Homelessness in the E.U.: Rectifying a Right

In late 2025, the E.U. Commission presented its first European Affordable Housing Plan. The E.U.’s involvement in “social housing,” which translates into federal funds being used to provide housing beyond homeless shelters for people who cannot afford to house themselves, implies that the programs of the states had been insufficient. The U.S. could take a lesson from the Commission’s plan, which is cleverly multi-pronged in tackling the societal problem. Both in the E.U. and U.S., both federal and state funds were needed even in 2025 when neither economy was in recession. It is better to increase the supply of affordable housing when times are good than when unemployment is soaring. This is an exception in the E.U. to the usual pattern wherein the E.U. increases its competencies, or enumerated powers, in periods of one crisis or another. Russia’s multi-year invasion of Ukraine, which borders the E.U., and the Union’s foreign and defense activity demonstrate how European integration has typically been enhanced by crisis rather than when times are good.

Homeless in both the E.U. and U.S. was a problem in 2024. In its “9^th Overview on Housing Exclusion” in 2024, Feantsa estimated a total of 1,287,000 people “rough sleeping, staying in night shelters, or temporary accommodation” in the European Union.[1] According to the U.S. Federal Reserve Bank, 771,400 people were homeless in January, 2024—an increase of 118,300 from 2023.[2] The total population of the E.U. at the end of 2024 was estimated at 450.4 million, and that of the U.S. was 341.8 million (whereas the respective states tended to cluster in the tens of millions). That works out to .0028% and .0023%, respectively. This may come as a surprise because in Europe, housing is more likely to be viewed as a right than in the United States.

Dan Jorgensen, the E.U. Commissioner for Energy and Housing (and the first such commissioner in E.U. history), said at the time of the Commission’s presentation of its proposal, “Housing is not just a commodity; it is a fundamental right. We must mobilise every euro and do everything in our power to make sure that in Europe everyone can afford a decent place to call home.”[3] In the U.S., the lax regulations on investor-speculators on houses, condos, and even apartment buildings evince a commodities-orientation to residential real-estate, whereas in the E.U. the homelessness problem may have more to do with insufficient supply rather than the salience of a political ideology favoring business or disfavoring the poor as deserving their plight.

I contend that permanent housing as a right is a better political ideology than is the business-commodity view of housing units both because being homeless takes such a terrible toll of the human psyche and because society should be obligated via the market or else the state to supply permanent housing because economic interdependence is endemic to a society as opposed to Hobbes’ state of nature, where life is short and brutish. Put another way, being in the state of nature in terms of housing while being in a society does not work because a society and a state of nature are mutually exclusive. 

It is inconsistent to insert, especially within city and even a town, even a slice of Hobbes' state of nature, whether in the form of sociopathic violent gangs for which law in south Chicago in Illinois is wholly disrespected, or homeless individuals in a town or city. Having the state of nature within a society is not like Yin being in Yang, and vice versa, in Chinese philosophy; rather, the state of nature inside a society contradicts the necessity that Kant argued is inherent to law, whether public or moral law. Furthermore, to tolerate homelessness within a society is like inserting a vice like vengeance into omnibenevolence—a point that Nietzsche makes in claiming that the Abrahamic deity is “dead” in the sense of having been discredited by being both vengeful and perfectly benevolent, which are incompatible with each other. Even though the effort to rid humans of vengeance is laudable, the cost in assigning the vice to God was surprisingly overlooked, and still is. Similarly, the utter incompatibility of homelessness and society is seldom recognized. 

By the end of 2025, it was well beyond time for the E.U.’s Commission to come up with a plan to rid the Union once and for all of the sordid plight of homelessness. Ridding Europeans of the constant, underlying existential angst that does not leave a mind that is subtly aware that homelessness could occur in the future can be expected to result in happier, more relaxed people and thus less interpersonal strife. It is indeed realistic that the E.U., together with the member-states, could together, as a shared competency, eliminate  the problem of homelessness in 2026 by relaxing state rules on whom can receive housing assistance (i.e., not just the very poor), using federal “European Social Housing” funds to get homeless people immediately into at least short-term housing (even hotels), and incentivizing the construction of more housing units to meet the demand, and even reducing housing prices and rents for everyone. The sordid commodity perspective in America would be exposed as severely flawed, as it reflects elected officials across that Union being in the campaign-financing pockets of private finance and business rather than looking out for, or protecting, all constituents from the horrible experience of being homeless. Just in virtue of being a human being—how we are hard-wired and how vulnerable the human brain or mind is to the incapacitating harm from severe, existential stress—something beyond short-term housing should be ensured unconditionally. How a human mind reacts to being homeless ought to justify the unconditional aspect, as those who do not work must wander around at all times and be subject to theft is a callous ideological belief.

