Kevin Drum

China's Housing Bubble

| Mon Apr. 26, 2010 11:51 AM EDT

David Pierson of the LA Times reports on China's housing bubble, which is now far more frenzied in third-tier cities like Hefei than it is in places like Beijing or Shanghai. Some excerpts:

Taxi drivers boast of owning multiple flats for investment. Billboards hawk developments with names such as Villa Glorious and Rich Country. Frenzied crowds pack sales events with bags of cash, buying units that exist only on blueprints. Average home values in Hefei soared 50% last year.

....Xi Zhou, a cameraman for a local news channel, paid $50,000 for his 900-square-foot unit in December. He figures it's now worth $80,000...."For people of my generation, property is all we talk about," said Xi, 27, who will share the new home with his wife and parents. "I felt a lot of pressure to buy because the longer I didn't, the more likely I wouldn't be able to afford anything."

....Many Hefei residents are as obsessed with real estate news as Angelenos are. One of the most popular radio programs here is an afternoon talk show called "Blossom Real Estate." Some prospective buyers get half a dozen text messages a day on their cellphones from developers advertising new properties. Apartments are opened with great fanfare, with outdoor concerts in malls.

....Guo Hongbing, a marketing consultant for several developers [...] gave visitors a tour of Mediterranean-style condominiums....All the properties had been sold, and Guo was interested in estimating how many were left empty by investors. His unscientific method? Looking for curtains. "See, less than half that building is occupied," he said, pointing to one block with several bare windows. "These speculators want to buy as many as possible."

"I felt a lot of pressure to buy because the longer I didn't, the more likely I wouldn't be able to afford anything." Hey, that sure sounds familiar to this Southern California native!

Every time I read about this, someone points out that China's housing bubble isn't driven by debt. China's middle class are huge savers, and they mostly buy with cash or, at the least, with a big down payment. But I wonder if that's really true? Reliable statistics are probably impossible to get, but even if real buyers are avoiding debt, I'd be surprised if speculators are. If half the units in a typical building are being snapped up by speculators hoping to make a quick yuan, that might mean there's more debt than we think fueling this bubble.

But at least there's this: "China's central government is taking steps to cool the market. This month, lawmakers raised down-payment requirements for the purchase of second homes and gave banks new powers to restrict lending to speculators. Capital gains and monthly property taxes are being considered." Maybe it's enough, maybe it isn't. But it's a hell of a lot more than U.S. regulators did.

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Public in Favor of Financial Reform

| Mon Apr. 26, 2010 11:13 AM EDT

According to a new Washington Post poll:

  • 63% want stronger regulation of the financial industry
  • 43% want stronger regulation of derivatives
  • 53% support requiring banks pay into a fund to help wind down failed financial institutions
  • 59% support stronger regulation of consumer finance products

I'm a little unsure if this is good news or bad news. It's good that there's generally majority (or better) support for all this stuff, but the majorities aren't all that big. I wouldn't be surprised, for example, if lots of people had no opinion on regulation of derivatives, but I am surprised that among those who do have an opinion, support for stronger regulation is so weak (43%-41%).

On the other hand, numbers like these are often high and then fall once the political debate starts. These numbers are (mostly) still fairly high even though the public debate has been in full swing for a month or two. So that's promising.

Overall, though, the public doesn't exactly seem ready to hit the streets with pitchforks and torches. Maybe public opinion would be stronger if we could somehow convince them that Goldman Sachs planned to convene death panels?

Quote of the Day: Eliot Spitzer

| Sun Apr. 25, 2010 5:28 PM EDT

From Jonathan Bernstein, after acknowledging that Eliot Spitzer is qualified to comment on, say, financial reform or the prostitution biz:

As an expert on how to be a good Governor of New York, however...well, I'm not seeing that.

At issue is why the New York Times felt a burning desire to run this front page story.

Graham and the Climate Bill

| Sun Apr. 25, 2010 2:15 PM EDT

Senator Lindsey Graham (R–SC) angrily withdrew his support for climate legislation this weekend after learning that Harry Reid and President Obama apparently want to move on immigration reform first. Since Graham himself has been pushing the administration to get more serious about immigration, charges of hypocrisy popped up almost immediately. I had one all teed up myself. But here's the most relevant part of yesterday's letter:

I know from my own personal experience the tremendous amounts of time, energy, and effort that must be devoted to this issue to make even limited progress.

In 2007, we spent hundreds of hours over many months with President Bush’s Secretary of Homeland Security Michael Chertoff, Secretary of Commerce Carlos Gutierrez, and nearly every member of the U.S. Senate searching for a way to address our nation’s immigration problems. Unlike this current “effort,” it was a good-faith attempt to address a very difficult national issue.

