The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

How Screwed Are We?

Posted on | February 4, 2011 | 23 Comments

For more than a year, I’ve been warning against the idea that we are in an economic “recovery.” It’s not just the disturbing persistence of an unemployment rate above 9 percent.

That’s the symptom, not the disease.

What the U.S. economy is suffering from, and what no amount of neo-Keynesian “stimulus” can remedy, is a capital shortage. And in fact, the successive government interventions since 2008 aimed at fixing the economy have mainly worsened the fundamentals.

Consider, for example, the attempts to cushion the collapse of the housing bubble by trying to halt foreclosures or offer “assistance” to deadbeats who can’t make the payments on houses worth less than the mortgage value. What’s the net economic effect?

At Calculated Risk, Tom Lawler, a real estate economist and former risk policy veep at Fannie Mae, tries to figure out how many people have actually lost their homes to foreclosure, short sales or deed-in-lieu desertions. The answer: Not enough. Lawler . . . says the number of foreclosures that have been completed so far is a drop in the bucket compared to the number of loans that have gone bad. . . .
[T]here could be roughly three times as many homes on the market as there are now. Lawler points to 1,445,000 completed foreclosures and short sales at the end of 2010, compared with 4,296,01 mortgages that are past due by 90 days or more.

To adapt an old Marxian expression, we have a “reserve army” of unforeclosed deadbeats, who are on one hand a steady drain on the vitality of the financial sector but, on the other hand, a looming threat to the real-estate sector. Either the deadbeats are permitted to fall further and further behind on their mortgages (not good for the banks) or else the banks foreclose and all those homes are dumped onto an already glutted real-estate market.

It’s a lose-lose situation for the overall economy.

How will policy-makers respond? Badly, I predict. The most likely response is more inflationary pumping by the Fed, more deficit-funded bailouts for the deadbeat homeowners and/or the lenders, and perhaps also some more cumbersome regulation.

Also, consider the fact that 11 percent of U.S. homes are now sitting empty. If one out of nine existing homes lacks occupants — they can’t even find a renter, much less a buyer — what does that tell you about the market for new homes, and the home-construction industry that depends on that market?

The word you’re looking for is “screwed.”


23 Responses to “How Screwed Are We?”

  1. Theunmccain
    February 6th, 2011 @ 3:45 pm

    I wish Wombat would get a life. Now he’s deleting substantive comments just because they somewhat disagree with Stacy, I guess. Only tin this case, I was pointing out that the CNBC post and headline was misleading (the number of vacant properties isn’t very much higher than it has been over the past four years) and going way back 15 years, there have been 8.5%+ . . . But this seems to be too much for Wombo. I know this blog is being managed to be an echo chamber, but this it a new dimension even for Wombat.

  2. Theunmccain
    February 6th, 2011 @ 4:16 pm


    Wombo, if he wore a hat you’d look like father and son.

    At least the Chumster has a full-time job. Plus, from time to time, he actually gets the value of something right.