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1. “What is Homelessness,” Feantsa, Feantsa.org (accessed 16 December 2025).
2. Lisa McKay and Kenneth Cowles, “Who Is Homeless in the United States? A 2025 Update,” The Federal Reserve Bank of Minneapolis, March 14, 2025.
3. Vincenzo Genovese, “EU to Revise State Aid Rules to Address bloc-wide Housing Crisis,” Euronews.com, 16 December 2025.

Public Policy on Housing in the E.U.: On the Impact on Federalism

With rents and the price of houses being historically high in 2024 in the E.U., it is no surprise that housing was a salient issue in the E.U. election campaigns that summer. Legislative action on the state level had been insufficient. Hence, President von der Leyen told the parliament, “I want this Commission to support people where it matters most, and if it matters to Europeans, it matters to Europe.”[1] The Union complementing legislative action by state governments on such an important issue is admittedly a step in the direction of solving an urgent problem, but the impact on the federal system in the future should not be ignored. As important as a pressing issue of the day is, someone should be keeping an eye on the shop itself. The gradual political consolidation of the U.S. federal system over more than two centuries at the expense of federalism is an example of what can happen when policy-makers are too oriented in putting out policy “brush fires” without bothering to ask how the federal system itself could be impacted.

To be sure, homelessness and high house prices and rents had become big problems by 2024. In 2023, an estimated 890,000 people were homeless in the E.U., while over 650,000 people were homeless in the U.S., out of total populations of almost 447 million and 336 million, respectively. Even though less than 1 million out of hundreds of millions looks minor, the trauma of being without a stable shelter, as well as the fear of losing one’s shelter due to a dire change in economic condition, argues in favor of housing being recognized as a human right that governments are obliged to supply where reliance on a market and personal income falls short. Put another way, the sort of existential angst that is triggered by homelessness and, to a much lesser though significant (yet subtle) degree, losing a job (or even knowing that it is possible) belongs in the state of nature rather than in civil society. Where the supply of available units of affordable (i.e., low-income, and no-income) housing is less than the number of homeless in a given geographical area, this argument suggests that government should see to it that the gap is filled. This is, of course, a normative argument, one that has been much more prevalient in the E.U. than in the U.S.

Generally speaking, government targets for new units tend to fall short of those that would be necessary to expunge actualized existential angst. In the E.U. state of Ireland, a local-government official bragged to a journalist in 2024 that the city government would reach its target, and the journalist pointed out that it is insufficient to eliminate homelessness in the city. Both in terms of being shy in having more affordable-housing units built and in standing up to hedge funds that are driving up house prices by buying up some as investment (and even by keeping some units vacant to increase the shortage), local governments have fallen short.

Besides spending money on the construction of new units, government can restrict the use of residential real estate for investment and even as small hotels (e.g. Airbnb). At least as long as homelessness exists, so this argument goes, shelter’s use for speculation is inconsistent with housing as a human right. To be sure, the moneyed interests in a society can be hard for democratically-elected representatives to resist even when a significant number of people are paralyzed by existential angst.  

Not going nearly so far but signaling a shift in societal and governmental priorities, President von der Leyen of the European Commission set up her second portfolio, or term of office, in the summer of 2024 by stressing “the urgency of tackling the housing crisis, proposing the first-ever European affordable housing plan and a commissioner responsible for the policy area, as the Socialists had demanded as a condition for backing her second term.”[2] At the time, “a significant investment gap in social and affordable housing” existed in the Union.[3] In addition to there being the homeless, people were “struggling to find affordable homes,” von der Leyen said at the mid-July plenary in Strasbourg.[4] “Between 2010 and the end of 2023, average rents in the E.U. increased by almost 23% and house prices by nearly 48%, leading to protests in cities.”[5] The general economic interest was being negatively impaired by the housing- (and food-) led cost of living increases.

The E.U. being a federal system of dual sovereignty, like the U.S., von der Leyen had to contend with the “limited competency” of the E.U. in housing; by this I do not mean incompetence. Rather, the federal and state levels could both legislate in housing. Because the states could “only use public funds to target the most vulnerable groups,” space was open for the federal government to legislate to bring the cost of housing down. In other words, the states were oriented to the homeless problem, which arguably represents a greater, or more severe harm in society, so the Union’s activity on the wider problem of high rental and house markets would not usurp the residual sovereignty of the state governments.

This is not to trivialize the problem of high housing markets, whether in California or Ireland. “In terms of state aid [at the federal level], we would like to see the recognition of social and affordable housing for all—beyond disadvantaged groups or social groups with fewer opportunities—as a service of general economic interest,” said Christophe Rouillon, president of the PES group in the European Committee of the Regions (CoR).[6] The scope not only of the problem, but also of the legislative means, or power, is such that this “limited competency” of the Union could have a significant impact on shifting more power from the states to the Union. “The E.U. can influence housing through financial regulation, competition law, energy efficiency, regulatory and planning standards, cohesion policy, climate action, urban/rural and social policies,” Rouillon stated.

