Billions, trillions, and 1932

What is a house worth? That’s one of the primary questions facing the United States of America on the eve of the inauguration of Barack Obama.

We’ve already set aside something in the neighborhood of seven hundred billion dollars to bail out the banking industry. $700,000,000.00. Just what is so industrious about a bank, anyway? Isn’t an industry something that makes something? Anyway, the reason the banks got in so much trouble was the bursting of the housing bubble.

What the bubble was full of was the hopes of an awful lot of people. They stupidly accepted a con. Some bank – and that term has become very, very loose – convinced them to sign for a loan on a house. The interest rate was low for the first, oh, say, three years or so. Then, it went through the roof. It said so right there on the paper. Hell, it said so on the TV commercials. I would watch those commercials and think to myself, "Who on God’s green earth would be stupid enough to sign up for one of those rip-offs?" Now we know.

So they defaulted on the loans. By the thousands, they defaulted. Red ink flowed like the Black Sea. And there sit the houses. What are they worth now? That really is the question, isn’t it?
Somebody buys a house. After three years and the adjustable rate adjusts, they can’t afford it any more. They default. But the house isn’t gone. It’s right there. Somebody owns it. And whoever owns it wants to sell it. Maybe they won’t get ten cents on the dollar, but they’ll sell it.

Let’s say the house went for a hundred thousand dollars. $100,000.00. Based on the neighborhood and the going rate for houses like it, that was the price. You sign a loan, and in the next thirty years you may actually have to pay nearly twice that, but the house is worth a hundred grand. Until you can’t make the payments. The bank takes it back, puts it on the market. After a few months, they’re willing to take 75 thousand. Then sixty. Then fifty. Sounds like they’d have been better off letting you refinance.

The whole 700 trillion figure is written on the air anyway. Think about this; you’re a real estate speculator. You own ten pieces of property, each worth a hundred grand. You’re worth a million dollars. But if you can’t get your price, you’re not worth that much. So if AIG, Bear-Stearns, etc. can’t get their price for all those houses, they aren’t worth as much as their stock says they are. And the price of the stock goes down. Crash.

It’s not that there’s anything wrong with the houses. Same house. Maybe even same people living in them. But if they’re worth less on the market, the value of the bank goes down.
So what? It’s not really an industry, remember? They don’t build the houses, they just own them. If a bank is worth ten billion because it owns ten thousand houses, and the price of the houses goes down, they’re worth less. They base their expenditures on the worth of the company. Everything from office supplies to the number of employees . . . to the bonuses of the top executives.

So now let’s say you’ve got a bank that’s worth ten billion, run by a CEO that is contracted to receive ten million. When it’s 1%, it doesn’t sound like much. When it’s suddenly 5%, and you’re laying off tellers and bookkeepers, it begins to look like a lot of money. And believe you me, the banks that will be getting the bailout money pay their CEOs a lot more than that. And now they won’t be getting that money from the sale of houses. They will get it from us.

I think I’m beginning to understand what a Republican must have felt like in 1932. A new President is about to take office and he’s talking about a stimulus package. A big one. One that will dwarf the TARP fund of 700 large. Oh, we’ve got to do it, just gotta!!!! Everybody says so. Everybody says, in fact, that the paltry 850 billion, that’s Billion with a B, isn’t enough!!!!!

I, the conservative taxpayer that I am, have my hand firmly clamped on my wallet. It won’t do me any good, but it’s all I can do. I listen to the talk about teacher training and bridge construction and road repairs and I know that these are all the government handing itself my money. They take it from me, and you, and pass it around amongst themselves and we’re supposed to be grateful that when they’re tired and need to go home they buy their groceries in the private sector.

The thing is, I am the child of people who grew up during the Great Depression. I’ve not only read the history books, I’ve heard the stories of people who lived through the real thing. This is exactly how FDR brought us out of the GD, and he really did. Rush Limbaugh can kiss my ass, because FDR really did save the country.

But it’s not 1932. The day Herbert Hoover handed over the key to the executive washroom, unemployment was over 25%. That means one in four workers wasn’t.

The depression lasted through the thirties right into World War 2. Wars are expensive, so that brought the economy back. There was a recession following the war, but in the 50’s and early 60’s everything boomed. Then toward the end of the Johnson administration we slipped back into a recession that lasted through the 70’s. The year I got out of the Navy, which was 1976, unemployment was over 10%. The last year before the 1980 election the Gross National Product rose 0.3%.

It took until 1982 for things to start turning around. So when someone talks about the Reagan Recession of 81-82, it was really the Johnson/Nixon/Ford/Carter recession. Reagan ended it.
The bank bailout will ensure that nothing in the bank business will really change. The Obama stimulus package will ensure that we’re still in recession in 2012. Take it . . . to the bank.