Sunday, Jan 03, 2010
Helping people makes things worse
Cnbc: Did mortgage relief program make things worse
You cannot live in a market economy and stop the markets from working,this article sums up the problem imo.If you cannot let the markets work then you are basically in communism with bubbles!..In hungary during the warsaw pact,russia used to send coal to hungary to be refined then sent back to russia....just to keep people employed....look what happened to them.
Posted by taffee @ 10:24 AM (963 views) Add Comment
6 Comments
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1. paul said...
When will the UK government grasp this? By bailing out the reckless with the Mortgage Rescue Scheme (which unlike similar schemes has helped a significant number of people stay in homes that would otherwise be reposessed), the government is making the housing market stagnate, estate agents go bust (at the rate of 1,500 employees a week) and banks continue to be weakened.
It's a no-brainer, but the government doesn't yet geddit.
2. taffee said...
they don't care....all crash gordon cares about is getting re-elected when he was part of the problem.....david cameron is no better,he changes his mind depending on public opinion....he doen't care....just wants to be prime minister.
What we need to do is let markets work,let businesses fail,let house prices correct and we have a starting point.
3. tenant super said...
Market economy on the way up and socialism on the way down (privatise the profit and socialise the loss). That isn't communism (at least not theoretical communism). It is a kind of corporatism, where the only thing that matters is the mutual interests of corporations and institutions and therefore the privileged few who run them.
I am pro laissez-faire capitalism but we have been moving further away from free-market capitalism for decades. For example Thatcher supported the free market and thought that by transfering infrastructure and utilities into private hands, the mechanisms that make private companies more efficient and provide better services would kick in. However, these market mechanisms (mainly competition and consumer choice) were absent so all she was doing was privatising the profits of corporations to her friends (whereas before they might be re-invested for the public). That wasn't capitalism but corporatism.
The government bailouts and intervention in the housing market is looking after two formal corporate entities. Firstly the banks who do not have to crystallise their losses and can therefore hold repos on their books. Secondly the MPs themselves are buying votes - as mass repos are not good for incumbent governments, especially when the banks are the 'baddies'. Labour want to minimise these and the Tories will want to keep the nuts tightened, if, as expected they win the next election.
I wonder what the fall out will be from this. In the UK, the first and obvious was the currency devaluation. The most dangerous aspect is the moral hazard created when adults are not expected to face the consequences and responsibility. This article, of the American market says the US programme has "raised false hopes among people who simply cannot afford their homes." and "often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences".
I hope that all the UK intervention is an extremely costly exercise in futility, spending money that will take a generation to pay down to merely delay the crash by a couple of years and keep families in their (unaffordable) homes for a little bit longer.
My fear is that this works indefinitely, causing a broken housing market for 20 years (until wages play some kind of catch up), lack of labour mobility and large scale emmigration of the highly skilled.
4. taffee said...
The only real comparison is japan,where property prices have been falling for 19 years despite interest rates near zero for most of the time...of course this created bubbles in us and uk as people borrowed yen and lent it here for 2-5 times profit
5. rumble said...
Well said Tenant Super. Like a toddler marveling over a seesaw, the government meddles here messes there, meddles there, messes elsewhere. As long as utopia is never attained they will keep promising their "improvements" to remain in control of a contrived and constrained system rather than a naturally evolving one.
6. rumble said...
Reminded of this: (government = artificial intelligence)
The Frame Problem
Philosopher and AI researcher Daniel C. Dennett describes the Frame Problem as how to get a computer to look before it leaps, or, better, to think before it leaps. Ask a computer to perform a task outside of a clearly defined domain (like chess), and one will soon be stopped cold by the Frame Problem. Dennett tells an amusing anecdote of a robot, R1D1, whose task it is to recover its spare battery from a room where there is a time bomb set to detonate soon. R1D1, designed by experts in AI to be an intelligent system, always considers the implications of its actions. This is a great improvement from R1, who, unfortunately, did not consider all the implications of pulling out the battery with the time bomb strapped to it, and met an untimely demise. R1D1 is much improved; a crowning achievement for AI. So (as the story goes) R1D1 must rescue its battery from the time bomb, and, like R1, hits on the command PULLOUT (WAGON,ROOM). Only this time R1D1's superior program begins to consider the implications of such an action. Dennett tells the story:
It had just finished deducing that pulling the wagon out of the room would not change the color of the room's walls, and was embarking on a proof of the further implication that pulling the wagon out would cause its wheels to turn more revolutions than there were wheels on the wagon -- when the bomb exploded.
[http://www.arn.org/docs/odesign/od182/blue182.htm]