Some of the major provisions we embraced in 2007 — such as creation of a Virtual Fence using cameras, motion detectors and other technological devices to protect our borders — have been scrapped for the time. Other issues we found agreement on at the time, such as a temporary guest worker program, have unraveled over the past three years.

Expecting these major issues to be addressed in three weeks — which appears to be their current plan based upon media reports — is ridiculous. It also demonstrates the raw political calculations at work here.

Let’s be clear, a phony, political effort on immigration today accomplishes nothing but making it exponentially more difficult to address in a serious, comprehensive manner in the future.

Well? Is he right? Because let's be honest here: this really does seem more like a political exercise to firm up the Hispanic vote than a serious effort to deliver a major immigration bill this year, doesn't it? It's possible that Graham's defection from the climate bill is cynically motivated too, but that only means that both sides are playing politics.

Or am I missing something here?

Is God Dead? Or Merely Bored?

| Sun Apr. 25, 2010 1:31 PM EDT

"Given the durability and predictability of the arguments involved," says Ross Douthat, "it’s hard to come up with something interesting to say on the question of Christianity versus the 'new' atheists." True enough. But he says David Bentley Hart has done it, and as evidence he points us to Hart's recent essay in First Things about his weariness with the anti-God contentions of people like Christopher Hitchens and Richard Dawkins. Their arguments, he says, are just the same-old-same-old, delivered with too little reflection, too much bombast, and a way-too-healthy dose of contempt. And maybe so. Atheists can be as annoying as anyone else, after all.

Unfortunately, when it comes to annoying and stale rhetorical tropes, Hart shows that he's no slacker either. This is perhaps my least favorite of all time:

A truly profound atheist is someone who has taken the trouble to understand, in its most sophisticated forms, the belief he or she rejects, and to understand the consequences of that rejection. Among the New Atheists, there is no one of whom this can be said, and the movement as a whole has yet to produce a single book or essay that is anything more than an insipidly doctrinaire and appallingly ignorant diatribe.

You can almost hear Hart sighing, "Please Lord, deliver me from cretins." But his pretensions are, if anything, even more insipid than anything coming from the New Atheists: they are, like Jesus, at least trying to reach ordinary people in language that's meaningful to them. Hart wants nothing to do with that. Here he is objecting to the New Atheists' view that God is "some very immense and powerful being" who explains nothing because he, himself, then needs to be explained:

The most venerable metaphysical claims about God do not simply shift priority from one kind of thing (say, a teacup or the universe) to another thing that just happens to be much bigger and come much earlier (some discrete, very large gentleman who preexists teacups and universes alike). These claims start, rather, from the fairly elementary observation that nothing contingent, composite, finite, temporal, complex, and mutable can account for its own existence, and that even an infinite series of such things can never be the source or ground of its own being, but must depend on some source of actuality beyond itself. Thus, abstracting from the universal conditions of contingency, one very well may (and perhaps must) conclude that all things are sustained in being by an absolute plenitude of actuality, whose very essence is being as such: not a “supreme being,” not another thing within or alongside the universe, but the infinite act of being itself, the one eternal and transcendent source of all existence and knowledge, in which all finite being participates.

You can decide for yourself whether this string of words actually makes anything about God more understandable. I doubt it. But it hardly matters, because even if you like Hart's formulation, this is simply not the lived experience of Christianity for most people. Hart would like us to believe that anyone who hasn't spent years meditating on Aquinas and Nietzsche isn't worth engaging with, but walk into any Christian church in America — or the world — and you'll find it full of people who understand God much the same way Hitchens and Dawkins do, not the way Hart does. That's the reality of the religious experience for the vast majority of believers. To call a foul on those who want to engage with this experience — with the world as it is, rather than with Hart's abstract graduate seminar version of the world — is to insist that nonbelievers forfeit the game without even taking the field.

So: do the New Atheists recycle old arguments? Of course they do. But that's not because they're illiterate, it's because those arguments have never been convincingly answered. All the recondite language in the world doesn't change that, either, because the paradoxes are inherent in the ideas themselves. In the end, the English language probably just isn't up to the task of answering them, no matter how hard you try to twist it. To say that God is is best understood as an absolute plenitude of actuality doesn't really advance the ball so much as it merely tries to hide it.

Later in the essay, perhaps recognizing that he's exhausted the semantic possibilities here, Hart redirects his focus to the cultural impact of Christianity, suggesting that the New Atheists haven't truly grappled with what a world without religion would be like. And perhaps they haven't. But interior passions and social mores work both ways. Did Isaac Newton feel a deeper aesthetic connection with the infinite when he was inventing calculus or when he was absorbed in Christian mysticism? Who can say? Not me, surely, and not Hart either. Likewise, the question of whether Christianity has, on balance, been a force for moral good is only slightly more tractable. Does keeping the servants from stealing the silver really outweigh the depredations of the Crusades and the Inquisition?

