Media Ignores Reason for Foreclosures

[midcan5]

Smith like most 18th century writers lived in a different world but even though he did he had some interesting ideas on economics and society. PJ ORourke talked about it recently on the Daily show and noted Smith is more than the general ideas we hear in the ideological conservative MSM. PJ is a conservative as well.

On The Wealth of Nations: Books That Changed the World (Paperback)
by P. J. O'Rourke (Author)

 

[Toro]

indago wrote: "What are your thoughts on Adam Smith, and his book Wealth of Nations?"

Toro wrote: "Its a good book. Smith showed that nations could get wealthy through economic growth. At the time, the primary way to get wealthy was through war and plunder."

Adam Smith, a British economist who has been quoted by American statesmen, and Justices of the Supreme Court of the United States, wrote, in his book Wealth of Nations, published in 1776, "If the free importation of foreign manufactures were permitted, several of the home manufactures would probably suffer, and some of them, perhaps, go to ruin altogether...". He noted that "two great engines for enriching the country, therefore, were restraints upon importation, and encouragements to exportation." Mr. Smith had studied under Professor Francis Hutcheson, who had written, in his book System of Moral Philosophy, in the chapter Of the Nature of Civil Laws and their Execution: "Foreign materials should be imported and even premiums given, when necessary, that all our own hands may be employed; and that, by exporting them again manufactured, we may obtain from abroad the price of our labours. Foreign manufactures and products ready for consumption should be made dear to the consumer by high duties, if we cannot altogether prohibit the consumption;..."



-

And?

Simply because Smith wrote it does not make it true. Most economists reject this argument. Almost all empirical evidence of developed countries protecting their industries concludes that doing so destroys wealth and lowers the welfare the nation in aggregate (though the evidence is mixed for developing countries).

Instead, the more powerful argument for open trade comes from David Ricardo and the Theory of Comparative Advantage.

In economics, the principle of comparative advantage explains how trade is beneficial for all parties involved (countries, regions, individuals and so on), as long as they produce goods with different relative costs. Usually attributed to the classical economist David Ricardo, comparative advantage is a key economic concept in the study of trade.

Adam Smith had used the principle of absolute advantage to show how a country can benefit from trade if the country has the lowest absolute cost of production in a good (ie. it can produce more output per unit of input than any other country). The principle of comparative advantage shows that what matters is not the absolute cost, but the opportunity cost of production. The opportunity cost of production of a good can be measured as how much production of another good needs to be reduced to increase production by one more unit.

The principle of comparative advantage shows that even if a country has no absolute advantage in any product (ie. it is not the most efficient producer for any good), the disadvantaged country can still benefit from specializing in and exporting the product(s) for which it has the lowest opportunity cost of production.

http://en.wikipedia.org/wiki/Comparative_advantage

In other words, Ricardo showed that Smith was wrong.

 

[jillian]

I haven't read "Wealth of Nations". I started to but then decided all three volumes of "Kapital" might have been easier to read

But I think that the good doctor Smith was arguing against mercantilism. What happened to his theory about free trade was that - I suspect - it was done over by the corporatists, the sociopaths who believe that profit is above everything. I think we can absolve Smith.

Well, I'll defer to your knowledge on the subject because anything I learned about Adam Smith wasn't from his own writings directly. Absolve him, well, I think we can, since we at least made an effort to right the things that were wrong about that system.

It's just very strange watching a certain segment of my society to undo the things that actually make us great in favor of some corporatist heaven.

 

[Diuretic]

Well, I'll defer to your knowledge on the subject because anything I learned about Adam Smith wasn't from his own writings directly. Absolve him, well, I think we can, since we at least made an effort to right the things that were wrong about that system.

It's just very strange watching a certain segment of my society to undo the things that actually make us great in favor of some corporatist heaven.

I find it a bit uncomfortable - I'm not knowledgeable on this, just stuff I've picked up. The book is online -

http://www.econlib.org/LIBRARY/Smith/smWN.html

Corporatism is the evil empire within all advanced industrialised societies. Yep, a bit of hyperbole from me but it's how I see things. When corporations are more powerful than nations we're in trouble.

 

[jillian]

I find it a bit uncomfortable - I'm not knowledgeable on this, just stuff I've picked up. The book is online -

http://www.econlib.org/LIBRARY/Smith/smWN.html

Corporatism is the evil empire within all advanced industrialised societies. Yep, a bit of hyperbole from me but it's how I see things. When corporations are more powerful than nations we're in trouble.

Thanks for the link. I'm the same. I don't understand why middle class people think they're supposed to be fighting for the right of Exxon/Mobil to price gouge or for Newscorp to own about 1/6th of the media in this country (maybe a greater percentage, I'm not sure).

