Wednesday, October 16, 2013

US: The Hollywood state

So America's finally sorted itself out and come to an agreement and raised the debt ceiling. Etc etc.

Something about the "crisis" feels weird though. But not a weirdness in the political crisis itself - more in how we react to it.

Something about the air of last minute salvation, something about quotes like "Brink of disaster". Something about comparing it all to a nuclear bomb.

This episode of US politics has edged rather too unnervingly toward "Hollywood politics". In which the Earth (read "North America") faces a major crisis, and a few brave fellows (always fellows) manage to overcome the odds at the last moment to save the day. It's stock stuff.

But should it be stock stuff for the major functioning of a global democratic power? Sure, there's contingency plans and nobody really thought it wouldn't get resolved, but is this how politics will be done now? Through blackmail? Through impending disaster? Wait until "Debt Ceiling: The Movie" hits your torrents.

Democracy deserves better. Getting into such a state - and having populations accept it en masse - is great for news-sellers, but really shouldn't become a status quo. Two-party systems are becoming routed around. Fake and foreseeable disasters are a pretty shit way of trying to put some life back into them.

I've been watching what's going on with interest. But the more I watch, the more I'm pretty sure I don't like being one of the uncredited actors that doesn't make it out alive.

Friday, October 11, 2013

More on (moron) house prices

In the FT, Martin Wolf nails it on support for house prices, ending with:

"A deregulated and dynamic housing supply could spell financial and political Armageddon. The victims of this vile system are the young and upwardly mobile, who are either unable to buy at all or are trapped in a lifetime of debt serfdom. The political genius of the scheme is that it appears to help these hapless victims, while in fact helping the usual suspects: banks, homeowners, Nimbys and, if it creates another housing boom, the government. 
Ministers also pretends the guarantees are a purely temporary arrangement. Nothing is less likely: it is the temporary that endures. The government has increased its commitment to frighteningly expensive housing. It is a trap from which the UK may not now escape."

While the government insists on urgently rolling out increased measures to prop up prices, something feels wrong. As in, there's something we're not being told. The urgency itself doesn't match up to the reasons shunted into the limelight. (Really? Politicians care about helping out a generation who just missed out? Yeah right.)

To me it feels like there's a real need to keep house prices propped up for some other purpose. Given the amount of leverage banks are placing on their capital, and the risk of that capital disappearing, it makes sense that there's a certain "repayment momentum" that needs to happen - i.e. cashing in all that future debt that borrowing is based on.

I admit I'm probably biased by being in the middle of reading Planet Ponzi by Mitch Feierstein. But growth through debt (or "investment" if you like) clearly requires money to come from somewhere. So if future costs are going up faster than money coming in, you need to get more money in. That can be done by either getting more sources of value, or by making those sources more valuable in themselves.

In the case of house prices, are both of these being done at the same time?

My guess is that banks have bet on house prices going up, as a source of payback. That translates into loans to builders, and loans to buyers. To keep the prices going up, the builders need to get their money back. To do that, people need to want the houses being built.

Negative equity and unsold property are both a form of devaluation. And if your business model depends on future growth, then devaluation doesn't offer less profit, it undercuts your entire method for making money.

The sceptic paranoid in me says state-owned banks like HBOS are involved in a vicious circle of betting on property, and pumping cash into that property. Good luck with that.