Austrian theory is grounded upon the causal-realist approach. One must look at the causes of actions, and the effects of such. One cannot formulate intricate mathematical models and then pretend all is well.
Austrians also understand well Hazlitt’s One Lesson that economists must observe not only the short term effects to one group, but the long term effects to ALL groups.
And now we have the robo-signing fiasco. It’s funny how fast things happen, how the market distortions and discoordinations suddenly appear. I must admit, I heard about these robo-signed foreclosures and didn’t know what was going on. News stories were little help as they tend to (as their job requires) sensationalize the news and obscure facts (and certainly any theory, which they are woefully lacking) , highlighting the personal side as to gain the reader’s empathy.
Apparently here’s the real problem:
But at the center of the foreclosure scandal looms something much larger: the question of who actually owns the loans and who has the right to foreclose upon them.
Yes, property rights. But this is problematic on so many levels. The fed’s debasing the currency, in effect meant that the money was fake and thus could be thrown around like halloween candy. As it was. Real savings is owned by someone, and you better beware when you lend someone another’s property. But when the money is fake, there’s no owner thus no accountability.
So in reality, the issue of real property ownership was irrelevant, as well it would be. How can someone actually claim to “own” a home when they borrow fake money, to “purchase” at an artificially inflated price, with no money down, on an interest only loan, something they planned to flip and profit on within a year? And then the bank dumps the loan into a pool of other like loans, packaged and sold to a third party, all backed by the government, whether de jure or de facto. So is it the pool or the original loan? Who knows? Who even cares?
Here’s something rather interesting:
For a housing recovery to occur, all the foreclosed properties — which could account for 40 percent of all residential sales by 2012 — need to be re-scrutinized by the banks and resold on the market.
The author hits on something that I believe he is unaware of: that the recovery will only begin after the liquidation. This is massive waste.
And we end up with things like this:
Meanwhile, the public outrage continues to mount. In what is perhaps a sign of things to come, a Simi Valley, Calif., couple and their nine children broke into their foreclosed home over the weekend and moved back in, according to television station KABC of Simi Valley. The couple, Jim and Danielle Earl, say they were working with the bank to catch up on payments until they discovered a $25,000 difference between what they owed and what the bank said they owed. The family was evicted from their Spanish-style two-story in July. The home has been sold, and the new owner was due to move in soon.
I’ve no idea who is right, nor will I even hazard to guess. What I would love honestly is how they can claim it is their house. Is simply signing paperwork all that is required to really confer ownership? They apparently had a loan, they apparently were not able to meet the stipulations of that loan, they tried to catch up (whether the loan was modified or not I do not know), and apparently the bank determined they failed to make good on their obligations. The bank then sold the home to another party.
This mess is clearly a cause of the housing bubble, government intervention into the housing market, and of course the massive waste and malinvestment of the previous decade plus. And we see even more broken windows and long term effects of policy driven economy.
Of course the solution that we’ll get is more regulation, more intervention, more destruction of property rights, basically more policy driven economy.
Now, it’s possible that many of the claims are valid, that the foreclosures were based on fraudulent documents. Fraud is a crime, one of the very few things that is necessary for government to protect against, as it is the cornerstone of trade. Both sides agree to the terms of the trade, with knowledge being scarce and incomplete. That much is given and expected. However, fraud is very real theft and must not be allowed.
And where did the real fraud begin? With the fed’s fraudulent money. When the money itself is bogus, everything follows. I can’t fault the banks, and honestly, I’m not sure I can fault the “buyers” either. Each was duped by government and fed policy and acted accordingly. We know fiduciary media causes huge coordination problems in the capital structure. But it appears that it causes even further problems as this episode makes abundantly clear.
It even distorts real property ownership, and makes transactions impossible.
Now, with so much inventory under a legal threat, the process will become severely delayed.
Add this to the list of reasons to get rid of the fed, and all policy driven economy.