 

[midcan5]

Adam Smith is another myth to conservatives or social darwinists who use his name as if god has spoken and passed down the tablets from on high especially since none have read him or even read anything for that matter. Sorry cons sometimes I get carrid away. But in case you want to: http://www.adamsmith.org/smith/won-index.htm


Adam Smith

"How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it. The Theory of Moral Sentiments, Part I Section I Chapter I


Taxation:
The Wealth of Nations, Book V Chapter II Part II Appendix to Articles I and II

I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities...

regulation

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and jus-tice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

The distribution of wealth:

What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable."

The Wealth of Nations, Book I Chapter VIII

 

[Diuretic]

Thanks for the link. I'm the same. I don't understand why middle class people think they're supposed to be fighting for the right of Exxon/Mobil to price gouge or for Newscorp to own about 1/6th of the media in this country (maybe a greater percentage, I'm not sure).

Makes me scratch my head as well. But then when I consider that the so-called mainstream media is controlled by corporations then I get it. Vested interests have successfully convinced us that the way things are with corporations is perfectly natural and almost pre-determined, so much so that most of us can't see why anything should change. It's been a long but successful coup d'etat of the mind.

 

[Zoomie1980]

http://www.infowars.com/?p=278

Media Ignores Reason for Foreclosures

Mark Anderson
American Free Press
February 16, 2008

With the mortgage crisis reaching critical mass, it’s time for Americans to see past the media reports that are keeping them in the dark. Take Shaker Heights, a suburb of Cleveland. Foreclosures have emptied most of the houses. This town was “ravaged by the subprime mortgage crisis roiling the United States,” stated a typical mainstream news report.

Many former residents were “evicted for non-payment of their mortgages,” some left in search of new jobs “after the factories shut down.”

This report represents the usual shallow, worn-out “explanation” of the crisis. If people were not given so much worthless information, they might understand what is happening. The media blathers about careless lenders that gave mortgages to risky recipients who didn’t keep up their payments. But the real story is that the destruction of middle-class jobs, especially in the manufacturing realm, is destroying the ability of Americans to earn, save, invest, pay taxes, reduce personal debts etc.

Gainfully employed people earn money and can buy homes; people with money can make large down payments to obtain smaller mortgage payments; people with money can pay cash for their car so they don’t have vehicle payments; people with money can avoid too much or any borrowing in the first place.

Unless one is born into wealth, one must work. And the types of jobs people need to be secure homeowners are disappearing. These jobs left the nation aboard the “free trade express.”

The Clinton-Bush dynasties gave us these poisons in nearly lethal doses. NAFTA, approved by Bush the Elder, was signed by Bill Clinton and protected by Dubya, who pushed through CAFTA. Congress has aided and abetted the whole process, perhaps believing in the fool’s gold of free trade.

Free traders may believe that just being able to buy stuff for cheap—with nothing else taken into consideration—is the source of prosperity, and that it does not matter where things are made. This is premised on the “consumer is king” nonsense that Americans have been taught. As former General Motors executive Gus Stelzer noted many times, production is the key. But notice how often the media invokes the word “consumer” when referring to Americans. Never do they seriously talk about the vital process of production. Why?

Production consists of taking the Earth’s raw materials and forging them into useful products. This value-added process lays the groundwork for an economy to function. Back when Americans were producing most of the things they needed—from shoes and clothes to cars and electronics—they were paid well; their purchases would help the very companies for which they worked. Imports usually cost more back then because they were supposed to (any item shipped long distances ought to cost more, for travel expenses alone).

There was a time when one could graduate from high school, skip college, go right to a company and work for decades, with a decent retirement. America was so productive that surpluses were exported. We were the world’s leading creditor nation, with no trade deficit.

Look at us now. It is the height of absurdity to believe that a national economy can function without production. But, under the thrall of the free traders, we close factories, outsource what used to be American production jobs to overseas locales, and then we build retail outlets here for selling the merchandise. Working at retail outlets does not generally enable one to buy a home (unless you’re in management), and every item made somewhere else and shipped here further injures the U.S. economy.We’re sinking in quicksand.

Nor can we just employ people in tax-eating government jobs. As people slip down the job ladder and face eviction from their homes, they are even less able to pay taxes to support the mushrooming number of government jobs. And the pressure to spend more tax dollars and enact new taxes to cover the increased government employment eats away at the ability of remaining businesses and private individuals to keep their stores and homes (and home-based businesses) afloat. When they lose their grip, they become unemployment and welfare statistics.

It means nothing when the media reports the unemployment rate and talks about jobs in abstract quantities with no consideration of the quality of jobs lost. And those whose unemployment benefits have stopped are no longer included in the statistics.

