Not to get all gloomy after DougJ’s post below, but I don’t think we are anywhere near out of the woods:
The collapse in commercial real estate is preventing Federal Reserve Chairman Ben S. Bernanke from declaring the economy and financial markets are healed.
Property values have fallen 35 percent since October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year, pressuring companies such as Maguire Properties Inc., the largest office landlord in downtown Los Angeles, to put buildings up for sale.
The industry is likely to be high on the agenda when Bernanke and his colleagues sit down in Washington tomorrow for the Federal Open Market Committee meeting on monetary policy. Lawmakers including Barney Frank and Carolyn Maloney are pushing the central bank to extend an aid program designed to restore the flow of credit.
If nonresidential real estate remains in the doldrums, the Fed may be forced to leave emergency-lending programs in place and keep its benchmark interest rate close to zero for longer than some investors expect, given positive signs elsewhere in the economy.
And meanwhile, unemployment is still high, and that, in turn, puts more pressure on the rest of the real estate market and home mortgage industries.
Napoleon
Awesome, all I do is commercial real estate and real estate finance work.
Is it too early to start drinking?
MBSS
it’s particularly bad in california. we have been pounded by the real estate collapse. there are pockets that are experiencing over 20% unemployment, in part due to this issue.
but, oh, the hey days of the real estate bubbles. immigrant, field hands buying 700,000 dollar houses with zero down, lol. everyone was an agent around here.
RandomChick
Come on Cole – I just logged on! Couldn’t I have had 20 minutes to enjoy the good news without the wet blanket?
‘Though I do agree with MBSS. Real estate prices were obscenely and artificially high. They had to come down to a more realistic level at some point. That brings inevitable pain to when it happens.
coffeegirl
Yes, but we’ll always have Sarah!
http://www.spunangel.com/2009/08/letter-of-application.html
Walker
I was just referencing this in the last thread. I really think this is a false rally. It is largely created by the fact that we decided to pretend that the bank’s paper is not worthless, and are letting them live on as zombie banks.
You can tell because of the way people continue to talk about housing. They are waiting for the housing “rebound” to happen, so that we can start making money again. Ask someone in Texas about how long it took their houses to rebound after the late 80s.
We know from multiple times in the past that, until people say “it is crazy to buy a house, you should rent”, this is nowhere close to being over.
MBSS
what is up with the disconnect between wall st. and the real economy? how can they rally and start up the next bubble, when everyone i talk to on the ground is hurting and can’t pay bills? this is not going to get better that easily.
donovong
That’s okay, John. I wouldn’t want to experience a lessening of the deep, despondent gloom that has shrouded my life for the last year. And just when DougJ was able to cheer me up a tiny bit, …
media browski
I know this is apostasy, but absorbing the damage from the bubble (that 35% that never should have been there) is all part of getting our house in order.
It’s a feature, not a flaw.
As for “unemployment is still high” … you don’t say?
sparky
@MBSS: you’d be disconnected, too, if the gov’t gave you 15T (i gave up trying to get the zeros correct) and said have fun!
wilfred
Years ago I was in Palestine at the time of the Oslo Agreements and was invited to attend a workshop at the university in Ramallah. One of the panels I watched was on initial development. There was unanimous agreement among the panelists – mainly Americans, some Euro – that the first thing was to get insurance companies into Gaza.
Insurance companies. Most development and government intervention is like the No Bank Left Behind Act – it has little to do with ordinary people and everything to do with preserving the wealth of the wealthy. Again, mutatis mutandis.
harlana pepper
Meanwhile, I am loving the fact that my sister’s Obama/Dem-hating friend tried to take advantage of cash-for-clunkers a couple of days ago when she purchased her new Camry on a whim. Her trade-in didn’t qualify.
scarpy
Yeah, but the scale is much smaller in this case, isn’t it? $165 billion in troubled refinancing sounds like a drop in the bucket compared to the residential market problems of last year.
Not that it’s good news, but it’s not (I hope) the knock-out punch.
MBSS
@ wilfred
what do you think american insurers would charge for home insurance in gaza?
“hello, i’d like to sign up for bomb and fire insurance.”
Just Some Fuckhead
John, it’s your lack of confidence and positive outlook that is personally stopping the economy from rebounding. Why won’t you think happy thoughts and believe?
JohnR
A quick omni-post: I’ll wait for a bit before getting my hopes up; too many of the things that stimulate gloom or hope seem to happen at the top of the economy and trickle down only sparingly to the economic strata where I and my friends live. When I actually see jobs available, then I’ll start to think things are picking up.
I like the new/old look – glad you fixed what was ailing the site.
