Cyreenik Says
At the end of World War Two, housing came under The Curse of Being Important in America. It was decided by Americans that increasing the number of home owners was so important that the government should get involved.
That involvement has continued on steadily to this day, and has steadily distorted the home mortgage market further and further from the reality of market forces. The home mortgage market has become over the last sixty years, in effect, more and more delusional.
The Subprime Mortgage Crisis that started in 2007 has brought a little harsh reality back into the home mortgage industry, but just a little.
It's just a little because Fannie Mae and Freddie Mac are still quite functional, tax payers are still flooding billions into this market, and there are now government guarrantees on 95% of the mortgages created these days, up from 45% in 2005 and 80% in 2003. There's still a whole lot of delusion going on.
This 17 Sep 10 WSJ article, Mortgage Investors Need to Step Up by David Reilly, briefly outlines just how much stands in the way of returning the home mortgage market to one that is responsive to market forces, and it's a lot. Here are two items mentioned.
o Investors would require a heavy premium to make up for added risk which means mortgage rates would increase, housing prices would fall some more, and the housing construction industry would fall into an even deeper funk.
o Underwriting standards would have to be revamped a lot and improved so the risk on each mortgage could be better assessed.
This is hefty change, and scary change, too. But the thing to remember is that the current system isn't working well. It's expensive, it's not doing what it is supposed to do, and so it's a scar.
One benefit the article points out that I think is real, real important in these recessionary, dream-changing times, is that our nation's rescources would not be artificially sucked into more housing through massive taxpayer bailouts and guarrantees. And those rescources could instead find their way into productivity-enhancing investments that would get our economy growing again.
This is a comparison of two efforts to overcome a social catastrophe: one seems to be working, one seems to have failed.
In this 11 Sep 10 WSJ editorial, The Man Who Is Rebuilding Ground Zero by Matthew Kaminski, we read about the decade-long effort of Larry Silverstein to replace the twin towers of the World Trade Center. This is the success story. It's not finished yet, but the building is underway and the plan looks likely to be completed.
The converse is described in this 9 Sep 10 Reason article, Whole Lotta Nothing in LA by Tim Cavanaugh, which describes how the Community Redevelopment Agency of Los Angeles, a 62-year-old agency that controls billions of dollars worth of L.A. property, has accomplished little.
In the WSJ article we read, "No superlative, expressed in his thick New York accent, appears to suffice. "Remarkable," "grand," "extraordinary," "spectacular," "tremendous," "phenomenal": Mr. Silverstein, the real estate developer who signed the lease on the World Trade Center a few weeks before 9/11 and spent the last nine years fighting to rebuild the site on his terms, uses them all—some more than once.
On today's anniversary, for the first time, the mood around the rebuilding at Ground Zero is decidedly upbeat. Significant disputes that held everything up for so many years are resolved. Plainly it is no longer just a big, ugly hole in the ground."
Given the fate that is described in the Reason article, Mr. Silverstein seems to be justifiably proud. Here is what the Reason article says, "How’s this for bragging rights?
Big city real estate developers like nothing better than to point to a completed property, flush with tenants and thriving businesses, to justify the hardship, labor, and money that go into a major building project.
Yet here’s how the Community Redevelopment Agency of Los Angeles, a 62-year-old agency that controls billions of dollars worth of L.A. property, describes its most important achievement on a development area valued at $111 million:
“CRA/LA successfully defended a legal challenge to our adoption of the Western Slauson Recovery Redevelopment Project Area.”
Not impressed? Then check out this endzone dance in celebration of CRA achievement on a plot of land valued at more than $50 million:
"A master plan was completed to guide the redevelopment of the area’s industrial core, bounded by Crenshaw Boulevard, Florence Avenue, Hyde Park Boulevard, and West Boulevard."
OK, but what about the CRA’s yeoman work on the $279 million Marlton Square development in the city’s Crenshaw district?
"After construction started on the senior housing units, the developer’s legal and financial problems brought work to a standstill in early 2008. However, CRA/LA is working to resolve these issues."
These are just the projects for which the CRA even claims some achievement. In many cases the agency wisely says nothing at all."
...ummm ...quite a difference.
What's going on here? Why the difference?
The first one is the product of a dedicated, skilled, and inspired man -- a businessman in the finest sense of that word. The article points out that he did this Herculean labor for many reasons. And Herculean is the proper term, " "The complexities," he says, "were and are extraordinary." Nineteen government agencies, City Hall, the Port Authority, and the state governments of New York and New Jersey (which have gone through eight governors in nine years) have a direct hand in this $20 billion project. So do victims' family groups, insurers, financiers and the federal government." ".
The second one is the product of a blunder. The CRA was pulled together first in 1948, then got a big boost in the panic following the Watts riots in 1965, and then another boost following another wave of LA riots in 1992. After each of these civil disturbances, the CRA was given control of large swaths of LA property to promote the property's development and so improve the local economy. From the Reason article, "Following the [1992] riot, the Community Redevelopment Agency, with enthusiastic support from local pols, was given a shockingly broad mandate to seize, assemble and develop land for development of high-end retail, housing, and restaurants. The CRA now controls nearly a billion dollars worth of real estate in South L.A., and almost none of it has been developed."
This was a blunder because the agency was like the Bush plan for peace after the Iraq invasion: Not prepared for the reality on the ground. Giving it this kind of power was a hasty choice. As a result of being unprepared, instead of becoming an engine for faster and better development it became a committee bogged down by competing agendas. Part of the blunder was these were issues that should have been sorted out before the committee was empowered.
