What can be done to prevent another bubble

[20000miles]

To pontificate any solutions to the problem, you first have to understand the root cause of bubbles. The cause being an overabundance of cheap credit and easy money. The housing bubble in the United States was entirely the fault of one Alan Greenspan, who in his infinite wisdom, set the price of credit to a historically low 1%.

This is what followed:




That's right...centrally fixed interest rates led to the biggest housing bubble EVER. Mr. Greenspan can blame it all on the "market's irrational exhuberance" if he likes, but he can't explain where the irrational animals get their money and credit from.

It's like that quote from the Usual Suspects: "the greatest trick the devil ever pulled was convincing the world he didnt exist". The governments of the world will now beef up regulations, and give themselves more power, while the root cause will not be addressed.

Don't want any more bubbles? Or recessions? Abolish central banks and fiat currencies. It's that simple.

[Clanrickard]

.
But the reality is that the class struggle is now firmly back on the agenda (and it is not Marxists who are claiming this - the Financial Times are making the exact same claim). The ideological battle, that capitalism claimed it had won following the collapse of Stalinism, is firmly back on the agenda. The American Congress is talking about Socialism - the neo-liberal ideologues are bowing to the suggestion that Marx was right - even the Archbishop of Canterbury is talking about how Karl Marx accurately predicted this crisis and that the government must act to avoid socialism being back in the forefront of of people's minds. Unfortunately for the world's governments and the world bourgeois, there is nothing that can be done to prevent socialism once again becoming the rally cry of working class people.

As I started this thread I feel I must apologise for bringing this guy and his lunacy on normal forumites.

[Clanrickard]

Personnally, I am opposed to property taxes for the simple reason that taxing something by value when that value is not being tested by the market results in a bureaucratic valuation system. Its like heisenberg's uncertainty principle, you can't know the price of something until you try to sell it, and the act of selling can change the price.

However, I think that you could combine these two items into a single logical proposal - tax empty or unused property. The tax could be based on the purchase price.

I should clarify I meant a property tax on houses that are not being used. I though I was clear on this but obviously I wasn't. Houses being rented won't be taxed. BUT all second houses should pay rates.

[QUOT]But on price bubbles - really the only solution is a change of culture. Supply and demand need to keep pace with each other - like they do in any other market. People need to forget this crazy assumption that house prices will always rise faster than wages - its impossible.
[/QUOTE]

You could add that Auctioneers need greater regulation. At the moment they don't even have to be able to read or write to get a license. Getting rid of "Sale Agreed", making the payment of adeposit a de facto contract and making it obligatory to seel at auction once a property has reached its reserve price.

[carlovian]

Right is Right said

"Sorry but this 3 times salary etc as a measure of getting a mortgage is ridiculous.....It seemed to work when interest rates were in the 10-15% range, when there was far less employment and the whole economic situation was different...."


You mean THIS TIMES ITS DIFFERENT !!!

Interest rates are variable, employment rates are variable and the economic situation is variable. The lending rules were put in place because mortgages are a long term loan and factors can change.

Bankers changed the rules and gave way too much money to people who now realise they cant afford it. The central bank and regulator looked on and did nothing to stop this boom in credit.

[Right is right]

Right is Right said

"Sorry but this 3 times salary etc as a measure of getting a mortgage is ridiculous.....It seemed to work when interest rates were in the 10-15% range, when there was far less employment and the whole economic situation was different...."


You mean THIS TIMES ITS DIFFERENT !!!

Interest rates are variable, employment rates are variable and the economic situation is variable. The lending rules were put in place because mortgages are a long term loan and factors can change.

Bankers changed the rules and gave way too much money to people who now realise they cant afford it. The central bank and regulator looked on and did nothing to stop this boom in credit.

So how many people can't afford it? Why can't they afford it is the big question? How many people who now claim they can't pay their mortgage have 1 or more cars, 1 or more foreign holidays per year, eat out regularly, spend a fortune on expensive clothes etc or have done for the last 15 years....

