Catherine Cashmore in "Naked Capitalism" (finance and economics blog)

21/07/2014

This post looks at how little has been done in the wake of the global financial crisis is instructive because it takes an international view. 

Read the full article here

Yves here. This post looks at how little has been done in the wake of the global financial crisis is instructive because it takes an international view. The Australian writer, Catherine Cashmore, is particularly anxious about the failure to address the usually lucky country’s ginormous property bubble, and its not alone in having this problem (cue the UK, China, and Canada). It the US, although we’ve had a housing “recovery” and some markets are looking frothy, the bigger issues are the squeeze on renters as former homeowners are now leasing and the stock of rentals is tight in some markets (in part due to destruction of homes that would have been rentable in the foreclosure process due to servicer mismanagement and in some markets, due to properties being held off the market, both by servicers and by landlords who are either in the process of rehabbing them or have otherwise not leased them up). And it focuses on the elephant in the room: lousy worker wage growth.

By Catherine Cashmore, a market analyst, journalist, and policy thinker, with extensive industry experience in all aspects relating to property. Follow Catherine on Twitter or via her blog. Originally published at MacroBusiness

Five years on since the US recession ‘officially’ ended in June 2009, urban land prices are rising, the pattern of history is repeating, and this time, the players on the chessboard have changed.

But our Governments are turning a blind eye.

They have yet to acknowledge why the global financial crisis happened, or put policies in place to prevent it happening again.

Expensive welfare systems, elaborate tax and transfer policies, and the financial ‘cures’ following the previous land induced crash in the early-1990s, did nothing to prevent the swiftest and sharpest synchronised global downturn in human history.

Taxpayers were punished, bankers got a “get out of jail free” card, and the largest real estate investment trusts spent $50 billion purchasing 386,000 foreclosed homes, to rent out to previous owners who believed and acted on the lie that “there is no bubble.”

The IMF, and policy makers are now twisting themselves in economic knots trying to pin down a ‘cure’ for the dangers of excessive house price inflation, which they readily admit lead to most banking crises, with Australia featuring in the top five of each of their highlighted risk assessments:

“……our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises…..” IMF “Era of Benign Neglect of House Price Booms is Over” June 11 2014
The IMF claims the ‘neglect of house price booms is over’, but as the OECD ‘Post Mortem’ of the 2008 crises reveals, these economists can’t see.

They ignore the role that rent (unearned income,) debt and the financial sector play in shaping the economy.

They have a colourful history of recurrent boom-bust land cycles, all replete with rampant speculation and easy credit, spanning in excess of 300 years from which to study … and yet:

“The macroeconomic models available at the time of the crisis typically ignored the banking system…” (OECD Forecasts During And After The Financial Crisis: A Post Mortem – February 2014)
In other words, based on the aesthetic qualities of their equations, the 2006/7 bubble couldn’t exist. A story we hear repeated every year as prices continue to defy gravity and economist try and explain it away with ‘sound fundamentals.’

Neo-liberal policy made matters worst.

Less government interference protecting labour or redistributing wealth through taxing the rich, deregulation of capital markets, lowering trade barriers, reducing state influence though privatization and fiscal austerity – was termed by American scholar Robert Waterman McChesney as “Capitalism with the gloves off.”

It promised to lead to efficient markets and lower unemployment.

But at the onset of the global financial crisis, unemployment in developed nations rose above any previous recession of the past three decades, whilst wages, as a share of GDP plummeted to their lowest point since the Second World War.

 


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