As this agenda gridlock became clear and institutionalized, it transformed the CRA from community engine into community scar, and those people who really wanted to get something done in property development went elsewhere. Those who stayed behind were those who were happy to see idealism triumph over reality -- they felt that being true to their cause is more important than selling out and seeing tangible things get accomplished. The idealists were supported by those who were happy to tap the vestigal money flow by simply saying the things the idealists wanted to hear. As these supporters saw it, they were tapping money that was available but could not be used in any other more useful fashion.
Thus, the CRA in its current incarnation is an example of a blunder scar. The blunder was created in the heat of trying to solve a panic crisis. The solution was expensive and didn't solve the problem. Now that bad solution has lasted a long time, and it's still doing the community harm. It's a blunder scar.
Immigration is a hot issue in 2010.
In the US it's Arizona's new immigration law and the new Schumer border security bill. (Which tacks a $2,000 charge on to many H1-B and L-1 visa applications.) In France it's Sarkozy booting Gypsies/Romas out of illegal camps they are living in.
Yup, in 2010 immigration is an issue generating lots of emotional heat.
It seems that when times get tough, it's time for populist politicians to make hay by getting tough on immigrants.
... And it's also time for liberals to make hay protesting the government crackdowns.
These actions are consistent but not terribly logical, which means the roots this phenomenon smack of instinctive thinking, not analytical thinking.
First, let's talk about immigration benefits. People move from their homelands and come to a new place to make their lives better -- it's as simple as that. What makes their lives better can vary a lot, but what is consistent is moving to make life better.
People are accepted in the land they move to for more varied reasons. The most common one is the same reason immigrants move: It makes life better for those people where the immigrants move to. The immigrants work and the community they come to benefits from the work they do. Other reasons can be based more on sympathy and guilt -- the hosts see themselves as being charitable rather than mercenary.
But in all these cases the situation is win-win.
So why all the emotional controversy this year?
Immigrants are strangers. In Neolithic Village times strangers could be dealt with fairly, but not trusted. And they could also be betrayed without causing much consernation among others in the village. Early Greek writing talks about the first step in trading with barbarians being building a strong fort, and as late as the 1800's merchants who traded with Polynesian islanders had to be prepared to deal with a swarm of war canoes.
A closely related issue is enfranchisement: How much are the immigrants going to be part of the system? The less they are part of the system, the more like Neolithic Village strangers they will remain.
Gypsies (Roma in modern terminology) provide a classic example of a stable but disenfranchised immigrant community. They traveled from place to place, and did some valuable trading and work when they came to each new place, but they were never considered part of the communities they came to. As a result, they were easily accused of various forms of betrayal by the communities they visited, such as petty thievery, and it was comfortable for them to live up to that reputation.
When times got tough, one more accusation could be laid on stangers: They were witches and they caused the evil times. Then chasing out strangers became another form of scapegoating. At a minimum it was as successful as every other form of scapegoating -- people paid their sacrifice and felt better for doing it. But, and this is why politicians like picking on strangers so much, it could be even more successful than average if the strangers could be robbed of significant value as they were booted out. Then the community had a minor peak in prosperity during the bleak times and the leaders took credit for it.
What this means is that picking on strangers has a long history in human thinking, which means that doing so can be very comfortable thinking.
What's the problem with this Stone Age thinking?
Well... we don't live in the Stone Age anymore, do we? Now we live in a globalized community, and we gain a whole lot of benefit from doing so. Most of us really don't want to go back to those good old days of stone clubs, ambushes, and living an average of thirty five years.
This means this is a new situation, and we need to be careful in our thinking. We need to use analysis to check carefully whether or not our instinctive thinking is really leading us in the right direction.
In this case, I think not. We need to recognize the value of immigration and we need to recognize the importance of enfranchising those who come -- they must consider themselves part of the system and be considered part of the system.
What is powering the protesting against these anti-immigrant measures?
Part of what is powering the protesting is analysis -- discriminating against immmigrants really is a bad idea. But that's not all. The emotional power behind the protests is guilt -- many of the protesters know in their hearts that this is a bad idea... as in, more instinctive thinking. <sigh>
The problem with letting guilt power action is that guilt thinking pays no attention to weighing costs and benefits, so those protesting are not going to pay attention to practical solutions when they are offered. They will be looking for a feel-good solution.
All-in-all, it sure looks like blunder time. Look for solutions that are long-lasting social scars.
(References: This 30 Aug 10 WSJ article, India Journal: New U.S. Visa Fees Only Help Politicians by Rupa Subramanya Dehejia describes the H1-B visa situation, and this 5 Sep 10 LA Times article, Thousands protest deportations of Gypsy immigrants in France by Devorah Lauter describes the Gypsy/Roma situation.)
"Analog FM Radio chips in every mobile device? Cell phones, smart phones and app phones? Mandated by Congress? How? Why? When something sounds this stupid, it begs for all of those questions. After all, there doesn't seem to be a reason for the government to blast the digital mobile device industry back into the Stone Age. Who would think this is a good idea? Who would benefit?" This comes from a blog by Shelly Palmer, and it's a good example of a blunder.
Who is stressed? The music industry. One symptom of that stress is that the RIAA has been willing to play the butt-of-jokes overbearing heavy for many years now. Another is declining sales of traditional music products such as CD's.
The novel event? The rise of cell phones, smart phones and various iStuff.
The blunder, call in the government for a backdoor deal, based on a legal loophole, that produces something completely idiotic for the consumer: Requiring cell phones and such to have an embedded analog FM chip. The goal of this is for the music industry to get more licensing fees.
Since cell phones and such are so high-profile and close to many consumer's hearts, I predict this attempted blunder will die a quick and quiet death.
-- The End --