The impact of federalism should not be lost on policy makers both at the federal and state level even though the primary focus is on the policy issues (i.e., homelessness and high real estate markets). In reaching a fever pitch of societal displeasure, these issues may give us a glimpse into how modern federal systems, which are characterized by split (or dual) governmental sovereignty, tend to consolidate power at the federal level at the expense of the state governments over time. Europeans would be wise to think about whether the E.U., just over 30 years old in 2024, would be as consolidated at the U.S. in 2024 after more than two-hundred more years. Both unions being of vast territorial expanse in 2024, such that states in each union can differ from one another in the same union so much that “one size does not fit all” in public policies, political consolidation comes with significant drawbacks. Additionally, the “check and balance” feature of federalism is rendered inoperative when a federal government has so much power that the state governments cannot counter-balance it. The question of whether the E.U. might end up as consolidated politically as the U.S. is thus not at all trivial.

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1. Paula Soler, “Von der Leyen Promised an EU Commissioner to Tackle the Housing Crisis,” Euronews, August 13, 2024.
2. Ibid.
3. Ibid. For those readers who feel the need to substitute “bloc” for “Union,” there is help.
4. Ibid.
5. Ibid.
6. Ibid.

Is Modest Growth vs. Full Employment a False Dichotomy?

As Summer slid into Autumn in 2012, the Chinese government was giving no hint of any ensuing economic stimulus program. This was more than slightly unnerving for some, as a recent manufacturing survey had slumped more than expected, to 49.2 in August. A score of 50 separated expansion from contraction. A similar survey, by HSBC, came in at 47.6, down from 49.3 the previous month. Bloomberg suggested that China might face a recession in the third quarter. So why no stimulus announcement?  Was the Chinese government really just one giant tease? I submit that the false dichotomy of moderate economic growth and full employment was in play. In short, the Chinese government did not want to over-heat even a stagnant economy even though the assumption was that full employment would thus not be realizable.

Wang Tao, an economist at UBS, explained the “very reactionary, cautious approach” as being motivated by the desire to avoid repeating the “excesses of last time.”[1] The stimulus policy in the wake of the 2008 global downturn had sparked inflation and caused a housing bubble in China. According to The New York Times, China was avoiding “measures that could reignite another investment binge of the sort that sent prices for property and other assets soaring in 2009 and 2010.”[2] A repeat of any such binge could not be good, for it can spark the sort of irrational excitement that have a life of its own.
In short, too much stimulus in an economy can cause inflation and put people’s homes at risk of foreclosure once the housing bubble bursts, whereas a lack of stimulus means that a moderate growth rate is likely, rather one that could give rise to full employment. Is there no way out of this trade-off? 
Keeping fiscal or monetary stimulus within projections of a moderate growth can occur with more government spending targeted to a combination of giving private employers a financial incentive to hire more people and increasing the number of people hired by state enterprises. In principle with the Full Employment Act of the U.S. in 1946, a government can see that anyone who wants a job has one, while still maintaining a moderate stimulus. A modest growth-rate can co-exist with full employment. 

1, Bettina Wassener, “As Growth Flags, China Shies From Stimulus,” The New York Times, September 3, 2012. 
2. Ibid.

Wall Street Snuffed Out President Clinton's Goal of Homeownership for the Poor

It is one thing for the head of a government (or a government’s executive arm) to set a praiseworthy goal that is in the public interest, and quite another thing to rely on the financial sector to implement it. Finance has its own means tied to its own goals, with plenty of greed in the mix. Governmental officials may tend to minimize the potential damage from ego-laden greed to the goals of public policy. Such policy ideally strives for the good of the whole, whereas the goals of a private sector of a part. This could account, at least in part, for the financial crisis of 2008 and the continuing bear market in housing in much of the U.S.

According to The Wall Street Journal, housing prices had fallen for 57 consecutive months by May 2011.[1] Even though the recession had officially ended in June 2009, the real estate market still had yet to hit bottom.[2] Since the housing peak in 2006, home values nationally were down 29.5 percent, according to Zillow.com. Compared to the same time in 2010, prices were down 8.2 percent in the U.S. markets. In that year, house price depreciation had slowed or stabilized because of tax credits of up to $8000 that expired during that summer. Accordingly, negative equity became even more prevalent in the first quarter of 2011, when 28.4 percent of all single-family homes with mortgages were "underwater."[3] Monthly declines for February and March were "really staggering," according to Stan Humphries, Zillow's chef economist. He claimed that the declines reflected "the true underlying demand," which was "being completely overwhelmed by supply."[4] Fannie and Freddie sold more than 94,000 foreclosed houses in the quarter; this represents 23% more than in the previous quarter.[5] The increase in supply from the foreclosures was at relatively low prices, hence the impact on the market was particularly depressing.

