Harry,
I largely agree with what you have written, so there's no argument there.
The only comment I have on the strictly housing front (particularly in the
US and only just starting in the UK) is that foreclosures are not only
being blocked in the courts but, because the government is taking so many
'toxic' mortgages on board, then it's becoming politically impossible to
kick people out into the streets. But what about those who are still just
managing to pay their mortgages but are finding it more difficult
(especially if they have children about to enter college/university)?
There's a very real possibility that they'll go on mortgage strike. But let
me leave that and go onto my real argument with your broader statements.
You say the main factors of production are Land, Labour, Capital, whereas I
say you should add a fourth, Innovation. This difference may seem academic
but it isn't really.
What's wrong -- or, rather, incomplete -- about your troika is that there
is, apparently, no room within it for energy. The classic economists didn't
consciously appreciate the importance of energy as we do (that is, in terms
of horse-power, kilowatt-hours, etc) but unconsciously it was what they
meant by Labour. Up until the industrial revolution was well on its way,
what Labour strictly meant in terms of economics was muscle-power (plus
some animal-power, of course). It's now become machine-power. Labour, in
terms of people, can be assumed as a given in all three factors -- Land,
Labour, Capital. Land is occupied by people, Labour is expressed by people,
Capital is acquired by people. None of them would exist without people.
So, to state the three classical factors of production more specifically we
should have:
1. Land
2. Energy (Muscle-power + machine-power)
3. Capital
But, by now, we really ought to add computer-power to the second factor.
But this (apart from computers needing electrical power to run them) is
little to do with the use of energy as such. Without Innovation at the dawn
of the industrial revolution, or Innovation at the dawn of agriculture
(10,000BC), or Innovation at a curious stage at around 40,000BC (when a
whole new bunch of innovative products quite quickly appeared) then we'd
still be roaming the African savanna with the same four crude tools
(pounders, flesh-scrapers, thruster-spears, axes) that we, and our
predecessors had been using for millions of years beforehand.
Without innovation we can have unlimited quantities of the other factors
and still be grubbing around like many other prairie species. But, with the
ability to innovate, man could start to use Land, Energy and Capital in
quite new ways. Hunting gave way to Farming which gave way to Manufacturing.
I believe that there are now so many constraints building up against the
continuation of the present era that a further major bout of innovation is
required. And, as happened in the two eras before our present one,
innovation will transform what we mean by, and how we use, Labour, Energy,
Capital.
Keith
At 10:09 27/09/2010 -0700, you wrote:
Keith,
About half of each bank loan was securedby land-value a notoriously
volatile value that would never be accepted as collateral back in the time
of prudent banking.
Improvement values normally dont much alter, but land-value can plunge as
it did. When economists melded land into capital rather than regarding it
as a separate function, they lost the capacity to analyze the situation.
Thus, we had a housingbubble rather than a land-valuebubble.
The only way out of the mess is to allow land prices to collapse, but that
is not politically possible. Rather, the economists/politicians make
serious efforts to maintain land prices thereby ensuring we enter a long
period of stagnation. (They dont know they are maintaining land prices,
but there is so much they dont know.)
Perhaps the breakup of Obamas economic team is resignation in the face of
a situation they dont at all understand. In any event, back in academia,
they can again be pundits who can offer their certainties with little argument.
Harry
From: [email protected]
[mailto:[email protected]] On Behalf Of Keith Hudson
Sent: Sunday, September 26, 2010 12:19 AM
To: RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION
Subject: Re: [Futurework] U.S. Bails Out Major Credit Unions - WSJ.com
At 01:42 26/09/2010 -0400, you wrote:
More on U.S. banking problems - some think it's directly related to the
bursting of the housing bubble.
Barry
<http://online.wsj.com/article/SB10001424052748703499604575512254063682236.html>http://online.wsj.com/article/SB10001424052748703499604575512254063682236.html
Yes, indeed. This is another instance of the US government (and ultimately
all Americans) paying for the ineptitude of a (high) proportion of the
banks and credit unions that validated the mis-selling of sub-prime
mortgages by crooks. And, of those local banks and credit unions that have
survived without immediately going broke, they're now finding that
non-payments of the remaining mortgages are continuing. They're now
foreclosing on those properties, but the process is being jammed in the
courts because there are so many layers of derivatives wrapped around the
initial mortgages that a huge backlog is building up. Too many
deficiencies and illegalities are found in one or other of those layers
that, by the time they're unwound (very few, if any, so far), houses
generally will have lost even more value with even more negative equity
and inability to pay. (I don't know what's happening in America but in the
UK even the highest priced houses in London that still did well all
through 2008/10 are now following the rest and falling in value.) We're
now at the beginning of the perfect storm that started in 2008 and,
recently, appeared to be resting awhile -- without the levels of
unemployment of the 1930s -- yet! But, like tornadoes that touch shore
briefly and then move out to sea and build up further strength for a
while, we haven't seen anywhere near the worst yet.
