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202 comments on The bank panic
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202 comments on The bank panic
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Yes I agree with memmel. It sounds cruel, but the right thing to do is to let more banks fail and more people lose their homes. There is over capacity in both housing and the financial industry.
Where investment is needed is the energy industry. Bailing out bankers and home owners will reduce the capital available to the energy industry. Where it is needed most as we are at the beginning of a serious energy crisis.
Of course this is exactly the opposite of what the government is preparing to do. It might be a good idea to prepare for some serious hard times now.
Increasing stocks of vacant housing deteriorating while the number of homeless grows. Not a very pretty picture and to my mind not a very rational outcome.
That's not what I'm advocating.
There's a surplus of housing. Let the prices of houses collapse. Then even poorer people can afford them and there's no need for a growing number of homeless people.
It's the government that has made house prices artificially high, and is trying to keep prices high with their bailout proposals.
The gov could buy defaulted houses and rent them to the needy. In the UK there used to be a huge social housing program. It sort of worked. If it had a weakness, it was that local councils [who administered it] also had a duty to house the homeless, so bad neighbours were always housed somewhere, rather than being shipped to the colonies etc. Same problem with US 'project' housing I suppose.
Then Reaganomics arrived..
The way I see it, the problems are that the vacant houses (and houses in general) are really big - much bigger than is appropriate for an average family.
I have a two-pronged solution for this.
1: Eliminate laws on minimum lot and house sizes and gut the laws against how many people can live in a house (100 sq. ft. per person seems like a good legal limit).
2: Have the government buy up a small number of houses and convert them into apartments (perhaps half a dozen low income units can be made from a single 3,000 square foot house). Transfer a substantial amount of money to the local government to pay for the extra infrastructure needed (larger water lines, more power plants, more telephone lines, etc). Finally either rent them out directly to the public or have them go condo with the stipulation that no one can simultaneously own one of these condos and any other piece of real estate at the same time.
I think you will see better results in having a single-family own the home and rent out bedrooms - the traditional boarder model. Though rarely seen today, this model still exists to a small degree, and certainly a converted bedroom, gameroom, or such could include a kitchenette, and have a private entrance.
I know, having rental properties myself in "owned" neighborhoods, that the owner-homes are much better taken care of than rental homes by the tenant (and maintained by the owner versus the landlord). Aggressive HOAs will fight any plan to revise usage, but the bigger problem is perception. These sorts of properties would do fine in a campus-area of town, but nobody wants to be the first to try it in an upscale neighborhood.
There are still many duplexes, though, and even dividing a house in half would work for many smaller families or single people. I'm encouraging my kids to buy duplexes as their first houses, and rent out the other half at a profit to reduce their expense. It's readily possible here, at least.
"There is over capacity in both housing and the financial industry."
I find this a very strange idea with respect to housing. The best sense I can make out of it is that you mean there is over capacity to support the current price of housing. But if you consider that the cost of housing is likely to return to its historic trend line (and below by way of over-correction) as I do, then the idea that capacity should be reduced to stabilize prices at an inflated level is rather wrong-headed. I suggest there is lack of recognition of just how much of a bubble we have in housing.
I mean there has been a misallocation of resources. Too many home builders and investment bankers, not energy production, not enough hi tech companies working on break through energy production technologies.
Perhaps we are in agreement on this point.
We do agree on many of the dynamics. You're way of stating misled me. What I see from my perspective is a shortage of housing. If it were not so I could be buying a house rather than building my own. As owner-builder, I suffer greviously from govenment regulations but see them as part of the vested commercial interest's way of increasing their profits. Government is merely their servant.
For quite some time now, the household size in the US has been getting smaller. This is one of the big drivers of demand for more housing. Fewer people in larger houses, the affluent suburban dream, is not consistent with peak oil. It's hard to imaging household size getting much smaller - rather, as economic times get tougher and more people choose to live with their family or friends for longer periods of time, it will take even longer to work through the excess housing inventory that sparked the credit crisis.