Beware the Mass Mediaby
Jack D. Douglas
The Mass Media reports on almost all economic issues more complex than buying a hamburger are very misleading at all times and are catastrophically misleading in this Great Crisis in which almost everything is distorted in Rube Goldberg ways by the Fed, FDIC, and scores of other agencies and giveaway, subsidy programs. The Media-ballyhooed housing data for the past two months – the "Great Recovery" – are the obvious result of the huge "First Time Home Buyers" giveaway program set to expire in November, of the vast Fed mortgage market subsidies keeping rates down far below their "natural" rates, the catastrophic distress sales at the higher end of the housing market which shift median sale prices upward even though the owners are taking huge losses, and the speculative buying by bottom fishers hoping to make a killing and probably being funded in some ways by money coming originally from the Fed to the Big Banks at subzero real rates. I expect the "first time buyers" are often young people fronting for bottom-feeding speculators who can get into such deals for almost no money and the young people who get a cut and will only lose credit for a few years if it all falls through eventually. One third of total home sales in both of the past two months are First Time Buyer sales in which the Federal government is paying almost all the down payment and the mortgage rates are highly subsidized by the government pouring money into the mortgage market. Even when the first time buyers are really "vetted," my bet is that many frontmen and ladies are sneaking by the vetting process. A high percentage of these are really sub-prime mortgages, but not adjustables. Since the program right now is set to end in two months, we are seeing soaring buying to get the subsidies, just as we saw with Cash for Clunkers cars. The most remarkable thing is that almost all the Media flaks pretend they know nothing about this. I even saw Robert Schiller, the now celebrity economist who studies house prices, talking a half hour this morning on the financial news about the stats and housing and never mentioned it once. It was mentioned by an uncelebrated young woman in real estate on a different financial news program hours later, a woman who knows what is really going on and says so honestly. She does not share Schiller's vapid, sanguine view. Actually, he does not either if you listen to his "ifs ands and buts." Even when on rare occasions the flaks allude to this vast government money pouring into home purchases to get people to buy who would not otherwise be able to do so or would not choose to do so at this time, the flaks ASSUME that this "Keynesian Pump Priming" will work to produce a continual recovery in home buying. That's absurd. The evidence is that it leads to "Hurry Up" buying and then when it ends to sudden drops in buying. People at the high end of housing markets are feeling more and more desperate to sell in spite of the collapsing prices at that end. Arrears and defaults are soaring in the Adjustable Rate Primes, as we knew from the beginning they would later in the Crisis, and are now soaring – doubling this year over last year – in the prime, nonadjustable markets. Even when total sales remain low because most people can still hang on, the prices in the very highest-priced markets have sometimes fallen drastically over last year [down 45% on Coronado, the very high end in San Diego]. These are still not a big part of total housing sales, but they are soaring fast and will become so. The arrears and defaults are becoming more and more a matter of primes going underwater and then being sold or abandoned. The median prices will move upstream, even as those losses soar. The rate of successful workouts of mortgages in arrears and refinanced in government programs is falling drastically. A few years ago 40% of mortgages in arrears were worked out and did not go on to default. Now the rate even of successful prime workouts is down to about 4 or 5%. Catastrophe. Corporate problems are growing rapidly. Unemployment is growing and is probably about 20% now when all the uncounted people, furloughs, pay cuts, etc., are counted. That's why primes are falling into arrears and defaults and prices are plunging fast. Markets go up and down in the usual, natural oscillations in depressions. We have something of a "Relief Recovery" from the catastrophic falls over the past several quarters. But our trend is down. Our short run, natural oscillations will trend down as long as the fundamentals of employment, etc., are trending down. Government distortions will wane and produce sudden drops at times and sudden jumps at times. Don't be deceived by the frauds or the ignorant Media flaks. The ignorant are always wrong when anything is complex and distorted and when we are at turning points in markets. Right now they are all at sea for all reasons. We always have frauds and right now they are getting a huge, free ride on the Media. August 28, 2009 Jack D. Douglas [send him mail] is a retired professor of sociology from the University of California at San Diego. He has published widely on all major aspects of human beings, most notably The Myth of the Welfare State. Copyright © 2009 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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