A declining housing price translates into lost wealth for the homeowner. When home values decline, the values of mortgages often do not go down as well. Homeowners lose some of their equity, or the stake they have in their home. When equity becomes negative—that is to say, when the value of a mortgage exceeds the value of the property—homeowners become especially vulnerable to default and foreclosure. “Falling home prices can create a vicious cycle. When a property falls into foreclosure, it tends to depress the values of properties around it, making those homes more likely to experience a similar fate. [In 2010], nearly 2.9 million homes received a foreclosure filing, and more than 2.8 million homes got one in 2009.” based on the data provider RealtyTrac.[6] More foreclosures further reduced the value of residential mortgage-based securities, which in turn reduced the asset-values and returns of companies and individuals investing in the CDOs (collateralized debt obligations) worldwide. This investment asset essentially has mortgage-borrowers pay the holders of the respective CDOs, whose value is thus based on the value of the underlying mortgages.

Problematically, the holders of the CDOs, not the originator of the mortgage, assumed the risk that the mortgage borrowers might stop their mortgage payments. The mortgage servicers had sold their mortgages to an investment bank such as Lehman Brothers, which in turn would pass the then-securitized mortgage-based bonds on to investors such as Deutsche Bank and the two major banks of Iceland. Neither companies such as New Century (or Countrywide) nor investment banks like Lehman would face any risk unless they happened to be holding a significant number of the risky mortgages (or real estate) when the merry-go-round finally stopped in 2008.

Countrywide was bought up by Bank of America (by Ken Lewis, CEO at the time) and Lehman Brothers went bankrupt. Both Lewis and Dick Fuld (of Lehman) could be said to be empire-builders—meaning expansion at virtually any expense and even as an end itself. Pure ego plus greed. New Century and Lehman both assumed that they would never get caught with their pants down holding toxic mortgages. They were both wrong—oh so wrong. To be so wrong and yet blame the consumers is, at the very least, bad form.

Unfortunately, the housing market was “plagued by scandal” in the first quarter of 2011.[7] Homeowners and investors filed “numerous lawsuits alleging that big banks misplaced or even faked crucial mortgage documents.” After it was “revealed that companies that processed foreclosures signed thousands of documents daily without even reading them, potentially violating the law, some of the biggest banks temporarily halted their foreclosure proceedings” in the fall of 2010.[8] I suspect, however, that the failure of the underwriters (and compliance folks) is a red herring; most of the sub-prime residential mortgages required no documents proving income or even a job, and many of those mortgage applications contained lies known or even encouraged by the brokers. Not unexpectedly, the brokers and borrowers have differed on whether the latter should be expected to have resisted the, “It’s ok, really. Trust me,” from the “professionals.” In any case, the (in many cases) first-time homeowners were used, and the greed of the mortgage producers was ultimately behind it.

The claim, for example, made by some mortgage brokers and Wall Street securitization arrangers that the borrowers should have somehow known better than to sign low- or no-document subprime mortgages with steep ARM resets of up to double-digit interest rates is more than just disingenuous; the brokers had assured the potential homeowners that the inevitable increase in home equity appreciation from the rising housing market would give them the 20 percent equity stake that was necessary at the time to refinance into a fixed mortgages at a decent, constant interest rate. The brokers did not care whether the borrowers enabling the double commissions could make the higher ARM (adjustable rate mortgage) payments in case they might kick in. One might even say that the system was rigged by the mortgage-producing companies such as Countrywide at the expense of first-time mortgage-borrowers. Preying on the newbies, in other words, could characterize the system’s basis. Of course, such preying is unethical, for it puts others in harm’s way unless the prey should have known better, which I dispute. In short, it was not a fair fight when the harm came as even AAA-rated subprime (i.e., risky) mortgage-based CDOs ruptured in the financial crisis of 2008. 

In conclusion, although Clinton’s goal of putting poor people in their own homes had been laudable, constructing ARM mortgages with resets that low income people could not afford and relying on a rising market to obviate them was a recipe for years of a bear housing market. In other words, the system that the financial world established blocked Clinton’s goal from being sustainable, and thus achieved. Of course, Wall Street was not in the game to do Clinton’s bidding; finance had its own goals, which went on through two terms of George W. Bush in the White House. In retrospect, Clinton should have used government regulation to establish a viable system in sync with the goal rather than allow his henchmen—most notable Alan Greenspan at the Federal Reserve, Robert Rubin, Secretary of the Treasury, and Larry Summers also of the Treasury, to push Congress to keep the CDOs unregulated. In other words, Clinton, in trying to position himself in the political middle, followed Carter in adopting a deregulatory position even as it ultimately rendered his laudable goal unattainable and even reckless.

