Posted on 02/04/2011 7:01:44 AM PST by SeekAndFind
The 2008 financial crash originated with a housing bubble. Not long ago, the cheap-money policies of the Federal Reserve, the infusion of trillions of dollars in new foreign investment, and the misguided policies of Freddie Mac and Fannie Mae all conspired to extend to millions of Americans lots of easy credit for houses whose inflated prices they could hardly afford. Owning a house was seen as a “right” rather than the just rewards of household sacrifice, delayed gratification, and budgetary discipline.
Builders, lenders, realtors, and bureaucrats all got in on the easy-money Ponzi scheme — until a few noticed that the emperor had no clothes and that rather pedestrian homes were hardly worth what unqualified purchasers had paid for them. Financial hysteria followed when shaky borrowers began to miss exorbitant mortgage payments and walk away, and lenders panicked. The subsequent meltdown is history.
A similar situation — more a vacuum than a bubble — is unfolding with pensions. There is perhaps as much as $6 trillion owed in retirement pledges to Americans, $500 billion in California alone. That tab under present conditions simply cannot be met. For the last 30 years, politicians outbid each other to offer more lavish retirement packages to union members and public employees — more eager for their votes than for ensuring the payment of what they had promised. Receiving a generous retirement package was considered a right rather than an investment predicated on past savings coupled with modest interest and dividends.
There may already be a $1 trillion shortfall in meeting what is owed current retirees. Pensioners on the receiving end are becoming more numerous, older, and more affluent, while the younger workers on the paying end are becoming less numerous and poorer. At some point, a city, a state, or perhaps the Social Security system itself is going to announce there is no more money. Then, if there is not another financial crisis and Wall Street meltdown, the fantasy will end with workers paying higher contributions, retiring later, and receiving less.
Then there is the higher-education bubble, as collective student debt nears $1 trillion with no guarantee that it will be paid back. Lots of poor college students and their strapped parents are floating huge government-subsidized student loans to pay for ever-more-costly bachelor’s degrees that no longer ensure that the recipients are well educated, will find a job upon graduation, or, if they do become employed, will be better paid than the vocationally trained. Going to college has somehow become seen as a national right rather than a privilege predicated on superior academic achievement, financial sacrifice, and continued academic discipline.
There are disturbing commonalities between these situations — and others like the recently enacted health-care entitlement on the way. The rich and connected seem exempt from the impending reckoning, and the poor assume government will offer them debt relief. Those in between are on their own and will have to pay more for receiving less.
America is not creating enough wealth to justify the notion that everyone should go to college, get a higher-paying job than their parents, buy a nice, affordable house, and retire earlier and with more money than did prior generations.
We have forgotten what wealth is — and how tenuous our grip on the good life is. Riches are created by educated and skilled workers who directly translate natural resources into commodities that make life easier. The nonproductive sectors of government, law, and banking must facilitate that process with efficient and transparent financial and political systems.
Instead, we are failing to provide our college graduates with unique skills that make them rare assets in the global competitive arena. Meanwhile, our more talented and better-trained workers are suing, subsidizing, and regulating more than ever — instead of searching for more oil and gas, supplying more water to productive farmland, fast-tracking nuclear power plants, manufacturing machines and consumer goods, or devising new and more efficient ways to help others to produce such food, fuel, and products. In other words, we are living the good life in the abstract that we have not quite earned in the concrete.
America is a naturally rich country. Unlike Russia, China, Egypt, or Greece, it is stable, transparent, tolerant, and free of civil strife. The result is that we are not doomed to see these bubbles expand and burst with the attendant social unrest. We need only return to our old American creed that wealth is created only with hard work and delayed gratification. In other words, America must get back to producing real, rather than imaginary, riches and ignore pleasing rhetoric that masks unpleasant reality — the faster the better.
— Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University, and the author, most recently, of The Father of Us All: War and History, Ancient and Modern.
It’s no longer “conservatism”, it’s Americanism.
We need to push hard for more Americanism.
DCG ping.
” We have forgotten what wealth is — and how tenuous our grip on the good life is. Riches are created by educated and skilled workers who directly translate natural resources into commodities that make life easier. The nonproductive sectors of government, law, and banking must facilitate that process with efficient and transparent financial and political systems. “
This needs to be shouted, nay, SCREAMED, from every rooftop in the nation!!!!!