Caveat Emptor applies to people taking out loans - if you are stupid enough to take out a loan you can't afford then that is your choice!!! Why does this have to be blamed on someone else? Is it because you think that the Irish people aren't able to understand what they are doing or what decisions they are making?

[JollyRedGiant]

As I started this thread I feel I must apologise for bringing this guy and his lunacy on normal forumites.

It's you system that is in crisis Clan - and nothing they have done or can do will solve the problem - it could take 10 or 15 years for the current slump to work it's way out of the system.

The problem for all you neo-cons is that ordinary working class people aren't going to sit around and wait for you to pontificate about what might be.

[Seos]

To prevent future bubbles:-

a) banks must value property at its longterm trend value - ie. an average house to be 3.5 x average income (or whatever the exact ratio is)

b) all property advertising to include the longterm trend value (eg. 3-bed semi, Acme Estate price 500,000 - longterm trend value 250,000)

That would make future bubbles MORE likely because longterm trend value in a market of rising house prices would lead to people being more confident that it was a good time to buy a house which would lead to more people buying which would lead to higher prices which would lead to a higher longterm trend value which spirals up until we're back to where we are today and the bubble bursts.
Then the longterm trend value would lead to a spiral down in a similar way that it would lead to a spiral up.
The longterm trend value in a market of falling house prices would make people think that it was a bad time to buy a house which would lead to less people buying which would lead to lower prices which would lead to a lower longterm trend value which spirals down until finally buying a house and paying a mortgage is cheaper then paying rent and then it will start rising again...

The market should be set up so houses are seen as something to live in, they should not be an investment. Developing property is an investment, owning it shouldn't be.

[Clanrickard]

It's you system that is in crisis Clan - and nothing they have done or can do will solve the problem - it could take 10 or 15 years for the current slump to work it's way out of the system.

The problem for all you neo-cons is that ordinary working class people aren't going to sit around and wait for you to pontificate about what might be.

So tell me what is the alternative?

For the record with the right policies in place this crisis could be over in 18 motnhs. It is a question of the political will to do it which I think is not there.

[Catalpa]

This stuff is absolutely astonishing -

All the solutions that are being suggested here have been tried before

THEY DON'T WORK....

You can speculate (no pun intended) to you hearts content about how to avoid the crisis we are currently experiencing. But the reality is that the class struggle is now firmly back on the agenda (and it is not Marxists who are claiming this - the Financial Times are making the exact same claim). The ideological battle, that capitalism claimed it had won following the collapse of Stalinism, is firmly back on the agenda. The American Congress is talking about Socialism - the neo-liberal ideologues are bowing to the suggestion that Marx was right - even the Archbishop of Canterbury is talking about how Karl Marx accurately predicted this crisis and that the government must act to avoid socialism being back in the forefront of of people's minds. Unfortunately for the world's governments and the world bourgeois, there is nothing that can be done to prevent socialism once again becoming the rally cry of working class people.

Fairly good analysis there Jolly but your over egging saying that Herr Marx predicted the Great Crash of 2008!

BTW we had terrible times here in the 1980s but that didn't produce a Socialist Government.

Though I think most commentators from the Left through to the Right realise this one coming is going to be the biggest storm in decades....

It is too late now to avoid Global Recession - the best we can hope for is a short one and that it doesn't tip over into a Global Meltdown that leads to another Great Depression.

[JollyRedGiant]

[quote=Clanrickard;1236846]So tell me what is the alternative?[/quiote]
To solve problem of starvation, exploitation and disease being experienced by 2/3 of the worlds population and the unemployment, debt and exploitation being experienced by the rest - socialist revolution.

For the record with the right policies in place this crisis could be over in 18 motnhs. It is a question of the political will to do it which I think is not there.

And you have the solutions!!!!!

There are no solutions - every possible remedy that the neo-cons can come up with has been tried and failed in the past. There is nothing that can be done on a capitalist basis except sit back and try and ride it out over the next possible 10 years. The only other option for capitalism is to start a world war (frying pan and fire).