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View Diary: An Economy cannot be based on CONSUMPTION (285 comments)

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  •  This, in my view, is wrong: (43+ / 0-)
    People will CONSUME as much as they can when given unlimited resources - something responsible for the housing crisis.  You had people buying houses larger than they needed or could rationally afford - because banks LET THEM.

    People buying large houses they couldn't afford is NOT what caused the housing crisis. I am not saying that there aren't some people who may have done that, but the financial market players who were gambling on nothingness, knowingly or unknowingly, are much more at fault.

    •  Great minds... (2+ / 0-)
      Recommended by:
      Mrs M, divineorder

      ;)

      Arrrr, the laws of science be a harsh mistress. -Bender B. Rodriguez

      by democracy inaction on Thu Sep 29, 2011 at 07:26:14 AM PDT

      [ Parent ]

    •  yes - it actually did cause the housing crisis (17+ / 0-)

      through fraud and dishonesty banksters were putting people in houses they KNEW those people couldn't afford.  There is also a large percentage who probably could afford them but the ensuing lesser depression chipped away at those who probably could have kept him.

      Hence the valid criticism that Obama's non existent support of efforts to keep people in their houses and make the banks eat it exacerbated the situation greatly.

      They did this to generate mortgage securities which were then misrepresented to investors.

      But the base of that pyramid of fraud was to sell as large a mortgage as possible to ANYONE.

      big badda boom : GRB 080913

      by squarewheel on Thu Sep 29, 2011 at 07:49:11 AM PDT

      [ Parent ]

      •  I understand what you are saying. (0+ / 0-)

        I felt the diarist was laying the housing crisis blame in the laps of willy nilly consumer people. (my own phrase)

        So the pyramid builders of financial instruments were actually PRODUCING something, which fits in with the theme of the diary, it's just that they were doing it illegally, or at least unethically.

        •  No - but there were willing participants (2+ / 0-)
          Recommended by:
          divineorder, mystery2me

          When you local S&L held you mortgage until payoff there were strict standards and a willingness to work through any difficulties might affect a homeowner.

          Buying our house in the early 90's - waiting for a market pullback from the boom of the late 80's we had to put 20% down, have payments be no more than 36% of our income AND still had to pay points to get down to 8 3/8% interest rates.

          Yet within a few years you had ARM madness, no money down, no income verification and more.

          Banks found out they could package and resell mortgages - offloading the risk of non payment.  Wall Street found ready buyers for insanely complex mortgage backed securities that had varied interest rates, risk assignments and more - instruments so complex that NOBODY understood them.  And I say this having worked on Wall Street in the 80's when CMO's first came out and were barely understood THEN in their simplest form.

          With Wall Street selling tons of Mortgage backed securities there became a huge market for BUYING MORE MORTGAGES.  But the banks had already written mortgages for most 'good risks' - those following old standards.  The UAS was already at its high for home ownership but politicians - Bush surprisingly - started pushing the 'Home Ownership Society'.  Of course with the decline and fall and export of American manufacturing, home building and renovation were the only 'growth' industries left that were occurring in the US - another reason for pushing the housing boom.  The Fed was complicit in the building bubble by keeping interest rates low - looking to juice the economy with housing builds.

          But once you've sold houses to those who could rationally afford them, what do you do?  You sell houses to those who could NOT afford them - who were depending on continual appreciation in prices, you sold BIGGER houses to existing homeowners and you fed the speculators who bought and flipped houses before they were even finished.

          A LOT of people had reasons to push the housing boom - and too many consumers were willing to get in  over their heads, believing that bubble would never burst.  

          Yes, many CONSUMERS willfully and recklessly OVERCONSUMED when it came to housing - they were willing participants in a bubble destined to burst.

      •  And people themselves were of course completely (0+ / 0-)

        innocent and had nothing to do with it.

        •  Most of them yes. (7+ / 0-)

          Most people do not have the sophistication or education to understand large financial instruments. That is why we PAY lawyers to do it for us. Lawyers who are SUPPOSED to have a fiduciary DUTY to protect consumers from fraud and manipulation by unscrupulous lenders.

          People went to banks looking for loans and were told they qualified. For most people that is the end of the story. Who are they to argue? They simply do not have the ability to figure out whether or not the banker is lying to them.  And the bankers were telling them what they wanted to hear: That they could afford their dream home.

          Unfortunately, the lawyers and bankers were mostly in on the con and willfully violated their clients' trust to enrich themselves at the expense of their clients and America as a whole. And the regulators who were charged with preventing this were ordered to not do their duty by a corrupt and criminal *bush administration.

          It was a vast criminal enterprise that our "leaders" simply willfully fail to acknowledge or address to this day.

          We will never solve America's financial crisis until we address and punish the criminality of our banking and regulatory systems.

          •  Wall Street needed people to borrow so they (2+ / 0-)
            Recommended by:
            The Nose, divineorder

            could sell loan packages, and then start selling all those bets on what the packages would do.  And they gained when the CDOs (loan bundles) and CDSs (pseudo-insurance on the securitized loans) failed.  They didn't care if people paid the loans back, all they needed were more borrowers to sell more debt bundles.  Then they came up with SYNTHETIC CDOs and could sell the same loan a thousand times.

            At the same time, the banks were doing all they could to convince people it was  GOOD IDEA to piss away their equity.  Check this out, on the marketing of HELOCs.  Remember, there was a time getting a second mortgage on your house was considered proof you were a complete loser:

            A really great tagline appearing here soon! Watch this space!

            by madhaus on Thu Sep 29, 2011 at 12:08:18 PM PDT

            [ Parent ]

          •  I agree about culpability of bankers and (1+ / 0-)
            Recommended by:
            divineorder

            regulators. But I've seen how people bought houses with no down payment, opened HELOCs for hundreds of thousands of dollars and simply spent that money. Yeah, ads told them to do it but if there are ads telling them to jump from a bridge will they do it too? A lot of people thought they will get away with it b/c 'houses always appreciate in price' or smth like that. There were, of course, many people who either didn't understand what was going on or felt they had no choice. But I wouldn't put all responsibility on banks.

