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Housing's Trek From America's "Socialism", Through UK's "Communism" Ending in China's "Capitalism"

Tyler Durden's picture




 

Socialism is a dirty word in many parts of the US, but as the FT reports, the government has turned its mortgage market into a giant nationalized enterprise on a par with China’s Red Army with over 90% of mortgages subsidized by the state and aided by so-called "progressive" or "redistributive" policies.

In the UK, the government have also become entwined with the housing market, albeit in different ways. Rates have also been slashed close to zero; tens of thousands are buying homes arm-in-arm with the state under 'shared equity schemes'; and one-third of all mortgages come from the two state-controlled banks (Lloyds and RBS); very reminiscent of supposedly communist China, where most banks are majority-owned by the state with small public floats.

The BoE has (supposedly temporarily) pumped over GBP14bn into a scheme called “Funding for Lending” aimed at forcing down the price of business loans and mortgages; also reminiscent of the “short-term” rescue of Fannie and Freddie five years ago. In spite of all this government-sponsorship (or perhaps due to its bubble reflation), analysts argue, "we still have a market where pricing is not at a rational level."

The question remains how can they avoid another crash if and when they withdraw support from the market? "It's broadly accepted nowadays that China still lives under the banner of 'communism' despite capitalist markets playing an increasing role in society. In Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place."

Ironically, at the same time, China is trying to stall a bubble created by their own capitalism-driven shadow banking system by curving ownership and raising taxes on real estate.

 

Via The FT,

Socialism is a dirty word in many parts of the US. After all, America is a global symbol of free markets, muscular capitalism and the small state. Yet somehow the government has turned its mortgage market into a giant nationalised enterprise on a par with China’s Red Army or Britain’s National Health Service.

 

US mortgage finance vehicle Fannie Mae, created by Franklin D Roosevelt to drag the US out of the Great Depression, underwrote around one in five mortgages during the 1940s. It was seen as the archetype of Keynesian intervention. Yet Roosevelt’s efforts have been eclipsed by those made by 21st-century governments around the world to pull their economies out of the post-credit crunch tailspin.

 

Today, in the US, almost nine out of 10 mortgages issued in the US are subsidised by the state ... Housing, in other words, has become an arm of the state.

 

...[the FHA] is so integral to the market that without it prices could have fallen a further 25 per cent, according to Moody’s Analytics.

 

And at the same time the Federal Reserve is soaking up some $40bn of mortgage debt a month...

 

It is hard to dispute that if you own a residential property in any of the 50 states its value is being held up by the whim of politicians and central bankers.

 

...“The US doesn’t use the term socialist very much to describe policies like this, they use words like “progressive” or “redistribution”

 

...

 

This new status quo is not entirely the result of conscious decisions by the political classes. Washington was forced to prop up real estate when it realised it was so closely entwined with financial markets and their “too big to fail” banks that letting either collapse would be disastrous.

 

...

 

But attempts to send the two mortgage underwriters back into the private sector have withered on the vine.

 

...“There was momentum before the election but that has completely evaporated,”

 

...

 

Across the Atlantic, the tentacles of the state have also become entwined with the housing market, albeit in different ways. The British government would not set Soviet-style targets for tractor production or widget manufacturing. Housing is a different matter.

 

The central interest rate has been slashed to close to zero. Tens of thousands are buying homes arm-in-arm with the state under “shared equity schemes”. Most strikingly, one in three mortgages taken out in the UK are through two government-controlled banks.

 

Lloyds Banking Group and Royal Bank of Scotland remain in majority state ownership with little sign of progress on a mooted sell-off. Lloyds had 26.7 per cent of the mortgage market last year; RBS had 7.5 per cent.

 

This is reminiscent of supposedly communist China, where most banks are majority-owned by the state with small public floats.

 

...

 

“We still have a market where pricing is not at a rational level.”

 

Perhaps the interventions by the government have been, well, too successful?

 

...

 

“Is it just going to drive up house prices? By and large, in the short-run, the answer is, yes,”

 

...

