Harry: The sub-primes are withering away already. The question is, as we move into the area where owners invested something worthwhile in their homes and will hold on to them even if their market price is dropping rapidly - will they stop the housing slide?
Me: As I understand it, Harry, subprime borrowers bought houses that, as part of the American dream of home ownership, they probably couldn't really afford and are now getting out as fast as they can because of the slumping housing market. Many are defaulting on their mortgage payments. According to Bloomberg.com "The share of U.S. subprime mortgages entering default in the first quarter [of 2007] was the highest in almost five years, according to the U.S. Mortgage Bankers Association, as the country suffers its worst house-price decline since the 1930s." Because of the way mortgages are packaged into investment funds (e.g. hedge funds), the subprime slump is having a negative impact on the broader economy: "Defaults in subprime mortgages forced New York-based Bear Stearns Cos. last month to provide $1.6 billion in credit lines to rescue one of its hedge funds." (Blomberg.com) The problem would seem to be that Americans (and probably Canadians too) have moved from being savers to being borrowers. As savers many of them probably couldn't afford the houses they've bought as borrowers. Ed ----- Original Message ----- From: Harry Pollard To: 'Ed Weick' Sent: Tuesday, July 03, 2007 6:09 PM Subject: RE: [Futurework] More hope for today! Ed, An interesting point of view. Gloom from my point of view would be an expectation of the land-value collapse that is a collapse of what is called the "housing bubble". This has been happening regularly for almost two centuries in the US and wiped out Japan for many years It is likely to happen again but there are some cogent differences. Georgist theory suggests that in a free market, when land prices become high enough, it becomes very difficult or impossible to create new factories and new jobs - even though old factories and old jobs are disappearing (a normal part of the thriving and progressive economy. Perhaps, however, people do not act towards their accommodation the way they might act with a factory. If a factory can't cut it, it is abandoned and the workers fired. In the case of your home, you don't abandon it - it's where you live. The sub-primes are withering away already. The question is, as we move into the area where owners invested something worthwhile in their homes and will hold on to them even if their market price is dropping rapidly - will they stop the housing slide? It will mean a lot of people will owe more than their homes are worth in the market. Maybe they won't care. The other problem is construction. Construction (including furniture and suchlike) is about a quarter of the economy, I understand. If much construction ends and their employees paid off, will that be devastating? We'll see. Harry ********************************** Henry George School of Social Science of Los Angeles. Box 655 Tujunga CA 91042 818 352-4141 **********************************
_______________________________________________ Futurework mailing list Futurework@fes.uwaterloo.ca http://fes.uwaterloo.ca/mailman/listinfo/futurework
