This is my column for this week from the Arizona Republic (permanent link).
This endless election season may give the real estate market time to self-correct before new legislation can make things worse
Looking for a silver lining amidst the black clouds of financial news? Here’s one: The fact that we’re in the middle of an election campaign gives us at least a fighting chance of solving our own problems without more government interference in the real estate market.
Everything that’s happened so far has been a triumph for the government approach to what should be free markets. Since the 1930s, the Federal government has been guaranteeing home loans. That made it easier for Americans to buy homes, but it dulled that flinty due diligence we expect in bankers.
Our tax laws favor homeownership with deductions, credits, capital gains exclusions and favorable loan terms. It’s nice to save on taxes, but these incentives induce us to own homes where we might otherwise do something else with our money.
In the recent past, the Federal government decided everyone should own a home, no matter what. After 9/11, the Federal Reserve Bank reduced the cost of money to almost nothing. Hundreds of different arms of government at all levels gave away financial incentives to homeownership. And the U.S. Treasury seemed to hint that American mortgage-backed securities were as safe as houses.
This has turned out to have unhappy consequences. That old-style flinty banker could never conceive of houses losing even 20% of their value, where the Phoenix market has given back twice that much since the market peaked.
Even so, the sky has not fallen. Wealth is not dollars, wealth is the productive power of the American economy. The majority of Americans still have significant equity in their homes, with many of them being owned outright.
What’s happened is that lenders and their financiers and, unfortunately, the American taxpayer, have taken a hit to the wallet. If the Federal government can restrain itself from overreacting, we’ll dig ourselves out in due course. And that’s why we’re blessed by this election: It will be at a least a year before the Feds can marshall any significant new legislation, and, by then, we could be well on our way to solving our own problems.
Technorati Tags: arizona, arizona real estate, investment, phoenix, phoenix real estate, real estate, real estate marketing
Brian Brady says:
I love the closing line. Spoken like someone with greater faith in his neighbor than his legislator
September 21, 2008 — 11:38 am
Chris the Implementer says:
Greg, I agree. Thank God that guvmint is so afraid of making a stand on anything that may alienate a voter that when their re-elections/ elections roll around, they refuse to do anything of any consequence. That being said… maybe elections should be held more often… the shorter the time they have to ‘legislate’ the more time the rest of us can go and build on the greatness of America. [Sorry, breathe Chris… breathe…] =0)
Chris Brown
September 21, 2008 — 12:45 pm
Greg Swann says:
> Spoken like someone with greater faith in his neighbor than his legislator
Damn straight.
I’ll give you some other ideas, if you’re interested.
First, as you and I have discussed by phone, the information revolution is causing particular, topical surges in productivity. I think this is why the broad-based price inflation we should be seeing, as a consequence of the insane currency inflation we have weathered, is showing up only in particular commodities — those whose production is least influenced by the information economy.
Second, the information revolution is resulting in a near-ideal information transparency and near-infinite information velocity, with the result that many, many markets are progressively more perfect with each passing month.
Third, where von Mises measured wealth as the per-head fixed-capital investment, Hayek and others recognized that intellectual capital was the critical element in relative distributions of wealth. Now consider what you and I and millions of others have been watching, doing and teaching over the last twelve or thirteen years. We are undergoing a massive explosion in intellectual capital — and it has been happening to all of us, all of us unawares, right under our noses.
The current mess on Wall Street is the consequence of the Hamiltonian strain of Socialism, and it seems plausible to me that we will learn nothing from this experience, just as we learned nothing from every other failed attempt to control that which only works spontaneously.
But the beautiful thing about the Hayekian mind is that each of us, as individuals, are not doomed to pursue failed strategies just because our so-called rulers refuse to renounce Rotarian Socialism. It will be very interesting to see what grows out of humanity’s newly-cultivated garden of intellectual capital.
September 21, 2008 — 12:53 pm
Glenn Kelman says:
Hey Greg, I really like this piece but wondered is there a particular bill that will make things worse rather than better? Is what the government doing now on Wall Street an over-reaction? I go back and forth between letting the market run its course and preventing a total panic. Regards, Glenn
September 21, 2008 — 2:59 pm
Greg Swann says:
> Is what the government doing now on Wall Street an over-reaction?
The question is, “When I discover that my brother has an $800 a day crystal meth habit, which radical intervention is least likely to be fatal?” There’s no good answer. The libertarians can rightly chortle that this was all baked in the cake with the first tax or tariff, but every possible move from here is potentially disastrous. The one bright spot on the horizon is the idea that we might learn something from this — but we won’t. My imaginary brother might actually kick meth and live, but the American people will never give up on the idea that they can steal their way to prosperity.
But here’s the amazing thing, and we must never forget this: We are amazingly rich even despite the criminality that has infested our economic and financial life since 1789. The challenge for free minds is not to solve Washington’s problems, nor Wall Street’s, but simply to maximize our own wealth even in the midst of this kleptocracy.
September 21, 2008 — 5:29 pm