Can you spot the year when your home became just another commodity?

 

https://en.wikipedia.org/wiki/Taxpayer_Relief_Act_of_1997

Peter Thiel is so mistaken about homeownership in his interview with John Gray

 Peter Thiel says "To unshackle ourselves economically, one should start by attacking the extraordinarily distorted real estate market", but never once mentions how the prime culprits of the distortion were and are all Federal.

These were the commoditization of housing by the so-called Taxpayer Relief Act of 1997 under Clinton and Gingrich, followed by Federal Reserve interest rate suppression under Obama after the collapse of the ensuing housing bubble it caused, re-inflating that bubble.

To Thiel "interest rates went steadily down", as if by the influence of some mysterious force. What could it be? He is not i n t e r e s t e d.

Nor does he mention a third Federal culprit, how the demand side for housing was and is distorted by 15% of the population swelling with foreign born in the UK and the US as a direct result of legally admitting millions of immigrants since 1990 in the US and since 1994 in the UK.

These are the legacies of the Bushes, Bill Clinton, John Major, and Tony Blair, now augmented by deliberate non-enforcement of the border in America by the likes of Obama and Biden, turbo-charging the demand side for housing, and prices with it, by flooding the country with illegal aliens.

Thiel observes that culturally "We became too risk-averse, too bureaucratic, too reliant on peer review in the sciences" somehow, but doesn't connect this to the aging demographics, even though he is aware of it. Not re-inflating the prices of homes of Baby Boomers would have been political suicide. He fancies this is now "over", but misses that the heirs of all this property are voters too.

This is not over.

Thiel is essentially a radical, as was Ronald Reagan and also Margaret Thatcher. He completely misses how the libertarian impulse to deregulate under Reagan and Thatcher led in a straight line to the housing catastrophe we all live with these many years later. His libertarianism is myopic.

John Gray: "The difference is that this Truss wing of the Conservative Party wants to go back to Thatcher because they see that as a radical moment and they want to repeat the radical moments. But radical moments are very hard to keep repeating."

Peter Thiel: "They’re hard to repeat by doing the same thing. It was a one-time move to deregulate and lower taxes and then it’s not clear that doing it the second time does much good. ... The Reagan and Thatcher administrations ... allowed more companies to be acquired, more M&A activity to happen. It was a somewhat brutal but very powerful reorganization of society that was possible and in fact the right thing to do in the 1980s."

Incessant headlines about deep American discontent tell us we don't particularly like this now reorganized society. The new world order means your kid is saddled with horrible college debt, can't find a decent job, has to live at home with you, can't buy a house, can't get married, can't have children. 

But Thiel is still dreaming the pipe dream of "exponential growth" to solve these problems. He hopes technology will come to the rescue in the form of remote work:

"Is there some way to reopen a frontier in real estate? The possibility where I think the jury is very out, though it doesn’t look that promising in 2023, would be remote work. Could the internet be a way that people are not stuck in these cities? And that would reset all these real estate values tremendously because even in a rather densely populated country like England, there is plenty of space if you’re not forced to be within the green belt of London itself. And in the United States even more so."

The interview is here.  

George Herbert Walker Bush's legacy: It took only 7 years of NAFTA to destroy hours worked in the United States

Hours of all persons grew 44% during the Reagan bull market, which ended in August 2000. Since then, hours of all persons has grown just 3%.

NAFTA went into effect in January 1994, eleven years after the Reagan bull began and a little over one year after Bush inked the deal. Seven years later hours of all persons peaked.

It reminds me of Bill Clinton's innovation, the so-called Taxpayer Relief Act of 1997, which blew up the housing market after just 10 years.

Republicans take away your job, then Democrats come along and take away your house.

If you're living in your car, you'd better watch your back.  

Surprise: Lefty Michael Tomasky wants to punish the middle class with an increase in the regressive gasoline tax

Here in "Pony Up, Middle Class, for a Gas Tax", recommending Hillary do it in 2017 like her husband did with income taxes in 1993, by lying about it:

"And the rich, even though they’re rich, only have so much to contribute. The top marginal tax rate just isn’t going to get much higher, and the corporate tax rate if anything should be lowered (although as loopholes are simultaneously closed). So you’re going to have to pay a little.

