Apparently, this story is still under the radar. The Dutch domestic lending to invest in property has produced a real estate bubble just like in Ireland or Spain. I wrote about this in April and apparently the information coming in these days seems to vindicate my writings.econoblog101
The Dutch real estate bubble goes POP! and Dutch banks face future problems
Dirk Ehnts | Berlin School for Economics and Law
4 comments:
I'm uncomfortable with the characterization of real estate 'speculators' as pure economic rent seekers. That view pervades most of the politically charged economic writing lately but ignores the depreciating and consumable nature of real property. To be sure, people that invest in real estate expect to make profits or they wouldn't do it but buying an apartment building or shopping center or residential home and upgrading the units to provide higher quality living, modern safety standards, and health standards whether or not the rent-seeker intends to do it -- does raise the quality of life for everyone in society. When they install new fixtures, they eliminate old toxic paint, install modern efficient windows, get rid of cadmium covered nails and asbestos floors and dry wall -- it isn't without value or expense and risk to the investor and workers who toil doing these things. If you traveled Europe in the 60's then again today, the transformation to their real estate is even more profound than the United States. To suggest those trillions of dollars of improvements weren't real and that the increases in cost of the real estate were simply the result of speculators flipping up the value is naive or dishonest about the costs.
When they install new fixtures, they eliminate old toxic paint, install modern efficient windows, get rid of cadmium covered nails and asbestos floors and dry wall -- it isn't without value or expense and risk to the investor and workers who toil doing these things.
If value is added, then it is productive gain and not rent. Economic rent is basically the "free ride." The ownership class hates free riders at the bottom and calls them "moochers." But the free riding at the top in the form of extracting economic rent (gain without productive contribution)? Not so much.
No argument with that! Everyone, regardless of socio-economic status needs to contribute productively for a healthy & fair society.
My problem with this sort of article is it looks at the symptoms of poor governance -- widespread bad loans, unemployment and deflation. It then creates an analysis that blames those symptoms on the victims. The banks collectively took a chance and lost, real estate investors lost, citizens lost jobs and can't pay their obligations.
Journalists and scholars whom transform that simple truth -- the system failed -- into an intractable narrative instead about wealth distribution, greedy bankers, rich stealing from poor, poor mooching on social services serve the political agenda of the failed politicians in power to obfuscate their failures.
Everyone in society expected government and economists to design a sustainable system that creates prosperity over the long run across business cycles. Instead we elected politicians that took "tax payers" money, lavished benefits on their cronies rich and poor alike. The politicians hired economists that failed to design a currency and capital system that functions. It can not accommodate international trade, maintain high levels of employment, and balance productivity geographically.
Broad social cooperation is required to create a political consensus to fix the system. Education and information distribution is complex but the solutions are simple and should be presented to the public in the simplest, clearest way possible. I think my rant is done. Sorry. Get frustrated reading this stuff sometimes.
Ryan, the very simple explanation is that governments in modern developed economies cannot let their financial systems collapse, so they have two choices in crisis. One is to put the insolvent institutions into resolution, and the other is to rescue them. The first is required legally but it is politically infeasible and the financial sector knows it. This creates moral hazard that is inevitably exploited. The banks were willing to play the game of musical chairs because they were all doing it and presumed that a systemic failure would mean a system-wide govt bailout. They were right, except for Dick Fuld. But the govt realized its mistake in letting Lehman go down and promised that it would never do that again.
What I am saying is that the problem is institutional and systemic and needs to be addressed at that level. But so far the financial system remains in the driver's seat and rentierism rules. This is to say that the entire system is corrupt to the core.
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