But no matter how beguiling those questions are, surely the metaphysical one always comes first. To say merely that Christianity is comforting or practical — assuming you believe that — is hardly enough. You need to show that it's true. And if you want to assert that something is true, the onus is on you to demonstrate it, not on the New Atheists to demonstrate conclusively that it isn't. After all, in the end the only difference between Hart and Dawkins is that Hart believes in 1% of the world's religions and Dawkins believes in 0% of them. It's Dawkins' job only to question that remaining 1%. It's Hart's job to answer him.

Mortgages and Consumer Protection

| Sat Apr. 24, 2010 5:57 PM EDT

Speaking of conservatives and financial reform, Arnold Kling is one who does write seriously about the subject on a fairly regular basis. A couple of days ago he listed three problems with Chris Dodd's financial reform bill, all of which seem reasonable to me (though I think Dodd is planning to take up reform of Fannie Mae and Freddie Mac in a separate bill). But then he took this shot at the proposed Consumer Financial Protection Agency:

I know that it's axiomatic that poor people are helpless victims. But in the case of these mortgages [i.e., bubble-era ARM/no-doc/exotic mortgages], that is a really hard sell. The banks did not take from poor people. They gave to poor people....I'm sorry, but if you borrowed up to 100 percent of the value of the house or more, then all you really lost were your moving expenses.

What about predatory lending? As I understand it, the idea of predatory lending is to saddle the borrower with an expensive mortgage so that you can foreclose on the property and sell it at a profit. How many times did that happen? Have you read of a single instance in the past three years where the bank made a profit on a foreclosure?

Put aside the question of whether or not poor people really have suffered thanks to exotic mortgages, a problem that I think Kling dismisses much too easily. From a systemic point of view, the real issue is that predatory lending on a large scale helped to massively inflate the housing/credit bubble of the aughts. If the home loan market had been regulated stringently enough to keep mortgage lending relatively sober, the bubble most likely would have been half the size it ended up at, the credit derivative tidal wave never would have picked up a lot of steam, the bursting of the bubble would have kicked off a normal-sized recession instead of a near-depression, and the banking system would have survived without massive government intervention.

Of course, the proposed CFPA would do a lot more than just regulate mortgage lending, and we can argue about whether that regulation would be a good thing. But the Fed obviously did a lousy job of reining in mortgage brokers during the past decade, and since property is by far our biggest (and most dangerous) asset class, doing a better job of that is a key part of preventing a repeat of 2008. Giving that responsibility to someone who takes it more seriously seems like a pretty good idea to me.

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Quote of the Day: The Southern Strategy

| Sat Apr. 24, 2010 2:19 PM EDT

From Republican National Chairman Michael Steele, on the GOP's electoral strategy since the 60s:

For the last 40-plus years we had a "Southern Strategy" that alienated many minority voters by focusing on the white male vote in the South. Well, guess what happened in 1992, folks, "Bubba" went back home to the Democratic Party and voted for Bill Clinton.

I'm glad we've settled that once and for all.

Where's the Right Wing Reform?

| Sat Apr. 24, 2010 2:02 PM EDT

Via Twitter, National Review editor Rich Lowry suggests that conservatives are a lot more interested in financial reform than I (or Jonathan Chait) give them credit for. To demonstrate, he points to a post that has links to nine pieces recently run on the NR website or in the magazine.

I'll get to those in a minute. First, though, I should clarify: I wasn't targeting any particular magazine when I suggested that conservatives haven't shown a lot of serious interest in financial reform. My observation was much broader than that. When I think of the blogs that have become go-to sites on the financial crisis — Mike Konczal, Felix Salmon, Barry Ritholtz, Simon Johnson & James Kwak, Yves Smith, Steve Randy Waldman, and others — they're mostly run by folks with a leftish tilt of one kind or another. Ditto for books. Ditto for magazine pieces. There are a few conservatives who blog and write about financial regulation too, but just not very many, and almost none that do it with the depth and passion — or the kind of concrete proposals — of the lefties. That's why lefty sites mostly end up arguing with other lefties.

But what about National Review in particular? Well, aside from nonsense about the CRA there's one thing for sure that we know conservatives are exercised about: the supposed "bailout fund" contained in Chris Dodd's reform bill. So I'll give 'em that. And sure enough, of the nine piece linked in this post, five of them (1, 2, 3, 4, and 8) are primarily about that. Of the others, #6 and #7 are just reporting and nonspecific commentary, and #9 is some kind of weird analogy with oily rags and fire insurance that I couldn't even make sense of. Bottom line: NR has some commentary on reform, but there's not much, and what there is is almost entirely dedicated to griping about resolution authority and the "bailout fund." It's essentially pretty trivial stuff. On a broader note, The Corner probably puts up a couple hundred posts a week on every topic under the sun, but most weeks you can count the number dedicated to serious commentary on financial reform on the fingers of one hand.