See Essays on the Financial Crisis and On the Arrogance of False Entitlement, both available at Amazon. 

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1. Nick Timiraaos and Dawn Wotapka, "Home Market Takes a Tumble," The Wall Street Journal, May 9, 2011, pp. A1-A2.

2. William Alden, “Home Prices Fall Again in Biggest Drop since 2008,” The Huffington Post, May 9, 2011.

3. Ibid.

4. Nick Timiraaos and Dawn Wotapka, "Home Market Takes a Tumble," The Wall Street Journal, May 9, 2011, pp. A1-A2.

5. Ibid.

6. William Alden, “Home Prices Fall Again in Biggest Drop since 2008,” The Huffington Post, May 9, 2011.

7. Ibid.

8.Ibid.

Fannie and Freddie: A Lavish Corporate Lifestyle after the Financial Crisis

Fannie Mae and Freddie Mac spent more than $640,000 to send 100 employees to a mortgage-industry conference in Chicago in the fall of 2011. According to a letter from the Federal Housing Finance Agency, which oversees Fannie and Freddie, the spending included nearly $342,000 for travel, food, hotel and meeting-room space. Incredibly, $74,000 was spent on four invitation-only dinners for mortgage-lending companies that are regular customers of Fannie and Freddie. Because Fannie and Freddie at the time dominated the U.S. mortgage market, "purchasing and guaranteeing about 70% of new loans from mortgage lenders,” who in turn thus had few alternative potential buyers, managers at Fannie and Freddie still felt the need to wine and dine their customers under the subterfuge of valuing “face-to-face meetings with customers as a way to understand their needs,” according to the Wall Street Journal. Apparently the folks at Fannie and Freddie were not familiar with customer surveys or even the telephone. Instead, Freddie spokesman Doug Duvall bragged, “[We were able to meet] with our lender customers in a cost-efficient way. In just two days we held approximately 200 meetings.” Undoubtedly some of those “meetings” were held at the dinners, each of which cost the taxpayers $18, 500.

The $640,000 spent on the conference can be racked up to the lack of competitive pressure facing a government-owned organization that is close enough to the private sector to want to enjoy perks that are no doubt common on Wall Street. In other words, while it might be less bothersome to us to see stockholders’ money spend on corporate luxuries, it is not clear that Adam Smith would feel very comfortable amid modern corporate capitalism (and he did include a role for government in his economic theory).

The particularly sad thing about the lavish spending by managers at Fannie and Freddie is that those agencies had been firmly opposed to refinancing the mortgages of borrowers “under water” since the collapse of the housing bubble. Over 3 million foreclosures had taken place in the three years since September 2008. The luxury amid harm bespeaks such inequity that even underlying societal values may be at issue—namely, I should be able to eat, drink and be merry while people I don’t know lose their homes. Beyond the ethical problems with this attitude, it evinces a pathology—that of malignant narcissism and perhaps even sociopathy. It is interesting (i.e., convenient) that no terms could be given up on even the questionable (i.e., the producers’ role) mortgages, while plenty of money was available to be spent on lavish dinners ostensibly for guaranteed customers. The managers at Fannie and Freddie could not very well say that they could not afford to relax some of the overly-stringent terms of the ARMs in the sub-primes (and Alts). In fact, given the roles of policy makers and mortgage producers in enabling the housing bubble with questionable mortgages, a moral obligation exists for the government (and the related agencies) to act so as to obviate the foreclosures (which would have obviated the need for TARP for the banks, as the toxic assets were based on the bad mortgages in default). Had the managers at Fannie and Freddie recognized this point rather than stood on sanctity of contract, the Obama administration might have found a way to compensate the two agencies for doing so—perhaps even throwing their managers a lavish dinner at the White House.

Source:

Alan Zebel, “Fannie, Freddie Spend $640,000 on Conference,” The Wall Street Journal, December 1, 2011. 

TARP Paid Off: But What about the Foreclosures?