That “double-down” post – that’s just human nature. When you run into problems, try even harder; it’s just _got_ to work. I can’t be wrong; I just have to talk louder. If we all just keep saying it, they’ll have to give in and see it our way.
I’m not even sure any more that there’s any difference between insanity and cynical political manipulation – at what point do you begin to believe your own fervent lies?
Svensker
I’m seeing that on the ground in the rich NJ suburb around us — lotsa empty retails spots. Banks, of course, but also all the shops that have gone under. And walk down 8th Street in NYC — what used to be a thriving retail environment is a ghost town. The people who were getting $15K a month on those retail spaces still have to pay the mortgages, taxes, insurance, even though they’re now collecting nothing. This will have an impact.
OT: Anyone else getting a blocked intruder alert from their antivirus when they come here? I’m getting “blocked: dg.specificclick.net”
Napoleon
@scarpy:
The only knock out punch will be to certain regional banks, basically your 2nd, 3rd, etc. tier banks that were not playing with fire in the residential market and instead were focusing on commercial. The only silver lining is that the jobs to be lost in the commercial markets more or less already occurred and now you are basically just talking about investors (including investors who may have also developed) and some banks taking it on the chin.
MBSS
@ harlana pepper.
i talked to an older lady the other day whose car also did not qualify. she had a 83 oldsmobile. apparently they only take 84’s or newer. she was a pissed off old lady, and she told me “they should take the oldest cars off the road first.” and i agree with her. if not for the full $4,500, then at least for some amount, for the sake of getting the clunkers off the road, like they said it was for. this isn’t “cash for semi-old cars.” they could have thrown even more money at this program, and really got the old, polluting vehicles off the road.
i told that lady how to contact her rep and senators to complain.
The Moar You Know
@scarpy: $165 billion worth of assets in trouble…that you know about right now.
I work in a prime commerical corridor of San Diego and have watched over the last 6 months as 50% (and I am not kidding, I counted, it’s half the buildings on our street) have had their tenants fold up shop and walk away. Some with no notice to landlord or customers. No one is replacing them. CRE is in for a bloodbath in this country, and the numbers you are seeing right now are literally the tip of a very large iceberg.
The ride ain’t over yet. Not by a long shot.
cleek
in the last two weeks or so (ever since that last monthly real estate summary which said sales were up), a dozen houses in my neighborhood have gone on sale. none of them have sold, yet, of course. but it was pretty obvious that all those people were waiting for some kind of signal to sell. “good housing news? call the realtor!”
Brick Oven Bill
Krugman is an idiot. The government cannot create value or underpin an economy. Economies are founded on things that are grown, mined, and built. The proper government intervention would be to institute tariffs which would:
1. Generate revenue.
2. Encourage things to be grown, mined, and built here.
The Grand Panjandrum AKA Americans for America
Jim the Realtor put up this video about CRE in his area. This should cheer you up.
Evinfuilt
Too much crap in the news, find some extra time to give us some more Tunchcam and the new Lillycam. Please :)
MBSS
tunchcam tunchcam!!
felines to cheer us up FTW
The Moar You Know
@The Grand Panjandrum AKA Americans for America: Thanks.
Jim’s just right up the road from me. At least he’s entertaining.
Bill H
@Walker:
Indeed. The “toxic assets” had to be removed from the books, bought by the government, then sold at auction, then… Poof, they disappeared. They are still there, they just are not toxic any more. They were the whole problem to begin with, and then some magic wand made them disappear.
Now Krugman, who used to have some credibility with me, is saying we are in recovery because… Beacuse what? The stock market is up 28% or so. Everything else, everything else, is still dropping; employment is down, manufacturing down, durable goods down, consumer spending down, exports down.
AIG and Goldman profits are soaring and the Dow is up 28% so we are in recovery. This is just absurd.
The Moar You Know
@The Grand Panjandrum AKA Americans for America: Oh yeah, I forgot – that whole area’s empty and there’s about another 50-60 acres that’s not even built on, just graded and abandoned. It’s where I fly my RC airplanes (a great place for doing that).
J.
On the positive side, today is National S’mores Day! That should cheer you all up (in addition to the Tunch/LilyCam).
PeakVT
@MBSS: The government should be taking any car because an older car emits much more toxic pollutants (SOx, NOx, particulates, hydrocarbons) even if it gets good gas mileage. If granny wants to trade in her ’73 Dart or ’81 Citation, it should be accepted.
Beside, we’re going to euthanize granny any day now, so somebody will be able to get that slightly used car on the cheap. It’s a win-win.