 

...the move could create a new “housing bubble”, replicating the sub-prime crisis in the US.

 

...

 

The question goes to the heart of the dilemma faced by politicians on both sides of the Atlantic. How can they avoid another crash if and when they withdraw support from the market?

 

...

 

“But politicians will struggle to square the circle. It seems likely they will remain chained to policies that prop up the housing market, even as they keep paying lip service to first-time buyers who they cannot help en masse at the same time.

 

“It’s broadly accepted nowadays that China still lives under the banner of ‘communism’ despite capitalist markets playing an increasing role in society. In Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place.”

 

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Mon, 04/22/2013 - 21:47 | 3486307 Theta_Burn
Theta_Burn's picture

Sue them....

Mon, 04/22/2013 - 21:52 | 3486317 WayBehind
WayBehind's picture

Way to go ... lets build some more fake cities ... its good for the economy haha

Mon, 04/22/2013 - 21:58 | 3486316 otto skorzeny
otto skorzeny's picture

there is no way the US govt should be involved in loans for houses, cars or college. also- the govt needs to keep the property values up or the real estate tax revenues plunge and the states and municipalities are fucked- another reason the govt is keeping the banks' foreclosures off the market while handing out 0% down mortgages.

Mon, 04/22/2013 - 22:25 | 3486419 Manthong
Manthong's picture

they are going to tax/property tax the formerly middle class into oblivion..

it is all they know how to do.

Mon, 04/22/2013 - 22:36 | 3486453 otto skorzeny
otto skorzeny's picture

the middle class are the only ones dumb enough to pay taxes anymore-but since alot of the middle class now works for the govt directly or indirectly it's not a bad return on investment when you consider wages and benis and pensions for yourself.

Mon, 04/22/2013 - 23:39 | 3486671 Anusocracy
Anusocracy's picture

Government has to take extraordinary measures to cover up its destruction of the wealth creating abilities of society. Of course, everything in its toolkit only works for short periods of time, then fail disastrously.

It is a high time-preference entity that eventually grows to such a size as to devour the wealth of the productive class faster than they can create it. Since those in government think they are the be all and end all of society, they are totally incapable of understanding that the solution is to stop doing virtually everything that they do.

 

Mon, 04/22/2013 - 21:52 | 3486319 Yellowhoard
Yellowhoard's picture

Hey Tyler's.

How about an article on Becks story that the Saudis bullied the US into letting loose a terrorist?

Mon, 04/22/2013 - 21:57 | 3486338 Theta_Burn
Theta_Burn's picture

Was wondering what happened to that revelation myself. and i 1/2 like Beck. or is he whoring for ratings 

Mon, 04/22/2013 - 21:58 | 3486343 yabyum
yabyum's picture

Yes Yellowhoard, I tought the world would change Monday morning, typical beck bull shit. Hope you did not sign up for his cable station. That is money best spent in junk silver.

Mon, 04/22/2013 - 22:04 | 3486354 Pure Evil
Pure Evil's picture

They didn't have to bully Obwama, didn't you see the picture of Dear Leader bowing and scraping to his Muslim master.

 

O'Bomo's master

Mon, 04/22/2013 - 22:18 | 3486380 otto skorzeny
otto skorzeny's picture

boy-the noses on that jew sarkozy and the house of saud boys are verrrrry similar as they laugh at the pet monkey.

Mon, 04/22/2013 - 21:53 | 3486325 jonjon831983
jonjon831983's picture

I think we're missing the feudalism step somewhere in there.  Maybe with all the foreign farmland or the rental housing that's been bought up by large corporations and institutions.