TARP, the "bailout" for banks rather than mortgage borrowers, was the first big issue facing the Obama administration before the roughly $800 billion stimulus plan and the health insurance overhaul that stoked the rise of the Tea Party movement. After supporting TARP, several Republicans lost in the elections of 2010 largely because of their votes. For many Americans, TARP is a symbol of big government at its worst, intervening in private markets with taxpayers’ billions to save Wall Street plutocrats while average Americans continued to struggle to make mortgage payments or lost their houses outright.  “This is the best federal program of any real size to be despised by the public like this,” said Douglas J. Elliott, a former investment banker now associated with the Brookings Institution. “It was probably the only effective method available to us to keep from having a financial meltdown much worse than we actually had. Had that happened, unemployment would be substantially higher than it is now, the deficit would have gone up even more than it has,” Mr. Elliott added. “But it really cuts against the grain for a public that is so angry at banks to think that something that so plainly helped the banks could also be good for the public.” TARP was good for the public not in that the funds enabled Wall Street bonuses; rather, the good was solely on the macro level, as the frozen credit markets eventually thawed such that the financial system meltdown was averted.  However, this does not mean that it was "the only effective method available."

Specifically, the TARP funds could have been used to subsidize mortgage borrowers demonstrating difficulty in making the payments. On a CBS news show May 15, 2011, Speaker Boehner was asked about the four foreclosure programs of the U.S. Government. "They have all failed," he told the journalist. However, the Speaker then refused to have the government get involved; the best we can do is wait for the market to solve the problem as more buyers enter. However, that would only spur foreclosures, as more buyers would make it easier for banks to sell their foreclosed houses. It is interesting that hundreds of billions of taxpayer dollars could go the big banks, enabling record executive bonuses, whereas all we can do is rely on the market to mitigate the foreclosures. This squalid double-standard can be explained by simply looking at the bankers' interest, which is at odds with that of the mortgage borrowers. Considering the problematic way in which the sub-prime mortgages had been produced (e.g., liars' loans and no-document mortgages), I contend that the interests of the banks' customers ought to be given primacy here. The problem is that the borrowers are dispersed, whereas the bankers have concentrated leverage via their capital and lobby over government officials who would like to be re-elected. In a republic, the leverage ought to go in the opposite direction: elected representatives coming down on the bankers for their shaddy lending and related double commissions at the expense of the borrowers.

Laying the power reality aside, an alternative to TARP can be envisioned. This exercise, although inexorably futile, can tell us something about the opportunity costs involved in enabling the powers that be rather than holding them accountable. Along with a federal law limited the rate resets on the ARM sub-prime mortgages (resisting the pressure of the banking industry that recklessly had originated or bought the mortgages), subsidies could not only have removed a major toxic element from banks' balance sheets and thus opened up lending, but also perhaps fortified the housing markets in the U.S. such that homeowners duped into houses over their heads could have had some time to sell and find more suitable housing. In other words, the "two birds with one stone" could have applied, instead of the top-directed infusion. TARP did not come with requirements that lending reach a minimum level so even though the banks did not fail, it took even the TARP banks a long time to raise lending again; the return to lending should have been immediate.

It could be argued that the TARP funds put into banks gave the U.S. Government the corresponding benefit of bank stock. To be sure, selling the stock has made up a large part of the TARP funds already by 2011, but it was at that time uncertain whether the government would make a profit. In the fourth quarter of 2010, the U.S. Treasury projected that taxpayers wouuld lose less than $50 billion at worst, but at best could break even or even make money. Its best-case assumptions, however, assume that A.I.G., which had received $182 billion in TARP funds, and the auto companies would remain profitable and that Treasury would get a good price as it sells its corporate shares in coming years.

In May 2011, AIG and the Treasury Department announced that they would sell $9 billion in stock altogether, but for less than half of the expected price. As of May 10th, the AIG stock pre-market price was thirty cents off from the government's breakeven point. AIG stock had slid from the mid 40s to the mid 20s. I submit that these considerations of U.S. profit-taking, although appealing from a capitalist standpoint, misses the bigger picture in terms of a government's mission. I contend that governments do not exist to make profits. Furthermore, a government's primary charge is to protect citizens, whether from foe or famine. Failing to mitigate or obviate foreclosures even as banks got funds to keep them afloat is thus a blight on the U.S. Government. To be sure, maintaining the viability of the financial system is legitimately part of the government's job, that function could have been accomplished by protecting citizens who otherwise lost their homes. This is not to say that the homeowners deserved to stay indefinitely in houses too big for them; rather, it is to say that homeowners could have been kept from being tossed onto the street. The U.S. Government could have helped two birds with one bag of birdfeed while meeting its own obligations as a government.

Sources:

Jackie Calmes, “TARP Bailout to Cost Less Than Once Anticipated,” The New York Times, September 30, 2010.

The Huffington Post, "AIG, U.S. Will Sell $9B in Stock -- But for Less than Half of Expected Price," May 11, 2011.