“Based on a very conservative 4-to-1 ripple effect, if the goods represented by America’s current yearly trade deficit were produced in the United States, they would generate $2 trillion in added national income, equal to about $16,600 per household,” said Stelzer.

An immediate need is to put sizable tariffs on all imports, particularly those from China, to offset the advantage of having things made overseas for dirt cheap, and to create a strong incentive to make things in America. From there, all levels of government must be cut back so taxes can be lowered, regulations relaxed and a good business climate re-installed in the U.S.

And as presidential candidate Ron Paul says—no more policing the world (and the trillions of dollars it requires).

I've been to Cleveland many times....and was glad to leave every time....so I don';t blame all those people getting out...

One can point to any local economy that has seen the passing of old-guard, obsolete, industry, and attempt to extrapolate. I've been a middle class working guy for much of my working life, in technology work (computers). I;ve never worked a day in on a factory floor...the global economy has been good for my ilk, as it has for most that have moved to service industry based jobs and high tech, advanced manufacturing work as opposed to obsolete, low tech stuff like textiles that have long since moved to the third world. And American auto manufacturers are their own worst enemy. They have never been able to adapt rapidly to the American market. They don;t make things we like and they do a poor job of selling it. They got it right once in the past 25 years with the SUV, but have missed every other trend in the industry.

 

[Zoomie1980]

Makes me scratch my head as well. But then when I consider that the so-called mainstream media is controlled by corporations then I get it. Vested interests have successfully convinced us that the way things are with corporations is perfectly natural and almost pre-determined, so much so that most of us can't see why anything should change. It's been a long but successful coup d'etat of the mind.

If you have a 401(k) or one of it's relatives, you like the way things are with corporations a lot. And that would be over 80% of working class America that bothers with a "retirement" plan. We have become an OWNERSHIP based society as the classic "pension" has largely become a historical artifact. Better get behind those corporate profits because they are what will make or break your retirement.

 

[Zoomie1980]

Adam Smith

"How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it. The Theory of Moral Sentiments, Part I Section I Chapter I

And if you read on, it is clear he is talking about INDIVIDUAL charity and the good feelings it endows upon it's bestower, not of FORCED giving by some government agency to "charitable" concerns the giver may actually be highly offended by.

 

[Dr Grump]

If you have a 401(k) or one of it's relatives, you like the way things are with corporations a lot. And that would be over 80% of working class America that bothers with a "retirement" plan. We have become an OWNERSHIP based society as the classic "pension" has largely become a historical artifact. Better get behind those corporate profits because they are what will make or break your retirement.

Diuretic is not American. Like me, he is more enlightened..

 

[jillian]

I've been to Cleveland many times....and was glad to leave every time....so I don';t blame all those people getting out....

Well... you know what Woody Allen said, right?

"Want to know what death is like.... it's like Cleveland".

 

[Diuretic]

Note to self:

Next time in States - avoid Cleveland.

Try Cincinatti.

It could be safer.

 

[jeffex]

" Media Ignores Reason for Foreclosures " I agree that your observation for that area you describe is accurate. However, I believe it does not describe the reason for other areas where jobs are not being lost. Let me say right up front that this housing forclosure crisis is part of a natural business cycle to adjust home prices back to reasonable levels. IMO several factors assisted in setting this up to happen. Factor 1. Chairman of the FED , Alan Greenspan came on my radio one day while listening to a financial talk radio show and encouraged Americans to take advantage of cheap money. Everyone should get an ARM and cut their mortgage payments. I can't remember his exact words but I remember thinking "oh boy this could be dangerous". He did give a disclaimer to tell everyone to refinance down the road but Americans are mostly counting on someone to think for them and hold their hand. Factor 2. the pressure from the usual suspects to loosten the standards for qualifying for a home loan. the sub-prime market was created to appease a class of people who have NO experience paying their bills on time and managing their money. Home ownership and the American dream is a RIGHT in this country they claimed. These peoples credit scores were low for a reason but what the hell we don't want to be called racists or elitists. Reason 3-10 GREED. Mortgage companies were popping up everywhere. Cheap money . no doccument loans, stated income loans, 110 % loan to value loans... etc. It was set up to fail. Hell even NASCAR had a car sponsored by Diteck loans. This drove up the price of homes to meet the demand. McMansions were going up everywhere. Like any good pyramyd scheme someone had to loose. Hell in 11 yrs my house gained $350,000 in value. Dam , I can't even afford to buy my own house . I resisted the draw to move up . Oh my wife and I looked but I could see the end had to come soon. Now people are in homes that they CAN'T refinance because they won't appraise for what they paid for them!!! the balloon payment is due and they have no place to go but forclosure. Its part of a business cycle that rewards the prudent and penalizes the foolish. Is Greenspan partially to blame HELL YES. Should we bail people out HELL NO. As prices fall someone will eventually move in to buy the home on speculation of future profits. The gov. should take a role in making money available to people and possibly play the parent role and teach people how to manage money before they lend to them. bushs plan to sell bonds to pay for these loans is the gov. taking some responsibility for what greenspan did IMO. If they give a bailout what does that say to me who decided to make my payments on time and NOT live beyond my means.