Mon, 04/22/2013 - 21:56 | 3486334 otto skorzeny
otto skorzeny's picture

that's why there are no young farmers ( unless it's daddy's land)- they can't afford 12k an acre for land

Tue, 04/23/2013 - 01:01 | 3486840 bluskyes
bluskyes's picture

12k? Try 20k, and this is way up in Canada. For shitty old land that you could buy for 2k/acre 10 years ago.
Land rent is over $300/acre - cash up-front. I am 31 years old, have dreamed of being a farmer for most of my life, and let me tell you that there is no way that I will ever be able to do it in this economic environment. I have done the math, so far the last few years haven't been too bad with crop yields, but with the big boys buying land left, right, and center, and only paying the interest - something is going to give.
I just hope that they let it fall apart when it does, so that those of us who were wiser can scoop up the pieces when they fall.

Tue, 04/23/2013 - 01:24 | 3486869 Professorlocknload
Professorlocknload's picture

$20k an acre? I smell "Farm Subsidy." Without which it would probably be $500 an acre again?

Wouldn't wait for a "Let it fall apart" scenario. Instead, look for a "Land Reform" (re-distribution) scheme somewhere off in the future. Collectivists do that.

 

Mon, 04/22/2013 - 21:55 | 3486335 yabyum
yabyum's picture

Try not paying your property taxes to the state and tell me what that is.

Mon, 04/22/2013 - 22:14 | 3486376 nmewn
nmewn's picture

No shit.

Mon, 04/22/2013 - 22:10 | 3486361 RSDallas
RSDallas's picture

I am going to check the article next, but come on are you re-writing articles are you making shit up? Realised?????

.......by the political classes. Washington was forced to prop up real estate when it realised it was so closely entwined with financial markets and their “too big to fail” banks that letting either collapse would be disastrous.

Mon, 04/22/2013 - 22:12 | 3486371 nmewn
nmewn's picture

Get you in debt by buying a house, then raise the property taxes yearly. For the common-fucking-good, of course. All your collateral are belong to us now, don't you know (you're in debt now, remember?). Plus, all principal, interest, upkeep & additions if they repossess, wiped out.

Just like boiling a frog.

Whats so hard to understand?

Mon, 04/22/2013 - 22:18 | 3486391 otto skorzeny
otto skorzeny's picture

how do you expect firefighters to buy the old lady a new GMC Yukon Denali every few years? or the local cops to put in  $60k inground pools at their McMansions like by me?

Mon, 04/22/2013 - 22:20 | 3486405 W74
W74's picture

I thought only people on Disibiwidy and Food Stamps could afford Denalis.  Silly me.

Mon, 04/22/2013 - 22:19 | 3486398 W74
W74's picture

Can someone please explain to me how the high COST of housing is a good thing?  If we subsidize that means people can take out more credit (and that's what it's become, more credit than equity).  If people take out more credit they can pay more, often more dollars for the same tangible asset.  If that happens people have to work more to pay for their housing, the majority of which nowadays goes to banks.  How does that help our economy?

Mon, 04/22/2013 - 22:33 | 3486429 Aurora Ex Machina
Aurora Ex Machina's picture

Oh, ffs. Just do a GREP on any state running under BIS rules, you'll see that housing has nothing to do with people.

Run the numbers; <X> State <Y> Empty houses <Z> homeless. Mortgages are just an attempt to suck the blood out of those silly enough to believe in the model.

 

It was a stop gap, (hai, Thatcher!), an attempt to justify subsidised internal growth (HELLO! NEW CITY! SONGDO GOT A COOL $1 BIL IN ENTRANTS) with no idea about how people really function. Basing your economic model on housing (HELLO! JAPAN BUBBLE IN THE GECKO YEARS!) means you're actually a con-artist.

 

 

The fact it ended up being the only growth in GDP shows you where it all went wrong. You're all attempting to grow potatoes in sand. Or mega-blocks on sand, with slaves, in the case of the ME.

 

 

 

Oh. And sure; you can burn them all down during a massive war, it doesn't make your models and ethos any better. Twats. Worse than that, it either means you're all clueless, or lizards.

