Hyperland Discussion on Bailouts Being Welfare for Homeowners

Bank Bailouts, Bribes and housing bubbles - The Middle Class' Opiate

The following from a film directors blog who knows a lot about finance, having buried himself in it at great risk for over a decade.

<snip>

Good discussion here thanks. 

Especially on recognising the 'trap', but its not just the super wealthy. Its anyone with a home. The smaller the mortgage the better off you are. Sure, the super wealthy cannot be taxed. Because their biggest assets are in real estate, which in the end, is untaxed. So its silly to say tax the wealthy - you cannot if real estate remains untaxed! (And I'm not proposing that as a solution at all. I have a much better alternative)

Its not a transfer of wealth from the poor to the rich. Its a transfer of wealth from the hard worker and enterprising business,... to the homeowner. This is an extraordinarily difficult point for anyone to accept obviously. We're all trying to be homeowners! Politicians know this implicitly and its the key focus area of their latent policy, for all party's. This IS democracy.

If you put tax up, the poor tenant will pay it. The homeowner will benefit, yet again. A really stupid political agenda which has conditioned most activists and pundits. We need to drop the jealousy of wealth agenda about taxation and being jealous of those who do not pay it. Because its the homeowner who avoids the most tax, to the extent they own real estate. Homeowners to the extent they own, do not pay tax. They may well pay tax on their earned incomes, sure. But taxation, in itself, is another terrible injustice while real estate goes tax free, and unearned - right?

Some into MMT say: yes this is the whole point, we want to get rid of taxation and just print money when its required to spend it. Well, all of this extra money will end up in even more inflated house prices. Just as did the plandemic bailouts. More stupidity.

A controlled demolition is often discussed. But the democratic majority - aka the great masse of people - will go to extreme ends to stop any politician from doing this, maybe even civil war - at the very least you will become unelectable, even if a green. This is why the Green Party never talks about doing it, yet it's a founding policy in their manifesto. We went to see Lucas years ago to discuss it. When she saw that this issue was bigger than saving the planet, she abandoned it immediately with no real reason why after trying to get a bill on it passed in the House. Can you see the extent of the problem, is bigger than it first appears? Much much much bigger.

The Labour party have been in on it since the war for the same reason. I'm close to the guys at the top, even Corbyn and Livingstone, and talk to them about it. So following Labour on this is also a terrible mistake. They may have other policy which is admirable, but compared to something of this scale is that other policy important?

Churchill himself tried it in The People's Budget as President of the Board of Trade reporting to the Chancellor of the time Lloyd George, failed badly, and never mentioned it again for the remaining 60 years of his political life... wisely.

The top 10% of the world wealthy are homeowners not "the super wealthy ones we saved with bailouts". As a class homeowners are the Bezos of the world. All of the house owners will benefit. Bail out! Yes. Its rotten to the core. Yet the democratic majority wants it. Even the tenant on rent, aspires to it, one day.

I'm not miffed. I'm astonished it was missed for a decade. With all due respect. 

Think about mortgage interest as a de facto rent. So mortgagors are also tenants - to the banks who are their lords - to the extent the mortgagor still needs to repay the loan. Seriously! Mortgage interest nominally, is a de facto economic rent.

I've survived 2 great recessions as a property owner, 89 and 08. In the first hardly any homeowners were bailed out, very ugly, but those who were the most greedy were the ones who lost the most. In 08 nearly everyone got bailed out through quantitative easing, even many of the greedy ones were saved. Government went into a deal with the banks NOT to foreclose on homeowners, in exchange for keeping the banks afloat. In 2026 everyone will be bailed out, and other poor peoples and savers money will be funding it as per normal. BTW I have no particular sympathy for the poor, I'm just pointing at how stupid doing that is because they will then need yet more bailouts in welfare, yet if they had got lucky they would have willingly climbed onto the ladder too. If you own property outright THIS is where the biggest transfer of wealth takes place because to the extent you are a homeowner you wont be paying anything net net, and, you will be gaining everywhere else. The People know this intuitively and this is what the race or 'trap' is all about. Like you say, if you're a tenant or highly leveraged mortgager you are in a very bad place indeed... but you are still fully complicit with your intention.

This is how all party's get elected today. The Party is ALL! House prices got pumped back up via the QE and furlough. If you own, great. If a tenant, this is the famous wealth divide you bear. Its all relative. It has so little to do with the rich who are minor players when all totted up. This is a very difficult point for campaigners, activists and pundits to even be seen thinking about. Because it brings tumbling down that jealousy Tower of Babel, immediately.

