Shit.
Published by violet September 30th, 2008 in Punkass!, A million ways to mortgage the futureI kinda hate talking about capitalist economics. I am also not an economist, so I’m usually talking out my ass. In this case, that’s appropriate. Here’s a question, wrapped in a story:
Let’s say that about a year ago there was a booming market in some commodity. And purely for the sake of this example, let’s suppose this commodity was, say, human excrement.
For whatever reason, the crap business was soaring. Shit traders became millionaires overnight; the demand for shit shovelers soared through the roof. “Shit,” thought a lot of people, “is an excellent investment!” People invested in piles of steaming shit, hoping to make a nice profit and go to college, or retire, or simply not live in abject poverty. Many people did, in fact, produce a lot of wealth for themselves through shit-flipping.
And then, something happened. People collectively started realizing that, wait, hang on, we are spending billion of dollars a year on poo. And the market crashed. People who had been investing in piles of crap suddenly discovered that they had lost a lot of money. Billionaires whose fortunes had risen on a wave of shit found themselves with paltry hundreds of millions of dollars. Clearly, something had to be done.
So people turned to Sam. Sam is very, very rich. (This is because Sam tells everyone that if they don’t pay him, he’ll break their kneecaps. Sam is also very, very large, and has basically cornered the service market for Not Breaking Your Kneecaps.) They said, “Sam, kneecaps or no, we won’t be able to pay you as much if this shit is worthless! You should buy it from us.” Fortunately, another quality of Sam’s is that he is very, very stupid. So he decides to take, I dunno, $700 billion and use it to buy a lot of shit—the worst shit, in fact, on the market. And he buys it at greatly above the market price.
And it works! The news that some idiot wants to buy piles of shit at ridiculously high prices spreads, and suddenly the price of shit goes shooting up again! The bubble is reinflated! Everyone is saved! Yay! Right?
Except then, Sam decides his work is done. After all, he personally owns almost half the market. So he stops buying shit. And so the people who were buying expensive shit to sell to Sam, they stop buying shit, too. And so the price of shit keeps sinking until it’s back to where it was before Sam went insane, only now Sam has tonnes and tonnes of worthless shit. And the people he bought out of the shit market—the people whose billions became millions when the market crashed? They aren’t depressed anymore. Because they have all Sam’s money.
Understanding that houses have a touch more intrinsic value than the commodity in this example, what’s different? Why should I cry about the fact that the real-world Sam is maybe nominally less of a total idiot than the Sam in this story?
Is the “shit” in your touching allegory just a stand-in for houses? If so, then the real-world Sam is even stupider– because our Sam is desperately trying to preserve a system whereby the houses are merely the starting point for all of the (non-existent) billions that the billionaires want to keep believing they have: loans where the collateral is other loans, which have yet more loans for collateral, which also are using loans from somewhere else as collateral, and so on ad infinitum. The very definition of a house of cards.
But painful as it’s going to be, this falling house of cards just needs to keep falling. If we rush to prop it up with wax and string and more cards now, it’s just going to fall again later– and HARDER. There’s a silver lining, at least potentially– because we do then have the choice of building a new one made of slightly sturdier materials. You know, one where loans– even for rich bastards– actually need real-life you-can-touch-it-with-your-fingers collateral after all.
The one problem with the allegory is that people’s houses aren’t shit. They’re way overvalued, but most versions of the plan I’ve seen, barring the House Republicans, are paying for house assets that are at actual, not wishful thinking, market value.
One possibility would be to use a lot of that money to buy people out of their mortgages directly, and then resell them them their homes for very affordable loans. We may not even take a bath on it, if we do it right.
Comparing houses to shit isn’t really that bad of an analogy.
Afterall, I think there’s a reason that on 99% of all farms, ranches, or anything that works the land, that I pass by driving around the midwest, the houses are built well once, and then not expanded on. They look pretty ho hum, and let it be. Just eat and sleep in it.
Why? Why are these people not as obsessed with real estate, rebuilding and refurnishing home after home after home, like all of us in the middle class?
Besides the fact that they’re working 10 hours every single day farming, I mean.
Because they understand something about the source of, and retaining of, value.
Unlike the fertile farm land, or a welder, or a press, factory, or anything else that takes a resource and turns it into something else of greater or equal value…
A house is not a machine, nor a resource. It only consumes. We’re only “consumers” in the eyes of big business, and it’s a shame that often they’re right about that.
And that’s a pretty shitty thing to have 90% of homeowners wealth invested in.
See, that had occurred to me as I was writing this, and it strikes me as a good idea. But it also gets around the shit problem in a way that buying mortgage-backed securities from whoever happens to hold them doesn’t.
Specifically, yeah, houses are more valuable than nothing. But we’re not talking about houses, we’re talking about mortgages, and a mortgage on a home whose owner can’t pay is worth considerably less than the house itself. Refinancing homeowners’ mortgages for free or cheap avoids that value drain, and should also have a tricke-up effect, where the original mortgages regain their value as it becomes clear that Sam is willing to pay.
Additionally, it helps keep families from losing their homes. Which would be kinda nice.
I suspect that’s not really possible. On some level, asking for a loan is saying, precisely, “Give me this much now so I can do X and give you more back later.” There will always be a market for wild and intangible X’es, and some small number of people will become extraordinarily fucking rich banking on those. Sometimes for no reason other than someone else thinks that there will be a buyer asking more, and so they snap it up. That’s just how market-driven value works. I’m not more worked up about it than I am about the fact that our social institutions and language are so entangled with a capitalist system to begin with.