Mon, 04/22/2013 - 22:37 | 3486457 Izznogood
Izznogood's picture

How about mortgage interest relief anybody? I know it was abolished in the UK as of 1999 but it still exists in many places. That is at least one of two things: a state subsidy for homeowners where the richest get the highest subsidy, and/or a state subsidy for mortage lenders as it pushes up house prices leading to higher interest payments to those lenders. 

I say abolish all tax subsidies and tax loopholes and introduce flat taxes. Until that happens, there is no free market.

Mon, 04/22/2013 - 23:19 | 3486611 Son of Loki
Son of Loki's picture

great article.

Mon, 04/22/2013 - 23:51 | 3486703 dunce
dunce's picture

Obamacare takes over a sixth of our economy, half the people get govt. checks every month( i am one of them,S.S.) the govt runs (ruins) most of the schools, they own most of the morgages on peoples home and control most industry through regulatoty agencies. They like to call this progress but do not define where we are progressing to, this is the wrong path, but F U, i am an old man well on his way to a long dirt nap, you will have to try to live in the hell they have fashioned.

Tue, 04/23/2013 - 01:01 | 3486839 Professorlocknload
Professorlocknload's picture

Withdraw government support?

What the hell is that? They have no intention of giving up what they have accomplished here. They have nationalized most of the US economy, and the serfs look at it as "support?"

Look at the trend here. It isn't moving away from statist power. Quite the contrary.

This is the new Soviet. "Support" will run for another 50 years or so, until it collapses under it's own weight. Best get used to it, and hope the eventual implosion is relatively bloodless.The coop which brought it about was.

 

 

 

Tue, 04/23/2013 - 03:12 | 3486994 swedish etrade baby
swedish etrade baby's picture

What happens if US economy goes into recession and homeowners cant pay back their mortage? Will the FED end up owning alot of property?

Tue, 04/23/2013 - 02:23 | 3486947 ebworthen
ebworthen's picture

A lot of talk of "capitalism" in Amerika, but what we really have is crony capitalism backed by taxpayer money with politicians and FED officials the lackey's of banking and insurance.

A much more cunning and shady form of communism, wrapped in the flag.

Tue, 04/23/2013 - 05:24 | 3487096 falak pema
falak pema's picture

If you read american history you realise that what the americans seem to forget is that State has been the driving force of America's "greatness" since 1861.

The conquest of the west after the civil war was done by none other than the US Cavalry as those iconistic westerns of the 50s (John Ford) taught us. 

Big government and big country, coast to coast, went hand in hand. And it created the land where BIG business was born, on a soil of virgin resources; giving it a huge competitive advantage in the industrial age relative to smaller european nation states.

The birth of America was thus fostered by Lincoln and Big State. It was his incarnation of american  Roman birth to Athenian small nation state and bickering colonial Europe.

Everytime Big Busines, america's oTHER oligopoly apart from State, nurtured on steel, coal, oil, land and beef,  flexed it muscles, like Morgan and Rockafellas did, big state stepped in as partner or opponent.

As opponent : Ted Roosevelt and the antitrust act of 1911.

As partner : Woodrow Wilson and FED creation in 1913. 

FDR, in the wake of big business WS madness and subsequent capital collapse, basically reinstated that ongoing big state big business partnership to kick start the rebuild, after the delusional laissez faire years of Big Business 1920s (Mellon/Harding/Coolidge/Hoover years).

All thru the war  Big State and Big Business went hand in hand and it culminated in Imperial America going viral when the MIC, creation of Big State and Big Business collusion, killed a president and started a colonial war in Nam.

The rest is current history, with Reaganomics, the newly created reversion to oligarchy mantra of the 1920s then pulling violently the rug towards Big Business; to the detriment of Big State in first world.

And this has led us to where we are today with the collapse of Big Business financial model in 2008.

This spells the demise of neo liberal Reaganomics as WORLD MODEL and a violent knee jerk back to more STATE intervention as per FDR days.

We don't know YET how to create a decentralised model; which is now being born in front of our eyes with Internet and the virtual entrepreneurial world making inroads into the real economy wearing seven league boots.

WE ARE NOW THERE.