A Housing Bubble in China: A Rationale for Government Intervention

As of October, 2016, China was in the midst of a dizzying housing bubble. A month before, “economists at the Bank of China warned in a report that worsening asset price bubbles were adding to a frothy market that could result in trouble.”[1] Shanghai’s average housing price was up nearly one-third from a year before; prices in major cities like Beijing and Guangzhou were not far behind.[2] The recognition of the bubble—which does not come easily—should have triggered counter-cyclical measures by the Chinese government.

For example, the government could have increased the minimum requirements for down-payments and even increased tax on purchases of additional properties to counter the impact of speculators. Rumors alone of these measures was enough in 2016 for many couples to file for divorce “so that one partner could still be treated as an independent buyer” so as to be able to buy additional properties as investments.[3] That people would go to such an extreme based on rumors points to how carried-away market bubbles can get. For this reason, increasing the minimal down-payment and associated taxes even on a couple’s purchase of one property may not be excessive.

Adding to the difficulty in curtailing the boom was the “growing amount of American-style debt.”[4] Long-term household loans (mostly mortgages) doubled as a share of total official bank lending in 2016 through mid-October. In August, the loans accounted for about 40 percent of all new loans, contrasted with just 20 percent at the start of the year. The value of new home-loans as a percentage of all housing sales surged to a record high. Underground lenders were also feeding the boom. Unfortunately, the loans facilitated the role of speculators in the market, whom I submit play a crucial role in any market-bubble.

Unfortunately, the loans stemmed from the lending oriented to keeping the Chinese economy growing. As long as the government wanted to use leverage as a fiscal stimulus for the economy, clamping down on bubble-facilitating, long-term loans could only be difficult at best. Hence the need for tightened government-regulations making the loans less easy to get, especially but not limited to additional properties. One challenge for regulators in such a context is to enable the poor to become homeowners even as unnecessary home-buying is stymied until the bubble has been shrunk.  In other words, regulators should have distinguished home-ownership as a basic human right (and in this sense not a commodity) from home-ownership as an investment—and these two in turn from overall economic growth.

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1. Neil Gough and Carolyn Zhang, “In China, Property Frenzy, Fake Divorces and a Bloating Bubble,” The New York Times, October 16, 2016.

2. Ibid.

3. Ibid.

4. Ibid.

Homelessness in the U.S.: A Reflection of American Values

According to a report by the National Center on Family Homelessness in 2014, nearly 2.5 million American children were homeless at some point in 2013.[1] The U.S. Department of Education had reported that 1.3 million homeless children were going to school. California, which accounted for one-eighth of the U.S. population at the time, had one-fifth of the 2.5 million, which comes out to nearly 527,000. The relatively high cost of living and shortage of low-income housing, along with a largely stagnant minimum wage, are the more visible factors behind the gap.

The full essay is at "Homelessness in the U.S."

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1. David Crary and Lisa Leff, “Number of Homeless Children in America Surges to All-Time High: Report,” The Associated Press, November 17, 2014.

Wealth and Happiness American-Style

The Organization for Economic Cooperation and Development released an up-dated version of its Better Life Index in May 2012. The U.S. ranked first in income, with average household wealth at $102,000, as well as in housing (Americans spending about 20% of their disposable income on it—the OECD average being 22%).[1] These figures for the U.S. could have been pushed upward by the fact that at the time, the very rich were richer than their counterparts in other countries, for the gap between rich and poor was relatively high in the U.S. For example, 30 million Americans were without health insurance and a record number of Americans were receiving a governmental subsidy for food. Rather than assume that the middle and lower economic segments in the U.S. were better off than their counterparts in other regions of the world, I suspect that the statistics reflect the higher relative pay of American executives and professionals (lawyers, physicians and CPAs). The typical CEO in the E.U., for example, made less than his or her counterpart in the U.S.  This caused trouble in the Chrysler-Daimler merger because the Chrysler executives enjoyed higher compensation even though Daimler was in charge.

Interestingly, the rank of the U.S. in life satisfaction was above average, with 76 percent of people reporting having more positive than negative experiences in an average day (the average in the OECD index being 72%). In other words, the gap between the rich and poor does not appear to have gotten in the way of life-satisfaction. Although economic reductionism is particularly salient in the U.S., such satisfaction does not reduce to dollars and cents. Even in economic terms, the large gap between the rich and poor includes geographic distance. For example, court-orders have had to be used to force some cities and towns to allow subsidized (low-income) housing. Meanwhile, it is not uncommon, particularly in Florida, for people with money to live in gated communities. With the rich out of sight, the poor are less likely to be aware of the economic inequality, which could otherwise put a damper on their life-satisfaction.