As usual they are blaming mortages which are the sympton instead of the real cause of the economic collapse.
Mortgages take it on the chin in almost every economic downturn. People who had jobs and could afford mortgages, lose those jobs and quit paying mortgages. But the mortgages didn’t cause them to lose the jobs. Other factors did.
I blame the oil price shock, the ridiculous credit card rate hikes and unwise trade policies. The first two took a lot of money out of consumer’s pockets eventually causing defaults. And when consumers no longer had disposable income, it rippled through the economy causing mass layoffs in non-essential jobs.
Blaming mortgages is like cutting off your dog’s food supply and then blaming his desire to eat for his death.
Our first home was a fixer-upper with no bathroom, a hand pump for a kitchen sink, and one 110 outlet per room.
We were 19 and 20 and were newlyweds.
We worked on it for 4 years and when we sold the house it had two baths, 3 bedrooms, a modern kitchen and laundry, etc.
Then we bought a little bit bigger house in a little better condition.
And on it went....
When we moved into the McMansion, we were in our late 30’s, had a down payment of 65%, and no other debt.
We sold that, downsized because 2 kids were on their own and our parents were gone and we didn’t need the room.
We wrote a check for that house.
A lot of those mortgages were variable rate mortgages. When the interest rate went up, borrowers could no longer afford the payment.
ARM Interest rates have been in a downtrend for the last 10 years with a minor rise from 2004-2006. Unless you're talking about the loans that had a different and lower initial rate than the adjustment formula. So that the first time they adjusted, people saw a significant increase. Those loans really ought to have been illegal.
Still I don't think they were giving loans to people who couldn't afford them even after the adjustment formula kicked in. The problem was that people lost their jobs. At the time Bush asked for TARP, you could have bought every mortgage that was in default for 1/3 the price of TARP.
Mortgages failed because the economy was failing, not vice versa.
America is not creating enough wealth to justify the notion that everyone should go to college, get a higher-paying job than their parents, buy a nice, affordable house, and retire earlier and with more money than did prior generations.
We've been "increasing our standard of living" by taking on more and more debt for the last two decades. Both political parties were more than willing to jump on the funny money train heedless of the result.
And let us not forget that we have also been very busy putting up legal and regulatory road blocks, mostly in the form of taxes, environmental regs and labor laws, that further hinder the ability of our workers to competetively create wealth in a globalized economy.
Read a little more carefully. He didn't blame mortgages at all -- in fact, he quite clearly stated that mortgages and the rest of our bubbles were caused by the Federal Reserve's inflationary money expansion.
And all the other things you mention, "the oil price shock, the ridiculous credit card rate hikes and unwise trade policies", were caused by the same Fed policies. They, too, are symptoms and not causes.
Until Americans wake up to the damage the Federal Reserve has caused and is still causing, we'll just go on blaming the wrong people and the wrong things.
Dead on target. Thanks.
Well educated these days means writing papers on "shit" with its various and elusive meanings. Spend $20,000 on an education to have a professor assign you the topic of "shit" for your next essay paper or for your thesis! I know somebody in the liberal arts who had this experience and didn't mind writing the paper. I guess $20,000 for education will get you a lot of shit.
Subsidizing and regulating is a bad business map.”We need only return to our old American creed that wealth is created only with hard work”.
For progressives work is a four letter word so they would rather play Robin Hood with everyone else money,to bad they don’t know that Robin Hood is just a story.
economics bump for later.....
Bingo! Spot On! Too many shell out thousands of borrowed dollars to obtain worthless degrees. The colleges don’t seem to mind. After all, they’re getting their money. Meanwhile those pesky asians are getting PhDs in the hard sciences with a much better chance of getting a good paying job. A local girl was recently featured on TV. She was bemoaning the fact that her bills were coming due and she simply couldn’t pay. Her degress was in some arcane specialty like “Trans-gender perspectives on urban lesbianism.” Sad. Too, too, sad!
RE: Trans-gender perspectives on urban lesbianism
And what is the Bachelor’s Degree written in her diploma?
BS in Lesbian and Transgendered Studies?
A good one!
And comical.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.