The housing/mortgage crisis

     Some say Obama’s plans will effectively force people who are being responsible, and paying their mortgages, to unfairly subsidize those who aren’t. And that government shouldn’t distort the market; that home prices should be allowed to fall to a “market clearing” level where they will sell.

     But, just as the market went too far on the upside, now it is overcorrecting (which it usually does); prices have actually fallen below sensible valuations. The market is not working properly because it is being swamped with too many properties on sale. And, as for unfairness, we won’t be bailing out the bad mortgages for their own sake, but because their situation is dragging everyone else down. You can see this not only in the value of your own home, but in your stock portfolio.

     The foreclosure situation is a terrible destroyer of societal wealth. It wouldn’t be a problem if foreclosed homes were simply sold to new buyers immediately. But the process is very cumbersome and slow, and this is obviously a poor market for selling any homes. Thus they sit vacant for long periods; are not maintained; are vandal magnets; and they become even less saleable. The blight degrades the worth of other homes in the neighborhood. Banks foreclosing on these mortgages are thereby destroying their own assets. If they had a grain of sense, they would already be doing, on their own initiative, the very thing that the government is now trying to make happen: writing down these loans and renegotiating their terms to keep homeowners in their homes. Mortgage loans based on bubble valuations contain a component that the banks will never recover, the losses have already occurred.

     Banks’ failure to face up to this and take appropriate action only aggravates the losses. Foreclosing willy-nilly on these mortgages destroys what value might actually still be left in them. And the banks compound it still further by making it hard for people to get new loans to buy the houses being foreclosed, contributing even more to the physical deterioration of these assets. But banks are big dumb inflexible institutions that operate by bureaucratic inertia.

     Unfortunately, the same descriptor applies to government. Does the government have the expertise and the personnel needed to actually do what it proposes to do with regard to these mortgages? I frankly doubt it.

     This is a tough situation for optimists. All I can say is, “this too shall pass.” The last century has given humankind a humongous improvement in quality of life. We are having a setback right now; but the big factors driving the larger improving trends are still there. Our children will be richer than we are. (A teaser: this will be explained fully in my next book.)

Our “sick modern society”

     Melissa Holbrook Pierson’s book, The Place You Love Is Gone, says modern culture destroys the things we cherish and value, that give life meaning. Pessimists condemn “our sick modern society.” That viewpoint is epitomized too by Al Gore’s Earth in the Balance, saying we have made a “false world of plastic flowers and Astroturf, air conditioning and fluorescent lights,” and so on, a “dysfunctional civilization,” that keeps us from “direct experience with real life.”

     Happily for Mr. Gore, he never directly experienced the real life endured by pre-industrial peoples, which probably would have killed him before he could write his book. And Bjorn Lomborg (in The Skeptical Environmentalist) responds: “We have more leisure time, greater security and fewer accidents, more education, more amenities, higher incomes, fewer starving, more food and a healthier and longer life. This is the fantastic story of mankind, and to call such a civilization ‘dysfunctional’ is quite simply immoral.” Lomborg characterizes Gore’s view as a supercilious attitude that devalues all the human suffering we have overcome, and ultimately denies people’s basic right to live as they choose.

     Air conditioning and fluorescent lights are certainly artificial, but have improved life in seriously meaningful ways. Air conditioning for example has been a key factor propelling economic development in places like the American South, relieving much poverty (not to mention discomfort). So what is Gore’s criterion for goodness? What interest should be served? Yes, much in modern life is artificial—vaccines, hearing aids, electrocardiographs, and Gore-tex (no relation) do not occur in nature, but keep us from direct experience with disease, deafness, heart failure, and frostbite. And my mother gets real pleasure from her plastic flowers, that bloom all year—without using any water, too.

     Pierson’s book is caustic about developers “desecrating” cherished old sites, just for—the horror!—money. But she doesn’t stop to consider where that money comes from. It comes, obviously, from paying customers—when their needs and desires are better served by the new than by the old. Spending their money is one way people vote for what they want. Ms. Pierson might not agree with what they want, but that’s what happens in a democracy. 

     Modern society is not sick; it’s healthier than ever. And the place I love is here and now.

Global health & global warming

My daughter Elizabeth had her “Sweet Sixteenth” birthday this past week. In lieu of a party and gifts, she asked that the money we would have spent be donated instead, to Partners in Health. I mention this not because it shows what a terrific human being Elizabeth is—well, not just for that reason—but because this exemplifies the kinds of efforts we need. Partners in Health was co-founded by Dr. Paul Farmer, subject of a 2003 Tracy Kidder book, Mountains Beyond Mountains. Its mission is to tackle health issues in poorer countries, with down-to-earth initiatives, such as disseminating bed nets to combat malaria. (Click HERE for the website.)

 

A lot of people are obsessed with global warming as the biggest challenge facing humanity. It’s not, by a long shot. Even under a worst case scenario, the negative human consequences of climate change will be utterly dwarfed by the continuance of our age-old nemeses of poverty, ignorance, malnutrition, lack of clean water, and their related health issues, like malaria. In the coming century, it’s a good bet that malaria and other diseases afflicting poor people will kill far more humans than global warming.

 

So the obsession about climate change is totally misplaced. In fact, it could actually make things worse. Global warming zealots want us to reverse economic growth in order to hold down temperature rises. That will aggravate problems of poverty. Moreover, poor people tend to have more children than richer ones, so more poverty will mean more population, adding to environmental pressures.

 

We’ll be far better off if we keep the economic growth motor humming, giving us the resources we will need to cope with inevitable climate change, and to make life better for not only the world’s poor, but all people everywhere.