I Take (Some of It) Back

OK, I admit that the Bastille Day reference was a little over the top. In my defense, I was pissed off and on a roll. Also, it's a really good song.

The concept of tearing down authoritarian power structures is one I support, but preferably not by violence. The fall of the Bastille followed by a leadership vacuum led inexorably to the Reign of Terror and then to Napoleonic imperialism. Chaos and civil war are undesirable outcomes. Marsupial jurisprudence is an affront to civilization whether in eighteenth century France or twenty-first century America.

There is an authoritarian power structure here that needs to be torn down. Police powers to detain and surveil should be brought back into line with the Constitution. Abuses of power should be exposed to the cleansing fire of sunlight. These abuses have been most egregious under the present cabal of usurpers, but they are sadly not unique in this regard. Those responsible (all of them, from any political faction) should be publicly charged and tried with the full force and due process of the law.

I admit that "Day-Glo Jumpsuit Day" doesn't quite have the same esprit as "Bastille Day", but I'll take it.

The Shock Doctrine in action:

The Economist print edition July 12^th 2008, pg 85: “How to deal with a glut of empty homes”

The facts as most of us know are this: over the decade from 1995 to 2005, house prices soared, increasing at a rate far greater than any measure of inflation, official or otherwise. This bubble was explicitly supported and encouraged by the Fed policy of lowering interest rates to stave off recession after the dotcom bubble burst in 2000. While house prices were high, builders cashed in, constructing homes as fast as they could build. Like all Ponzi schemes, this one collapsed when no more suckers could be found that could afford to get in at the bottom. Adding to the catastrophe, our country's belligerent foreign policy has finally produced the desired (by the oil companies) rise in fuel prices; this combined with the not-unrelated (corn-to-ethanol & transportation) rise in food prices produced inflation that could not be disguised by manipulation of the statistics. The Fed had to raise rates. So, not only was a starter home priced like a mansion of a decade ago, but financing was more expensive. To make matters worse, to just get in to these starter homes, many people took out extremely risky loans – with minimal or no down payment, floating interest rates, and sometimes no repayment of the principal for an extended period of time. One can argue about whether they should have known better, but the lending institutions certainly put no barriers in their way.

Here we are now. House prices are tumbling. Many homes are vacant (2.9% or 18 million units according to the Economist). In economic terms, the supply of houses is greater than the demand, so the prices would be expected to continue to fall until they are commensurate with the demand. In plain English that means that prices will fall until enough people can afford them. This seems to be a textbook capitalist scenario: banks, construction companies, and their backers made poor choices, failing to see that the supply was becoming too great, or that no-one could afford to buy these houses that they were building, or that they were handing out money with little or no regard for the borrowers' ability to pay it back. When these houses are sold off at huge discounts, they'll lose money on their investment. Ah yes, there's the fly in the ointment – an outcome that involves wealthy, well connected people and institutions actually losing money (rather than appearing to lose money) – WE CAN'T HAVE THAT! Never fear, Ben Bernanke is here; he praised “programmes that seek to demolish the most ramshackle units in order to “mitigate safety hazards and reduce supply”” Of course we have only to look at the Kelo decision and post-Katrina New Orleans to understand that “ramshackle” means “in the way of high-end condos or shopping”. As an added bonus, by reducing supply, they prevent prices from falling to their natural lows so the builders and banks can make money on the remaining stock. This is classic Shock Doctrine behavior: create a crisis, then use the resulting confusion and dislocation to implement policies that no sane person would support if they were given good information and time to consider it. Better yet (for the wealthy elites), they get to make money on both ends, first from creating the crisis (growth in value of housing-related stock and mortgage-backed securities to name two ways) and then from the policies pushed through to resolve it.

And so this passes, buried on page 85, until the next outrage, and the next, and the next. I'm no longer surprised by anything we do. I find myself believing things that just a few years ago I would have considered to be in tinfoil-hat territory. What are we going to do? Is it Bastille Day yet? Will it ever be?