      •  I was encouraged to borrow 110% (9+ / 0-)

        of what my prospective house cost, circa 2003. And to take out a variable rate loan. "Take a cruise", the broker said.

        However, I wanted to put about 25% down and also to buy down the interest rate (to 6 and something, which looked pretty cheap at the time). I did put the closing costs on the loan, though. Bottom line, I had been renting the place for $600 a month, and then put about $14k down and was buying it for about $300 a month, including property taxes.

        I thought something was up, mainly because the last time I had bought a house prior to that, in about 1992, I had to go hunting for a mortgage. In 03 they seemed to jump out and grab me by the leg, lol. Brokers were everywhere and seemed to be young enough to have been in high school a few years before.

        Then in late 05 I found I didn't need a house anymore due to a marriage and I sold the sucker for about a 65% gain after all costs. Too bad I had only paid $50k for it. It was tiny, but a year or two after I got rid of it it sold for almost $100k. Not sure what it would go for now.

        Moderation in most things.

        by billmosby on Thu Sep 29, 2011 at 08:51:44 AM PDT

        [ Parent ]

    •  You're largely correct Mrs M (7+ / 0-)

      The diarist is mostly wrong.

      Consumption IS the driving force of any economy or, as Adam Smith phrased it, "want." You can "produce" and "add value" until the cows come home, but until someone wants to buy what you are producing -- and has the money to do so -- you got nothin' and there is no functioning economy.

      The damage done to our economy by republican policy and democratic failures was by shifting value upwards through job outsourcing, fraudulent and criminal business practices and taking of value from workers to give it to the elites by lowering wages and benefits from the many and giving the money to the elite few as salary and bonuses.

      By removing jobs, the elites shot themselves in the back and killed America. Without jobs, consumers have no money, without money, they cannot consume, without consumer spending, the producer and manipulator elites have nothing.

      As Henry Ford observed a century ago, he had to pay his workers enough to buy the products the were building or he had no one to buy his products.

      The past thirty years in America has been a vast program of eating and/or selling off our seed corn: The accumulated value of generations of workers. Our "leaders" have been stripping our nation of value to pay for a gluttonous orgy for the benefit of the wealthy. Like locusts, they have stripped America bare and left her barren and mortally wounded.

      The solution? Strong unions, workers' rights, serious, effective regulation of markets to prevent corruption and theft. Pay people fair wages. This will create a strong and broad-based American middle class again. When America has a strong middle class it has economic prosperity.

      Prosperity is not created by the "job creators" it is created by millions of empowered consumers with good-paying jobs and hope for the future.

      By following republican policies, we get nothing but economic and social destruction. The GOAL of republicanism is the destruction of America. Always has been, always will be.

      •  That's what niggled at me while reading (7+ / 0-)

        this diary:  it sounded like an argument against the fact that Demand is what is needed to get the economy going again.

        Isn't Consumption just another word for Demand?

        Government of the people, by the people, for the people, shall not perish from the earth - Abraham Lincoln

        by Gustogirl on Thu Sep 29, 2011 at 10:22:50 AM PDT

        [ Parent ]

        •  Yes, but (3+ / 0-)
          Recommended by:
          Justus, little lion, Mrs M

          Increase demand for cars made in Korea or electronics made in China will not substantially increase jobs in the US, and it will not produce good paying jobs in the US. We'll export more wealth to pay for those things, and export more jobs to make them.

          In a global economy, if you don't produce wealth that you can exchange for the goods you import, than you become poorer. It's the same as if you have $1000 in the bank and no job or other income. You can exchange money from the bank account for food, but only until the money's gone.

          Service jobs don't produce much that can be traded, and (contrary to the diary) neither do infrastructure jobs, as necessary as they are. You can't export highways or sewers to China in exchange for all the stuff we buy from them.

          If my thought-dreams could be seen, they'd probably put my head in a guillotine

          by badger on Thu Sep 29, 2011 at 10:44:32 AM PDT

          [ Parent ]

          •  the counterargumen to the infrastructure slight (1+ / 0-)
            Recommended by:
            Mrs M

            is that infrastructure has the possibility to reduce the costs of inputs to production, making extant industry more competitive and new industry more likely to succeed.  Not saying I disagree with you: new (or newly maintained) infrastructure by itself does nothing, but in the long run, it may help.

            I think this line of thinking becomes most illuminating when you consider WHAT infrastructure is most likely to be beneficial to other industries.  People usually think roads and bridges, and we need to take care of the ones we have, but  but building new ones was last century.  What about energy development or efficiency development?  What about running tons of fiber and network infrastructure in the ground--make new public highway system the dream of the old "information superhighway" and get it out to everyone?  

            These things would do wonders for the american economy.  Among other things, energy might free us up to make more, more diverse, and better FOOD, which could be a great US product, domestic and exported.  

        •  'DEMAND" for goods produced elsewhere (0+ / 0-)

          will do NOTHING to help unemployment or the US economy.

          You have missed my main point.

          As long as the focus in on increasing CONSUMPTION - irregardless of where the goods consumed are produced or how they are produced (factor in durability and sustainability for the good of the planet instead of 'throw-away' goods), you do NOTHING to solve the basic problem.

          AMERICAN jobs - and AMERICAN wealth come from PRODUCING GOODS.

          The American balance of trade only worsens as we buy more and more made elsewhere.

          Without PRODUCING goods the ONLY jobs you can create here are low level positions selling the stuff made elsewhere.

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