"I wouldn’t necessarily recommend this for a campaign. But let us not forget that the husband of the putative Democratic nominee in 2016 got into office in 1993 and promptly raised taxes, and fairly substantially, on just about everybody."

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Of course, Tomasky doesn't mention Bill Clinton specifically promising in October 1992 NOT TO RAISE TAXES on the middle class, period.

Americans were forced in the aftermath of those tax increases to plunder home equity to maintain their standard of living. Owners' equity as a percentage of the value of household real estate subsequently plunged from 60.88% when Clinton was elected to 57.43% in the autumn of 1997 even as those housing values began to soar in the gestating housing bubble. We won't digress about how Clinton then threw gasoline on the housing fire in the Taxpayer Relief Act of 1997 just as the percentage of owners' equity had hit that new low.

What's noteworthy is how enthusiastic the left is to punish the middle class, now as then. They haven't changed a wit, and neither have their methods. Everyone is paying higher taxes now in the form of healthcare premiums (hello HillaryCare), and if they get their way they'll raise federal gasoline taxes, too.

Of all the taxes which hurt working and middle class people more it's gasoline taxes, euphemistically referred to as user taxes by libertarians. The current federal gasoline tax of 18.4 cents per gallon generates about $131 of federal revenue for every vehicle driven 15,000 miles annually getting 21mpg. While that's hardly noticeable to your person making $50,000 per year, a mere quarter percentage point, it's like adding almost one percentage point to the taxes of a minimum wage earner making $15,000.

The problem is then greatly magnified by the states, which add on another 29.89 cents per gallon on average, also in the name of transportation funding. Suddenly your 1% tax on the poorest drivers becomes a 2.3% tax.

Any addition at the federal level will only exacerbate this regressiveness. It's not that liberals don't know any of this. They do. It's just that they don't care.

Everyone benefits from roads, not just the users. Everyone should pay for them.

Velocity of Money Soared Over 35% During the Housing Bubble

Velocity of M1 money soared to unprecedented heights during the housing bubble, dating from the housing provisions in the Taxpayer Relief Act of 1997. Money changed hands at a rate over 35% faster at the peak reached in October 2007 at 10.367 than at the previous high levels around 7.4.

The burst bubble has seen velocity of M1 plunge to 6.5 today after all those years of new highs from 7.5. Velocity in the 6s was common for twenty years between the 1970s and 1990s, and looks to be again.

This is what happens when you convince Americans to unleash all the stored up capital in their homes, and squander it. Thanks Bill Clinton. Thanks Newt Gingrich.

The Banks Own 32% Of The Stock Market, Households 37%

This Bank of America chart from July 2012 seen here shows bank ownership of the equity markets at 32% in Q1 2012, a stunning number rivalling the household sector's share of 37%. In 1950 households (an elastic category including much more than simply retail investors) held roughly 90% of the market in their hands (admittedly far fewer retail investors than today, but that's another story).

So you've got to ask yourself why ultra cheap loans to banks by the Federal Reserve have gone into markets in such spectacular fashion? To help them recapitalize after the housing implosion, that's why. Banks can't make money the old fashioned way anymore because the owners' equity of household real estate of consumers is down to about 45% (it had sunk as low as 39% in 2010 and 2011), a decline of over 45% since 1950. Think cash-out-refis at artificially low interest rates and HELOCS and the housing market collapse. The banks are left holding the bag, or the Feds are, on 5 million repossessed properties in the last seven years, leaving a huge capital hole in their off-balance-sheet balance sheets. Having plundered John Q. Public by selling him the rope he hung himself with (HELOC reform 1986 Tax Reform, Taxpayer Relief Act of 1997 2-Year Rule on Sale of Principal Residence, Repeal of Glass-Steagall 1999), the government-banking cartel has had to look elsewhere for profits. They're finding them.

Care to buy stocks? 

Housing Prices Need Not Increase, Just Remain Stable, For Economic Recovery

So says Harvard's Edward Glaeser for Bloomberg.com here:

The 1990s offer us one upbeat message. Housing prices stayed static for six long years after 1991, and in real terms, housing prices were no higher in 1998 than they were in 1991. Yet real GDP grew an impressive 28 percent between 1991 and 1998. It’s a myth that the housing market must recover before the larger economy can surge.