Most of the people who lost their homes were the sub primers. They had no deposit. And some borrowed more than the cost of the home. They did not go to professionals - they went to car salesman called 'lenders'. The banks loan that money to them and use swaps to insure it. They too are under serious stress at the beginning from this risk. Both sides are gambling equally with high risk. No, its more than that. The homeowner is gambling the future of their family - knowing it. Their family.

If you don't think its 50/50 please give me your numbers. If you cannot give numbers how do you know its 50/50 with all due respect? There is a lender who supplies the funny money and there is a buyer who agrees to pay it back as an 'economic rent'. This is not a guess. It does not require scientific precision or statistics to see it right away.

If the buyer can hold out on the gamble with his family's livelihood, inflation will be depreciating the loan quickly - a huge benefit scrounge. What is more the long term increase in location value is 5% annually, making them part of the elite to that extent. Theres no escaping this. Its happening in 27 million households in the UK alone.

So its not as simple as the haves and have nots - its all relative and this is the race all people now start to get on the ladder asap. Even the poorest aspire to it - they know it intuitively, but do not have the language. No intellect is required to know it and great intellect is devoted to denying its happening. And the race is on. Leveraged mortgagors are already getting bailed out - technically, in the latest government interventions - this is the start of a coming super boom, followed inevitably in around 2026 by a crash, its all priced in. Government are underwriting the changing of millions of high risk mortgage contracts - this is a humungous credit event, a very serious thing but its being covered up, again, by 'the party' which wants to get re-elected, no holds barred. Labour, Tory, Green. They will all do it. 

May I humbly ask that we do not become trapped by a 'jealousy of wealth' mindset about the rich and poor? Those on welfare in the UK are the elites compared to the starving in Africa. And even billionaires are still jealous of those more wealthy than them. Its a never ending neurosis that blinds us to whats actually happening. Its been nearly a whole business cycle since 2008 and we are still not sure what actually happened last time. Our jealousy agenda blinds us!

Bail outs didnt protect the super wealthy - it protected mostly everyone who was going to vote - homeowners. 27 million of us, with 2 votes per household, is an overwhelming majority. I saw this standing twice for parliament on this platform we're discussing. The feedback on the hustings said "YES, that is why I vote! But please dont tell anyone I said it". When I asked will I get your vote then, the response was always "no, you will never win, it will be a wasted vote. Besides I prefer to gamble!". See the problem yet?

That is what the bailouts are for. It is not about it being unfair that some have more money than others. Or about the super wealthy. Its about homeowners. The super wealthy still do not have anywhere near as much wealth as homeowners as a class. They are peanuts and we as homeowners are just jealous of them because they gambled and won the game called 'the trap' better than we did. 

When a bank goes down it sets underway a train of events which end up with the under water homeowner handing their keys back to the new lender. Bank Y is now banging on your door for repayments but you no longer have a job because the evil corporation can no longer access credit - there is none any more to pay your wages! And then the ex homeowner is urgently trying to figure out how to keep their family together, with all the destruction and mental health involved in that. But in 2026 there will be no need. EVERYONE will be bailed out. Its already started. Its a bit like the idea of MMT. Everyone will pay to keep the democrat on 'benefits' or homeowner welfare.

People who have saved will be paying the most as inflation. This is why few people save today. Its far better to get on the housing ladder.

During a recession rents do not rise. The problem is that wages are falling at a faster rate than rents. Unemployment is 0 wages. Last time prices fell about 30%. But this is hard to see in rentals because the lease lags and is sometimes too long a term to follow conditions. But there are about 20% of tenanted households. 5 million homes. Streams of these will be coming up for renewal daily by the tens of thousands so its quite liquid and the price of the falling rent can be discovered quickly and easily.

There are only a few mortgagors "right at the bottom".

A large part of the "massive house inflation" is not house inflation. It is an increase in annual rental value of those locations, capitalised into a selling price (about 75% is location value, 25% capital value in the building). The long term annual rental rate is about 5% and this is a good thing - it must indicate a growing economy. If rents were falling over the long term(say 20 years) it would signal a society in wholesale decline, not good, but this has not happened since the dark ages. Sure it might happen again, but not today. Everything on top of annual rental value is speculative homeowner price pumping - the expectation that the price will rise and keep doing so. Not bank or super rich price pumping. You're familiar with crypto - the theme is identical. People trying to get rich quick. All people. Yes yes yes, its also a home too. But look at it carefully while suspending ones prejudices while you look - what is the reality of it?

Too long didn't read :) This needs a more in person discussion. It goes too deep for social media.