Noam Chomsky on the Economy & Housing Crash

Ben Cohen

Editor of The Daily Banter.comMy Interview With Noam Chomsky on the Economy

"The immediate problems were caused by the housing bubble that Alan Greenspan had permitted to explode. They could have controlled it on the basis of the kind of lunatic belief in free market fundamentalism. So they allowed this bubble to explode and the houses were way beyond their trend line, the actual realistic price. They've been collapsing, but they've got a long way to go. The Bush economy, which was like the Reagan economy, is very fragile, and is based on debt -- lenders from abroad, and also consumer spending which is debt driven. Consumer spending was largely based on inflated house prices, essentially collateral, and as the house prices collapse, so does the basis for consumer spending, then the economy collapses because its not a well functioning real economy."

1 comment:

  1. Buyers were purchasing based on the belief the home would serve as an instant ATM machine ready to disperse cash at anytime for any reason. We suddenly had Thirty thousand dollar a year millionnaires running around spending triple what they made in hopes their home ATM would keep dispersing cash to make up the difference. Our econonomy got drunk and we are all stuck with the hagover from hell that wont quit.

    The real truth: Taking appreciation out of the picture and just looking at monthly cash flow, most people could not afford the homes they were in the 3-5 years before before they purchased their move up McMansion.

    They bought anyway because the bigger home promised a bigger appreciation rate....so on paper it looked like a relatively smart decision. If the could not swing the paymnets and operating and maintanance costs, no big deal! They would just sell it and run with the huge profit of appreciation, then downsize into a cozy cottage, payoff all their debt and live happiliy ever after! I used to hear this rationalization all too often from buyers. That sure backfired didn't it???

    How about all the new vehicles people were driving during the housing boom? Again, the home ATM at work! Refi the house and take the money out, buy a hummer or SUV for $50-60K and only have the house paymnet go up by a couple hundred bucks a month. What a deal!!!

    Did you here that banks stopped repossessing these gas guzzlers for months because they ran out of places to store them all? Unreal, but true!

    This economy has a long road of recovery left to travel. Happy Trails :)

    ReplyDelete

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