But maybe you noticed that I skipped a step up there. What about item #5? It's by Duncan Currie, and after a bit of throat clearing about the bailout fund and the dreaded CFPA, he offers three reform suggestions Republicans should take up. Here's the condensed version:

(1) A one-page mortgage form....The form would clearly and concisely show prospective borrowers how their mortgage payments relate to their income, and would be accompanied by a two-page glossary defining various technical terms. It has received praise from none other than Elizabeth Warren, chair of the TARP Congressional Oversight Panel.

(2) Revamping Fannie Mae and Freddie Mac....Dodd’s legislation does not address their future status. Republicans should continue highlighting this omission and challenge Democrats to support robust GSE-reform language.

(3) Implementing new capital requirements....In the latest issue of National Affairs, economists Oliver Hart of Harvard and Luigi Zingales of the University of Chicago describe an innovative approach. Briefly, Hart and Zingales would force big financial firms to safeguard their systemically important obligations by carrying two layers of capital, the second of which “would allow for a market-based trigger to signal that a firm’s equity cushion is thinning, that its long-term debt is potentially in danger, and therefore that the financial institution is taking on too much risk.”

This is the kind of thing I'm talking about. It's obviously not what I'd propose, and it doesn't really address the deepest regulatory issues that probably cause the most heartburn for conservative ideology. Still, it shows a serious interest in the subject and tosses out some real proposals. Mortgage loans should be simpler. Fannie and Freddie do need to be dealt with. And capital requirements are a key part of any reform effort. It's a good piece.

But it's just one piece. Beyond that, I guess my question is, Where are the Mike Konczals and Simon Johnsons of the right? That is, conservatives who acknowledge the serious market failures that brought on the crash (instead of obsessing solely over CRA or Fannie Mae) and who go beyond just sniping at Democratic proposals. Conservatives who write regularly for a lay audience and really take seriously an obligation to explain what they think happened and what we ought to do to fix it. Maybe they're out there and I'm just not reading them. But if someone gives me half a dozen names, I'll take a look.

Goldman's Big Short

| Sat Apr. 24, 2010 12:10 PM EDT

The New York Times reports that Goldman Sachs is a big fat liar:

In late 2007 as the mortgage crisis gained momentum and many banks were suffering losses, Goldman Sachs executives traded e-mail messages saying that they were making “some serious money” betting against the housing markets.

The e-mails, released Saturday morning by the Senate Permanent Subcommittee on Investigations, appear to contradict some of Goldman’s previous statements that left the impression that the firm lost money on mortgage-related investments.

Hmmm. Really? What statements were those?

Carl Levin, Democrat of Michigan and head of the Permanent Subcommittee on Investigations, said that the e-mail messages contrast with Goldman’s public statements about its trading results. “The 2009 Goldman Sachs annual report stated that the firm ‘did not generate enormous net revenues by betting against residential related products,’ ” Mr. Levin said in a statement Saturday when his office released the documents. “These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”

You know, I'm as willing as the next guy to rubbish Goldman Sachs. But 2007 is not 2009, and Goldman's mortgage-related results might very well have been different during those two years. What's more, making lots of money shorting the housing market is entirely consistent with Goldman's statement that it "did not generate enormous net revenues by betting against residential related products." The obvious conclusion from this is that they lost a truckoad of money on mortgage products and made a truckload of money shorting mortgage products. Apparently the second truckload was bigger than the first during certain periods, but that's all.

As far as I can tell, this has been Goldman's story all along. They were long housing up through 2006, got nervous, and then started to short the market. As a result, they came out of the financial meltdown in decent shape. Not great shape, as their conversion to a bank holding company and $1.3 billion "missing month" in late 2008 demonstrate, but not bad.

There are plenty of things to hate about Goldman Sachs, but this one is a real stretch. Maybe I'm missing something, but I don't really see any kind of serious deception here.

Friday Cat Blogging - 23 April 2010

| Fri Apr. 23, 2010 3:21 PM EDT

Happy Shakespeare's birthday! Maybe. April 23rd is as good a guess as any, and if you're not convinced just pretend you're celebrating St. George's Day instead. Inkblot and Domino are celebrating by hunting critters in the deep, dark jungle in our backyard. I don't really know what Inkblot is looking at, I just know that something caught his eye and he took off like a shot for the bushes to track it down. As usual, he failed. Domino then followed him out and caught sight of some birds. She even made that funny cat hunting sound, which I've never heard her attempt before.

And there's good news to go with all this: Wednesday was vet day, and everyone is healthy. Hooray! What's more, according to the official weigh-in, Inkblot has lost about five pounds since his peak and Domino has lost two-and-a-half. Not exactly supermodel svelte, but that's good enough for now. Have a nice weekend, everyone.