As a final observation, my reference to Florida suggests that the OECD should not generalize all of the American states into one figure. For example, life-satisfaction is likely to be higher in Hawaii than in Alabama or Michigan for climatic or economic reasons (or in North Dakota during the winter even considering the economic boom). Housing in New Hampshire is, in general, better than in Mississippi. Income in Connecticut is higher on average than in Arkansas. For states, whether in the U.S. or E.U., to be in a union is not to say that they are identical and thus readily grouped together. In other words, a general statistic in housing or income has less real meaning when applied over such a large area. It is like saying that the average temperature in the U.S. in 2011 was 56 degrees (I don’t know the real figure). It is unlikely that figure applies in any state—certainly not in Florida, Hawaii, Alaska, or Maine. The figure has no real meaning, other than relative to other such figures over time (e.g., to assess global warming). For the OECD to compare the U.S. as a whole to E.U. states such as Denmark, Belgium and Spain suggests that the organization is content to engage in category mistakes. If the figures are relevant on the state level, the OECD should be consistent rather than selectively over-generalize.

1. “OECD LaunchesUpdated Version of Your Better Life Index,” OECD. 

See also MSNBC, “US Ranks No. 1 in Wealth, Not in Happiness.” 

Fuld’s Arrogance at Lehman: Systemic Risk

Documents released in May 2012 regarding Dick Fuld at Lehman Brothers prove that he was aware of the high risk involved in holding so much real estate (and related security derivatives). This means definitively that “the ‘forces-out-of- our-control’ argument we hear from Wall Street leaders is [self-serving] bunk. It is the ill-advised behavior of one banker after another, day in and day out, that leads to the sort of devastating financial crisis we are only now emerging from.”[1]

The full essay is in Essays on the Financial Crisis, available in print and as an ebook at Amazon.

1. William Cohan, “Lehman Docs Show Wall Street Arrogance Led to Financial Collapse,” The Huffington Post, May 7, 2012.

The Federal Reserve’s Housing Bubble

During one of his lectures to a class at George Washington University in March of 2012, Ben Bernanke, the chairman of the Federal Reserve, claimed that the central bank’s lower interest rates did not trigger the housing bubble that began in the late 1990s and ended in 2006. For one thing, the Fed did not start cutting interest rates until a few years into the twenty-first century. Also, home prices rose after the Fed later began raising interest rates. Bernanke also cited Europe, where housing booms have not been associated with either tight or loose monetary policy.

                         Ben Bernanke lecturing at Washington University       European Pressphoto Agency

The full essay is at "Essays on the Financial Crisis".

The Federal Reserve’s Housing Bubble

During one of his lectures to a class at George Washington University in March of 2012, Ben Bernanke, the chairman of the Federal Reserve, claimed that the central bank’s lower interest rates did not trigger the housing bubble that began in the late 1990s and ended in 2006. For one thing, the Fed did not start cutting interest rates until a few years into the twenty-first century. Also, home prices rose after the Fed later began raising interest rates. Bernanke also cited Europe, where housing booms have not been associated with either tight or loose monetary policy.

The full essay is at "Essays on the Financial Crisis".

Moral Hazard in Mortgages

“The cherished American ideal of self-reliance has a flip side”[1]  Before getting to the implications, or flip side, I want to fill out what informs this ideal. One could add to it the ideological stance that came into its own in 1980 with the election of Ronald Reagan, who declared that government is the problem. This implies that government should be minimized, and otherwise corrected as much as possible. Government is hardly to be viewed as the solution. This is the legacy of the Kennedy assassinations of the 1960s, the Vietnam War, and Watergate as well as Ford’s pathetic “WIN” buttons and Carter’s micromanagement and failure in regard to the hostages in Iran. I was not old enough for the Kennedys’ truncated optimism (and that of Martin Luther King) to resonate; I knew the political (and economic) pessimism of the 1970s and the energizing “fix it” mentality of the early 1980s. Of course, Reagan’s “new federalism” failed, as did his aim to balance the federal budget, and the jury is still out on whether “peace through strength” pushed the USSR off the cliff.

The full essay is at "Moral Hazard in Mortgages."

1. Shaila Dewan, “Moral Hazard: A Tempest-Tossed Idea,” The New York Times, February 26, 2012. 

Nietzsche on Bank of America

The positive correlation between incompetence and unethical conduct at companies is striking, for, theoretically at least, a person can be talented or smart and of questionable character. Of course, it could be that cutting corners is a survival strategy of people who are not competent. However, shirking seems to reflect a sordid character, which, like personality, is relatively constant throughout one’s life—though character flaws could manifest more when times are tough (as in when incompetence has eventuated in a dire balance sheet). One might investigate, moreover, whether a firm’s culture can become more tolerant of unethical conduct when the finances are going south—or do unethical cultures tend to be like fixtures in organizations irrespective of financial condition?

The full essay has been incorporated into On the Arrogance of False Entitlement: A Nietzschean Critique of Business Ethics and Management, available at Amazon.