The National Ponzi Scheme, Trolling the Wreckage

http://www.counterpunch.org/farago03172009.html


By ALAN FARAGO

It is now clear how the "ownership society" was part of a Ponzi scheme that skimmed the cream from financial derivatives tied to mortgages and used earlier profits to pay off later adopters; spreading wealth through a well organized supply chain to create, through the housing asset bubble, frictionless growth.

Although this confidence game is over, the principal actors are still in place. The difficulty reviving the economy is that frictionless growth only worked when risk was mispriced.

The very notion of orderly risk analyses, of accounting rules to “mark to market” the value of assets, and of clarity and transparency is anathema to the old economy.

Today, there is an effort to rewrite the history of who, exactly, mispriced risk: that consumers are to blame for taking on too much debt, too much house, or that regulations protecting wetlands and land use drove up the price of housing, luring buyers into untenable contracts with lenders. In other words, don't put the dope dealers in jail: encourage the addicts to "just say no".

There is indisputable misery in cities, where homeowners for one reason or another used home equity lines of credit for lifestyles and consumption they guessed were within their means. But the tinder for this economic collapse was not in urban areas. The subprime crisis was not triggered in slums or on leafy middle class streets.

:)

If people could have afforded the increased mortgage costs, the higher credit card interest rates, while putting aside money into their bank accounts, this economic crisis wouldnt have happened.

But because their wages were no longer growing in concert with the increased production employers obtained from American workers over the last 20 years there was no cushion left to help them stay afloat and pay on their debt when the energy and food prices spiked in the manipulated commodity markets last year.

Wages in inflation adjusted dollars have fallen, and until theres a concerted effort to bring wage fairness back into the marketplace this crisis cannot be considered over.

Do you think this is a good idea?

By RICHARD S. LEFRAK and A. GARY SHILLING

The Obama administration should seriously consider granting resident status to foreigners who buy surplus houses in this country. This makes more sense than the president's $275 billion housing bailout plan, which Americans greeted with a Bronx cheer.

The federal bailout forces taxpayers to subsidize overextended homeowners who bet on ever-rising house prices and used their abodes as ATMs, and it doesn't get to the basic problem -- the huge inventory of excess houses. We estimate that 2.4 million houses over and above normal working inventories are left over from the 1996-2005 housing bubble. That's a lot, considering the long-term average annual construction of 1.5 million single- and multi-family units.

Excess inventory is the mortal enemy of house prices, which have already fallen 27% since the peak in early 2006. We predict another 14% drop through the end of 2010 if nothing is done to eliminate the surplus.

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The blueprint for a program to sell surplus housing to immigrants is already in place with the EB-5 visa program. Each year, 10,000 EB-5 visas for this country are available for foreigners who each invest $1 million in a new enterprise ($500,000 in economically depressed areas) that creates at least 10 full-time jobs. After two years, the entrepreneur and his family can become permanent residents.

America's relatively open immigration policy makes this country better off than many other developed lands whose governments also must fund the pensions and health care for growing numbers of retirees. Yet there's still a huge need for more productive and skilled people, both current residents and immigrants, who will produce enough goods and services to provide for their own needs and for those in retirement. Otherwise, entitlement spending eventually will touch off intergenerational warfare.

Granting permanent resident status to foreigners who buy houses in this country will curtail a primary driver of the deepening recession and financial crises -- excess house inventories and the resulting collapse of prices. Since the people who will buy these houses will tend to have money, education, skills and entrepreneurial talents, they will be substantial assets to America in both the short and long runs.

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http://online.wsj.com/article/SB123725421857750565.html?mod=googlenews_wsj

I read today that China is doing most of the buying. Remember the Japanese scare of the eighties?