Maybe you're thinking to yourself, "Why is this IOZ fellow, who says he's all for the free movement of labor and capital across borders and over oceans and to distant stars and foreward and backward in time, why is this guy so down and dismissive of capitalism?" Well, this is why: because capitalism is a scam, a condfidence game, fooling you easy marks into supposing that you live in something other than a confiscatory command economy. And as surely as the symbolic vestiges of the old, aristocratic republic have proven more effective means of popular control than any outright tyranny ever has--a gaudy quadrennial spectacle more effective at keeping the discontented off the streets than all the tanks in Tiananmen--so to does ritual genuflection at The Wisdom of Markets camouflage the plain fact that the invisible hand is not actually invisible if you just open your eyes.
Consider Bear Stearns, who was once as handsome and tall as . . . Well, consider anyway this throwaway line and quite common sentiment these days:
“The problem is bigger than the Fed,” said Meredith A. Whitney, an Oppenheimer financial services analyst. "Trillions of dollars of securities were underwritten on the false assumption house prices could never go down on a national basis. That falsehood has put the entire financial system in a tailspin."Right. And we all believed that Saddam Hussein had weapons of mass destruction, and he kicked out the inspectors, and oil would pay for the war, and there will be no permanent military bases. Ladies and gents, boobs and rubes, the falsehood Ms. Whitney--and plenty of others--identifies is a fine tall tale for house-flippers and the jerks who think they're going to hit it Buffet style on eTrade, but the people who run all those "financial services" know that there's no such thing as economic escape velocity. That which goes up must come down. Anyone who knew anything, admittedly a vanishing category these days, knew not only that housing prices could go down on a national basis, but banked on the fact that they would. The run-up was all smoke, mirrors and profit-taking, and the downturn, even in these early stages, will be all about the massive transference of wealth from the public coffers into the so-called private sector.
It was plain from the outset that the massive inflation in the housing market was an artificial phenomenon. Material costs had not increased. Building methods weren't more complex. Labor rates in the trades were high, but stable. Fuel costs were rising, but contained until much more recently. Hell, houses were built cheaper and cheaper all the time. There was not one material reason why a houses sale price should jump 50, 60, 100% in a year. Plenty of building was going on. Stock was on the increase, not the decrease. There were hundreds of home builders and dozens of major Realtors operating nationally. Shouldn't all that competition have exerted downward pressure on prices?
Well, what drove it all up was the easy-credit ponzi scheme, and with the phony, assetized debts of all those paper-and-pony mortgages, the same folks doing the dodgy lending reaped a second windfall in financing huge institutional sales of equally phony investments, and they all bought each other's crap and made a ton of money and now, taxpayers, you poor suckers, you're going to bail them out. But don't worry, because Barack Obama is going to fix Social Security.