Big State will have to step in bigtime to clean out the rot of neo liberal crap fest that Big Business has left to the AMerican people. As they have to the whole world, as the Reaganomics model has gone viral, thanks to Maggy and China hand shake in the WTO framework, all inspired by this Big Business and Big State collusion that we call outsourcing, aka pure short term labour arbtirage to generate profits for a neo feudal oligarchy, the quintessence of Big Business and Big State collusion. 

If the future is more decentralised and entrepreneurial thanks to technology and because of the pervasive inefficiency of current big business/big corporate collusion we will still need big government, not to intervene directly in the economy, but to be neutral referee.

That is the true role of Government. To keep the Republic one, all the while giving people more room to develop their individual skills but in keeping with adherence to rule of law that defines general good.

Governments should be there to make level playing fields and install fail safe mechanisms avoiding global catastrophes; not be the source of these catastropes like currently; with banksta Financial collapse, Oil hegemony suffocation and Fukushima radiation as THREE iconic examples of this failed big business/big state collusion experiment. 

We have to get out of this conundrum worldwide. Either thru systemic internal collapse or thru people's revolt. 

Tue, 04/23/2013 - 06:53 | 3487195 BigDuke6
BigDuke6's picture

Always intersting FP and i agree on your conclusions that revolt is in the air.. in some countries.

the uk seems the most likely then europe - i dont have my finger on the pulse of the usa so cant comment for there.

in the uk the social contract has been broken with an explosive mix of demographics and intractable welfare dependency.

it gets my vote for the first domino to fall.

10 to 15 years.

Tue, 04/23/2013 - 07:15 | 3487237 Shevva
Shevva's picture

Yer the UKs a sh*t hole but you want to talk broken social contracts.

http://www.dailymail.co.uk/news/article-2313367/CISPA-Amendment-US-cyber-attack-law-banning-employers-asking-Facebook-passwords-blocked.html

Of course you can be like me and just not use stalk book but if you do remeber it's basically a publc notice board.

Tue, 04/23/2013 - 07:33 | 3487277 BigDuke6
BigDuke6's picture

Not good in usa either then?

Why a british newspaper to tell you this?

Tue, 04/23/2013 - 02:28 | 3486950 Notarocketscientist
Notarocketscientist's picture

Want 7% GDP?  Build Ghost Towns http://www.cbsnews.com/video/watch/?id=50142079n

Tue, 04/23/2013 - 03:06 | 3486982 Ghordius
Ghordius's picture

what I miss in the article is a small comparison to the rest of the world - which would highlight the fact that the great love for "the own castle" and the assumption that society is better off if as many as possible have their own home is a specific Anglo-American or AngloSphere cultural trait

Tue, 04/23/2013 - 05:52 | 3487128 Acet
Acet's picture

+1 This

At least in the UK the whole home ownership meme was pushed forwards the hardest by Thatcher, the same one that liberalized financial gambling in the City of London, finished destroying the UK's manufacturing industry, transformed the country's economy into an enormous Services circle-jerk and improved her government's unemployment figures by moving millions of unemployed into the welfare rolls by reclassifying them as disabled.

As many here point out again and again, home onership is often not freedom, thanks to mortgages and real estate taxes it's just another link of servitude. Maybe that was the intention to begin with: a tied down, subservient workforce, afraid to fight for themselves lest they loose their houses.

 

Tue, 04/23/2013 - 06:20 | 3487161 proLiberty
proLiberty's picture

Many of the UK's ruling elites are Fabian Socialists, so this does not come as a surpise.  The problem for socialism is that a "social market economy"  (the official economic system of the EU under the LIsbon Treaty) destroys more wealth than it creates.  Thatcher was right, socialism works until it runs out of other people's money.  Socialists everywhere are scheming to get the money they need for their secular Utiopia by any manipulation possible, and having government suppress interest rates for home loans is one of those ways.  And when the free market either can no longer function or declines to participate, well just take over the market and run it the way a good Utopian planner should.  