Not quite.

The average Case Shiller Home Price Index for 1991 was 125.55, and was 125.10 for 1998, but the chart for the period was flat to slightly declining, until the provisions of the Taxpayer Relief Act of 1997 helped begin the housing bubble. Prices reached a nadir for the period in 1996 at 117.64, a decline of over 5 percent from 1991.

Rep. Newt Gingrich Gets Blame For Housing Legislation Which Led To Bubble

Rep. Newt Gingrich was instrumental in turning the American dream into the American nightmare.

Under Gingrich's leadership in the US House as Speaker he spearheaded the drive to turn our homes into a mere commodity which could be flipped over and over again free of capital gains tax. And as everyone now knows only too well, commodities go up, and commodities go down.

From his Wikipedia entry:

In 1997 President Clinton signed into effect the Taxpayer Relief Act of 1997, which included the largest capital gains tax cut in U.S. history. Under the act, the profits on the sale of a personal residence ($500,000 for married couples, $250,000 for singles) were exempted if lived in for at least 2 years over the last 5. (This had previously been limited to a $125,000 once-in-a-lifetime exemption for those over 55.) There were also reductions in a number of other taxes on investment gains. Additionally, the act raised the value of inherited estates and gifts that could be sheltered from taxation. Gingrich has been credited with creating the agenda for the reduction in capital gains tax, especially in the "Contract with America", which set out to balance the budget and implement decreases in estate and capital gains tax. Some Republicans felt that the compromise reached with Clinton on the budget and tax act was inadequate, however Gingrich has stated that the tax cuts were a significant accomplishment for the Republican Congress in the face of opposition from the Clinton administration.


Look what happened to housing in 1997 after the legislation became law according to the Shiller index:

After four decades of relative price stability in real terms, the dramatic tax change Gingrich championed helped develop one of the most notable bubbles in American history, as well as a banking crisis and unemployment the likes of which we haven't seen since the 1930s.

August 5, 1997: A Date That Will Live in Housing Infamy

When President Bill Clinton signed into law The Taxpayer Relief Act of 1997, and liberalism turned your home into just another commodity:

The act exempted from taxation the profits on the sale of a personal residence of up to $500,000 for married couples filing jointly and $250,000 for singles. This is for residences that were lived in for at least 2 years over the last 5 ... .

Real estate churning was off to the races, in concert with a deregulated financial industry, almost as if someone had flipped on a switch:

(source: Ritholtz/Steve Barry, The Big Picture, here)

The Date Your Home Became Just Another Commodity: August 5, 1997

When you could begin to sell every two years and avoid the capital gain.

The chart here shows the first stirrings late in the year of what was to become the housing bubble.

August 5, 1997 marked the date when the Taxpayer Relief Act of 1997 was signed into law by President Clinton.

"When the bill passed in the summer of 1997, it stipulated that married couples would pay no taxes on the first $500,000 in profits from the sale of a house. At the time, this wasn’t seen as an incentive for people to start trading up or flipping houses—although, according to the National Association of Realtors, single-family-home sales jumped 13 percent the year after it passed, and some economists have said it instantly added value to homes, and fueled their rise in prices. But if you drove over that bridge, into the 21st century, and combined this windfall with record-low interest rates and lower down-payment mortgage requirements, the synergy changed the way people bought homes: Instead of looking at how much house they could afford, people started looking at how much mortgage they could carry. (In other words, you could roll the profits into a pricier house, put less down, and still wind up with a lower monthly mortgage payment.) Taken by itself, the Taxpayer Relief Act of 1997 didn’t cause the economic meltdown. But it was one more piece of kindling on the cord that would eventually become the bonfire of all our vanities."

-- Bruce Feirstein, here

The mortgages behind those houses had started to become mere commodities, too, at about the same time:

Securitization accelerated in the mid-1990s. The total amount of mortgage-backed securities issued almost tripled between 1996 and 2007, to $7.3 trillion.


Hurting us where we live.