Free market solutions.
Dec. 26th, 2011 12:02 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
alexandraerinAny time someone says that a problem would be solved if we would just step back and let the market work, you should answer them with a bulldozer.
So many people have been foreclosed on that banks in the U.S. have taken to razing vacant propeties by the thousands rather than keeping them on the market and paying to maintain them. I was going to link to an article backing this up, but there were too many to choose from sohere's a page of Google search results instead.
Now at the same time homelessness is on the rise, particularly among families with children, and the problems of homelessness and poverty are being compounded with reductions in government services, new laws that target the homelessness, and private policies (of banks and employers) that make it harder for anyone who falls down to ever get back up again.
The sort of person who speaks of the invisible hand of the free market as an all-knowing and benevolent god is likely to respond to the implied suggestion that banks should be giving the homeless houses by saying that the situation is more complicated than that. Either that or "...what are you, some kind of Communist?"
But the situation really couldn't be simpler. There is a glut of houses on the market right now. According to the theology of the Invisible Hand of the Free Marketism, these houses should be sold for whatever the market will bear. Free houses? Right now banks are paying people to reduce the supply of houses, so someone taking them for free would be doing them a huge favor.
At the moment where it's worthwhile for a bank to pay someone to bulldoze a house, you should be able to walk up and say "Hey, whatever the bulldozer guy is charging... I'll take care of this problem for you for half of that." and walk away with the bank's money and the house.
Taking the house for free, or buying it for less than its appraised value. Nobody loses there, except the guy with the bulldozer. But how a great a day can you be having when your job is to bulldoze an empty house in a nation full of homeless children?
Okay, maybe you're thinking that the perhaps the red tape and expenses involved in transferring the property would make it less worthwhile to give the house away than to just knock it down and bury it, but think about the situation in general terms. What does Joe's Furniture Emporium do when they have new inventory coming in and not enough room in their warehouse and showroom floor for it all? What do the car lots do when next year's model is coming out and they have a lot full of last year's? What does the grocery store do when it overstocks something perishable?
Answer, in every case: they sell as much as they can for whatever they can.
All those empty foreclosed houses ought to be going at fire sale prices. Again, if the bank is going to pay someone to demolish it then any price is a bargain for them.
And yet what I hear anecdotally from people I know who are offering ready money for houses is that banks aren't entertaining any short sales, banks are evaluating offers that ask them to come down in price individually and then tending to reject them.
And I've heard all kinds of reasons for this, like if they sell houses for less than their worth then they're just going to damage the housing market further. But isn't the worth of the house supposed to be set by the market? Not purely the buyers or the sellers but the interaction between the two? And yet we have an industry that will pay money to raze a house rather than sell it at a loss that is doing things like rejecting an offer of $87,000 for a former $90,000 property that needs a little work, or otherwise acting like they're in a position to pick and choose.
There really is no mystery of what's going on here. The free market operates on supply and demand. A glut means supply is higher than it needs to be for demand to be satisfied. ("Demand" doesn't just mean "how many people need a thing" but "how many people will pay for the thing at the current price.") This is supposed to drive the prices down until the point where increased demand alleviates the glut. It probably wouldn't reach the point of free houses (and if it did, the glut would be over in an economic instant), but it would be a fire sale. To avoid that, the banks have taken it upon themselves to artificially restrict the supply, both by ignoring reasonable offers and by literally destroying the surplus.
What's the free market solution to that?
Nothing.
This is the free market in action.
So many people have been foreclosed on that banks in the U.S. have taken to razing vacant propeties by the thousands rather than keeping them on the market and paying to maintain them. I was going to link to an article backing this up, but there were too many to choose from sohere's a page of Google search results instead.
Now at the same time homelessness is on the rise, particularly among families with children, and the problems of homelessness and poverty are being compounded with reductions in government services, new laws that target the homelessness, and private policies (of banks and employers) that make it harder for anyone who falls down to ever get back up again.
The sort of person who speaks of the invisible hand of the free market as an all-knowing and benevolent god is likely to respond to the implied suggestion that banks should be giving the homeless houses by saying that the situation is more complicated than that. Either that or "...what are you, some kind of Communist?"
But the situation really couldn't be simpler. There is a glut of houses on the market right now. According to the theology of the Invisible Hand of the Free Marketism, these houses should be sold for whatever the market will bear. Free houses? Right now banks are paying people to reduce the supply of houses, so someone taking them for free would be doing them a huge favor.
At the moment where it's worthwhile for a bank to pay someone to bulldoze a house, you should be able to walk up and say "Hey, whatever the bulldozer guy is charging... I'll take care of this problem for you for half of that." and walk away with the bank's money and the house.
Taking the house for free, or buying it for less than its appraised value. Nobody loses there, except the guy with the bulldozer. But how a great a day can you be having when your job is to bulldoze an empty house in a nation full of homeless children?
Okay, maybe you're thinking that the perhaps the red tape and expenses involved in transferring the property would make it less worthwhile to give the house away than to just knock it down and bury it, but think about the situation in general terms. What does Joe's Furniture Emporium do when they have new inventory coming in and not enough room in their warehouse and showroom floor for it all? What do the car lots do when next year's model is coming out and they have a lot full of last year's? What does the grocery store do when it overstocks something perishable?
Answer, in every case: they sell as much as they can for whatever they can.
All those empty foreclosed houses ought to be going at fire sale prices. Again, if the bank is going to pay someone to demolish it then any price is a bargain for them.
And yet what I hear anecdotally from people I know who are offering ready money for houses is that banks aren't entertaining any short sales, banks are evaluating offers that ask them to come down in price individually and then tending to reject them.
And I've heard all kinds of reasons for this, like if they sell houses for less than their worth then they're just going to damage the housing market further. But isn't the worth of the house supposed to be set by the market? Not purely the buyers or the sellers but the interaction between the two? And yet we have an industry that will pay money to raze a house rather than sell it at a loss that is doing things like rejecting an offer of $87,000 for a former $90,000 property that needs a little work, or otherwise acting like they're in a position to pick and choose.
There really is no mystery of what's going on here. The free market operates on supply and demand. A glut means supply is higher than it needs to be for demand to be satisfied. ("Demand" doesn't just mean "how many people need a thing" but "how many people will pay for the thing at the current price.") This is supposed to drive the prices down until the point where increased demand alleviates the glut. It probably wouldn't reach the point of free houses (and if it did, the glut would be over in an economic instant), but it would be a fire sale. To avoid that, the banks have taken it upon themselves to artificially restrict the supply, both by ignoring reasonable offers and by literally destroying the surplus.
What's the free market solution to that?
Nothing.
This is the free market in action.