For those who want to read the WSJ story directly, I follow with it below.
It's really peanuts compared with the still-remaining liabilities of the
major banks -- 'cos they've got commercial property failures on their
books, too.
Keith
<<<<
CREDIT UNIONS BAILED OUT
US backs $30 billion in bonds to stabilize key institutions; subprime legacy
Mark Maremont and Victoria McGrane
Two years after the peak of the financial crisis, the federal government
swooped in to stabilize a crucial part of the credit-union sector battered
by losses on subprime mortgages.
Regulators announced Friday a rescue and revamping of the nation's
wholesale credit union system, underpinned by a federal guarantee valued
at $30 billion or more. Wholesale credit unions don't deal with the
general public but provide essential back-office services to thousands of
other credit unions across the U.S. The majority of retail credit unions
are sound, but they will have to shoulder the losses through special
assessments over the next decade.
Friday's moves include the seizure of three wholesale credit unions, plus
an unusual plan by government officials to manage $50 billion of troubled
assets inherited from failed institutions. To help fund the rescue, the
National Credit Union Administration plans to issue $30 billion to $35
billion in government-guaranteed bonds, backed by the shaky
mortgage-related assets.
Officials said the plan won't cost taxpayers any money. Still, it marks
the latest intervention by the U.S. government into a financial system
weakened by the real-estate bust. Bad bets on mortgage-backed securities
have now killed five of the nation's 27 wholesale credit unions since
March 2009. The federal government, which now controls about 70% of the
total assets at such credit unions, said the surviving institutions will
be reined in so that they take fewer risks with their investments.
"Previously, we stabilized the system, and now we're resolving the problem
and reforming the system," said Debbie Matz, chairman of the National
Credit Union Administration, the U.S. agency overseeing credit unions.
Members United Corporate Federal Credit Union in Warrenville, Ill.,
Southwest Corporate Federal Credit Union of Plano, Texas, and Constitution
Corporate Federal Credit Union, Wallingford, Conn., which had a total of
$19.67 billion in assets as of July, were taken into conservatorship by
federal regulators.
Wholesale credit unions, also known as corporate credit unions, invest
money for retail credit unions and provide them with check clearing and
other services. Since the start of 2008, 66 retail unions have failed,
compared with more than 290 banks or savings institutions. Credit unions
are member-owned cooperatives that act much like banks.
Under federal rules, wholesale credit unions were supposed to invest only
in safe, liquid assets. But some chased higher returns by loading up on
securities backed by subprime mortgages or other risky loans. Their
portfolios were decimated by the mortgage meltdown.
Last year, regulators seized the two largest wholesale credit unions, U.S.
Central Federal Credit Union, based in Lenexa, Kansas, and Western
Corporate Federal Credit Union, San Dimas, Calif., after finding their
losses were much larger than previously reported.
Losses on the mortgage-backed securities held by the five seized credit
unions are expected by regulators to total about $15 billion. Wiping out
the capital of the failed institutions will cover a chunk of those losses.
But the remaining $7 billion to $9.2 billion eventually will be passed
along to the nation's 7,445 federally insured credit unions in the form of
future assessments.
The changes won't immediately affect customers of retail credit unions
throughout the U.S. But it is possible that assessments on the industry
could result in higher interest rates on loans and lower payouts on
deposits, if credit unions can't otherwise cover their obligations.
Bert Ely, a financial-industry consultant in Alexandria, Va., said
regulators share some of the blame for the resulting mess, because
wholesale credit unions were allowed to pursue a strategy that was "viable
only because of what clearly has turned out to be excessive risk-taking."
Ms. Matz, the nation's top credit-union regulator, said the investment
losses reflect "unprecedented economic times" and "bad decisions" by
regulators, credit-union managers and board members "by heavily
over-concentrating in mortgage-backed securities."
New regulations issued by the NCUA on Friday will make oversight of
wholesale credit unions much tougher, she said, and are meant to fix any
regulatory shortcomings.
As part of the plan, regulators will eventually wind down the operations
of the five failed credit unions.
Together they had about $50 billion in shaky mortgage-backed securities on
their books, according to Larry Fazio, NCUA's deputy executive director.
Based on current market values, those securities are worth roughly half of
their face value, representing a potential loss of $25 billion.
In an effort to minimize and spread out losses that must be absorbed by
the credit-union industry, regulators said they will move all the battered
securities into a good bank-bad bank structure. NCUA officials will manage
the $50 billion portfolio, or "bad bank," of the failed wholesale institutions.
Federal regulators will allow the remaining "good bank" operations at the
credit unions to continue for about two years while retail credit unions
wind down their relationships with the failed institutions.
Friday's moves could deepen tensions between regulators and retail credit
unions that withstood the financial crisis and resent having to bear
financial costs caused by the mistakes of wholesale institutions.
>>>>
Keith Hudson, Saltford, England
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Keith Hudson, Saltford, England
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