 

[Diuretic]

Welcome to the effects of unregulated capitalism. Ugly isn't it? You can slice it however you like, it's here, it's rampant and it's not a good thing.

This is what fetishism gets us. And it hasn't yet begun to bite.

 

[jeffex]

ugly depends on what side your on in the burst of the bubble. I may be able to get a McMansion now for 1/3 off or more. Capitalism is still based on simple math. Most of the factors that lead to this crisis were a result of ignoring simple truths of capitalism. Selling homes to people who can't afford them is stupid. Being suprised when they can't pay is just as stupid. I'll buy a $800,000 home for $500,000. I may just be in the market to move up as long as my taxes don't get increased to bailout the stupid. That my friend is just what capitalism is. Oh its cold hard facts I'll give you that but there is no greed in my taking advantage of moving my family up because we were cautious and prudent with out money.

 

[Diuretic]

ugly depends on what side your on in the burst of the bubble. I may be able to get a McMansion now for 1/3 off or more. Capitalism is still based on simple math. Most of the factors that lead to this crisis were a result of ignoring simple truths of capitalism. Selling homes to people who can't afford them is stupid. Being suprised when they can't pay is just as stupid. I'll buy a $800,000 home for $500,000. I may just be in the market to move up as long as my taxes don't get increased to bailout the stupid. That my friend is just what capitalism is. Oh its cold hard facts I'll give you that but there is no greed in my taking advantage of moving my family up because we were cautious and prudent with out money.

Exactly.

 

[manifold]

When we bought our house a few years back, my wife and I sat down and did the math to determine what we felt we could realistically afford. Then we went to the bank to get pre-qualified before we went house hunting. According to the bank, we could afford, and were approved up to, an amount ~2/3 more than our number. I guess they don't think people need to buy groceries and gasoline. I'm guessing most of these people were naive enough to think they could afford what the banks said. Afterall, they are friggin bankers!!! And don't get me started on what a stupid retard you needed to be to get one of those interest only mortgages.

 

[jeffex]

there were interest only loans that actually were 5-8yrs before the balloon paymnet was due. People were told they could get into the house of thier dreams and refi later. They would get pay raises or they could refi without mortgage insurance premiums (necessary unles loan to value was 80% or less) since their house would appraise for more in 5 yrs. What they weren't told was that they would owe more than the original principle even after several yrs of paying only the interest. The principle increased based on backpaying their interest anyway. F-ed royally!!! During the Boom days of the housing inflation I went to may bank and told them I wanted a loan modification I heard about o a radio talk show about mortgages. I basically paid 1/2 point to decrease my % rate on my existing loan without a refinance. I save $100 + per month on my loan. They don't tell you about this stuff because they want to MAKE money . They were suprised I knew about this when I asked. I got 5.75 for 30 yrs but since my loan was already 10 yrs into the 30 I stil owe just 20 more yrs. They don't want you to hear about this because they want more of your money for the refi closing costs.

 

[Zoomie1980]

When we bought our house a few years back, my wife and I sat down and did the math to determine what we felt we could realistically afford. Then we went to the bank to get pre-qualified before we went house hunting. According to the bank, we could afford, and were approved up to, an amount ~2/3 more than our number. I guess they don't think people need to buy groceries and gasoline. I'm guessing most of these people were naive enough to think they could afford what the banks said. Afterall, they are friggin bankers!!! And don't get me started on what a stupid retard you needed to be to get one of those interest only mortgages.

In general, for average family of four that make between $50,000-100,000/yr your mortgage payment should NEVER be more than roughly 1/3 of your TAKE HOME (after taxes), even though banks (at least before the current credit crunch) would loan people upwards 50% (and even higher for incomes over $100,000/yr).

Some other general rules of thumb.

If you cannot afford to buy insurance on it (car/house) you can't afford it.

If you can't afford basic health AND disability insurance you living beyond your means.

If you have a choice between life insurance and disability insurance because of your limited budget, take the disability. You are FAR MORE likely to become disabled than dead before age 65.

Never buy cash value life insurance of any kind

Have AT LEAST 90 days of take home pay in a liquid account you can get at in an emergency.

If you can opt for "major medical" or "hospitalization" and you are under 40 and in good health, go for it, and bypass traditional PPO and HMO's. Pay your physicals and dental checkups and prescriptions out of pocket. You will come out way ahead in the long run.

Don't pay off your mortgage early but don't keep taking all your equity out either.