A bureaucrat or a free market.

Understand that the top 1% has always changed. It has changed because some developed new products for new markets. Your concept of fairness destroys the incentives of free market's optimal use of resources and installs a bureaucratic gobble de gook of misapplication of resources as illustrated by Obama's putting money into companies such as Solydra.

Look at the size of the pie created worldwide by the American Capitalist system versus what socialism created. There is a big difference. The whole pie was bigger. Yes, some got bigger pieces of the pie, but it was not always the same ones.

At 3:42 PM, Blogger RussWilcox said...

Anonymous, apparently the American people and Congress agree that sometimes there are some excesses arising out of capitalism that need to be addressed.

At 5:46 AM, Anonymous Anonymous said...

Russ said, "Anonymous, apparently the American people and Congress agree that sometimes there are some excesses arising out of capitalism that need to be addressed."

However, is Congress the unilateral way to address your inequities? Bush in his second term requested legislation to audit FANNIE MAE and FREDDIE MAC. That was stopped in Congress. Problems were suspected, but demonstrating them was stopped.

What was result? Your housing crash which you blame on Capitalism.

The real issue was the underlying value of the mortgages that were being sold.

When they were found to junk bond mortgages, the crash occurred.

Was it fair to all Americans to have the so called "fair access to housing" destroy the value of others investments?

Sometimes issues can be corrected by congress such as Anti-Trust legislation. But, is Congress the best medium to determine "Fair"?

Was Congress's hiding the false valuation of mortgages by Fannie Mae 'fair'?

At 6:55 AM, Anonymous Anonymous said...

Fairness is a topic discussed around the internet. Marxist use the word to sell their concepts of redistribution.

What is result of redistribution achieved under 'Fairness.'

Paul Krugman recent wrote an article in New York Times. Begin by understanding that New York Times abandoned its principle of printing all the news honestly and todays ascribes to the Marxist line.

Second who is Paul Krugman? He is economic commentator supporting Keynesian Economics. This begets the question of what is Keynesian Economics.

Keynesian Economics is a Statist or soft Marxist way of economics. Understand its founder was feted in Moscow as a good Communist theorist.

Read the following article understanding such:

Then go back and read news reports from the Soviet Union's five year plans for economic development. Ask why all those plans always failed.

Central planning one of the core principles of Marxism does not work with humans.

Redistribution based on 'Fairness' does not work with humans.

Central planners cannot anticipate the human reactions bases on their beliefs. Humans react differently and many choose not to be sheep.

The black sheep have always marched to a different drummer and their direction cannot be predicted nor ordered.

America succeeded because it turned the black sheep loose.

It understood all will not be nor cannot be black sheep.

It is time to praise the black sheep not penalize them.

But the Marxist among will continue to demand fairness...


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