Fabian Socialsts are always just one government policy away from Utopian here on earth.

 

Tue, 04/23/2013 - 07:20 | 3487249 Ghordius
Ghordius's picture

you don't see any difference between Fabian Socialists and the "social market economy" model, eh?

Tue, 04/23/2013 - 06:28 | 3487175 Shevva
Shevva's picture

What about freeing up equatte in your house as part of it, it's a bit hard when your house is worth 25% less, how will you ever borrow against your house if the state doesn't keep the housing bubble inflated.

Remember it is not about putting money in peoples pockets through the housing market but debt, debt, debt.

Tue, 04/23/2013 - 07:24 | 3487257 22winmag
22winmag's picture

I bought a small, bank-owned, foreclosed house for cheap. Monthly principal and interest = $500. Monthly property tax = $350.

 

Percentage of property tax that goes to the bloated prison for children known as public education = 52%.

 

Get out your slide rule and do some calculations. Residential real estate has become little more than a vessel for property tax collections and state indoctrination... err... edumuckation.

 

 

Tue, 04/23/2013 - 07:29 | 3487270 swedish etrade baby
swedish etrade baby's picture

In Sweden the property tax on houses has been replaced with a fee thats capped at ?$900

Tue, 04/23/2013 - 07:31 | 3487272 toncuz
toncuz's picture

Thatcher, Reagan and the rest of the "free market" frauds and con-artists had it backwards. The problem with Thatcher-Reagan's perversion of capitalism (or corporate fascism) is that eventually ...YOU RUN OUT OF STEALING OTHER PEOPLE'S LABOR.

The corporate thugs are reaping trillions...while labor...the true creators of the wealth, take the least of the profit. It happened just before the great Depression and it's happening now. All the half-wits screaming "socialism" should read at least one book in their life.

 

Tue, 04/23/2013 - 07:30 | 3487273 toncuz
toncuz's picture

Thatcher, Reagan and the rest of the "free market" frauds and con-artists had it backwards. The problem with Thatcher-Reagan's perversion of capitalism (or corporate fascism) is that eventually ...YOU RUN OUT OF STEALING OTHER PEOPLE'S LABOR.

The corporate thugs are reaping trillions...while labor...the true creators of the wealth, take the least of the profit. It happened just before the great Depression and it's happening now. All the half-wits screaming "socialism" should read at least one book in their life.

 

Tue, 04/23/2013 - 07:46 | 3487307 toncuz
toncuz's picture

The concept of ownership is a complete fraud. The piggish greed-meisters convinced the rest of society that owning something made better citizens so they  had a good excuse for hoarding the community's wealth producing assets. No one should own anything.

There should only be leasehold estates that one can use to create wealth and if you can't...you would still pay property taxes on that asset until you give it up to the next person with a better idea. The Single Tax is the future ...TAX ASSETS...ZERO TAX ON INCOME.

Tue, 04/23/2013 - 09:12 | 3487618 Greenhead
Greenhead's picture

And who determines who gets the leases?  No room for corruption there...

Tue, 04/23/2013 - 21:15 | 3491132 toncuz
toncuz's picture

That's when the market determines prices. Those who can invest wisely in the commnity's wealth producing assets gets control of the asset by shear ability to pay the rent.

If there are four acres of land in Singletaxville and I own one acre and you own another acre...then we should be paying 50% of the community's taxes.

If I put a factory on my land and create wealth, I should pay zero income taxes but still pay my share of property taxes equal to you...the other owner. If you don't build housing, grow food or put up a factory...you will eventually be taxed out of your holdings and rightfully so.

Tue, 04/23/2013 - 09:42 | 3487809 mombers
mombers's picture

Another prop that the UK government uses is low property taxes. The majority of local budgets are not raised locally by Council Tax but handed out by Central government. Council tax is also capped - the most anyone pays is arounf £2.5k p.a. Poor sods on minimum wage are paying tax to provide services to wealthy people in Central London. Socialism for the righ

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