MBSS
i’m gonna go do some stretches and eat some breakfast. it’s only 8:30 here on the west coast.
when i log back on here i better see some whiskers, and a chubby white cat.
MBSS
@ peakvt: lol.
she might be on the same death panel as trig…
obama is so macabre.
Dave
Thanks, Debbie Downer. Want to ruin my morning coffee for me while you’re at it?
Trinity
@Evinfuilt: Yes.
Punchy
CRE crash, you say?
While it sucks for all those peeps without the sales jobs, if it keeps Home Depot from building their third store in 12 blocks and right across from a Lowe’s, I’m all for it. Greedy builders really thought that 2 consecutive miles of strip malls was going to stay viable? That open space and park just had to demolished for that 4th Quizno’s?
As the CR folks would say, this is a Nothingburger as far as I’m concerned.
Napoleon
@Brick Oven Bill:
Brick Oven Bozo says: “The government cannot create value or underpin an economy. Economies are founded on things that are grown, mined, and built.”
If that was true we could get rid of money and the entire financial system, including banks and Wall Steet, and do just as well trading beaver pelts for cars and vacations.
But of course we wouldn’t, and part of the money/financial system is having government alter the amount of money available, and the amounts of direct government expenditure.
Honestly you are so f—ing stupid you would be thrown out of Milton Friedman.s Econ 101 class (well if he actually still taught one).
Crashman06
@Brick Oven Bill: Tariffs? How nineteenth century of you, Bill. I’m sure a trade war with China is exactly what we need to pull out of this economic slump.
Napoleon
@Bill H:
It is clear to me from other things he has said, including an interview of him in the last week that his basis is the classic economic basis of GNP hitting bottom. He admits that its not going to feel like it to the average American.
Puppy (sans fork)
OT – seriously, that ad showing the dog with the fork in his skull is traumatizing.
ThatLeftTurnInABQ
@Bill H:
[scratches head, wonders where Krugman said “we are in recovery”. Goes back to read the Krugman article (that DougJ linked to) again]
…
…
Am I reading the wrong article? Did Krugman say somewhere else that “we are in a recovery”?
Xenos
@Bill H: It is not absurd – it is just the usual racket, and some of us are seeing it for what it really is for the first time. Among other things, it may time to sell off what is left of one’s retirement portfolio.
Keith G
@MBSS: Re cat: Ignored noise in kitchen as I finished reading news. Then walked in to get coffee to discover two guilty looking felines who had located the cat-nip stash. Floor was covered with herb and shredded plastic. Cats were high.
Its Monday.
jwb
@ThatLeftTurnInABQ: I’m with you. I never heard Krugman say anything about recovery. I heard him say: we seem to have averted a Great Depression and proper government intervention is largely the reason we did. But “not Great Depression” is hardly the same thing as “we’re in recovery.”
Halteclere
Here in the Dallas there are several mixed-use apartment complexes that have been recently completed or are coming online who can’t find renters for either the apartments or the ground floor retail spaces. The builders, investors and bankers are all losing their shirts. I know of at least two areas of vacant land where the building process was stopped after the old apartments were scraped.
One complex newly built had a development cost of $50 Million, and after being completed since this spring has only been able to get 5% apartment occupancy even with deeply discounted rates. And the retail space rental is nill. From what I understand, a rough estimate is that this complex needs 75% apartment occupancy just to pay operating expenses and yearly taxes before even beginning to service the dept! As someone said, it isn’t a train wreck. It is two trains speeding towards each other with an airplane diving in on top.
It probably takes a couple years from conception to completion for these these things to be built, so right now contracts are in place that have to be honored to build something that no body wants. I don’t think the losses from these projects have yet peaked, and there is no telling how long it will take apartment and retail to recover from this overbuilding.
The Grand Panjandrum AKA Americans for America
There is a grain of truth in what BOB writes.Since Reagan blew out our tariffs in the 1980s (and Clinton kicked the door open with GATT, NAFTA, and the WTO), our average tariffs are now around 2-4 percent. The predictable result has been the hemorrhaging of American manufacturing capacity to those countries that do protect their industries through high import tariffs but allow exports on the cheap – particularly China and South Korea. Ross Perot may be a paranoid nutter, but that doesn’t make him wrong on so-called “Free Trade.” I am a protectionist and always will be. Protectionism aided in the rise of our middle-class. Had it not been for our protectionist instincts early on we would all be living like the Amish (and not by choice.)
Brachiator
@media browski:
I agree with you big time. Residential and commercial real estate values have been overstated, and must come down to reflect more realistic values.
I do not understand why economists (even Krugman who at least acknowledges unemployment as an issue) talk a lot about consumer spending and prices, but don’t talk about wages and income.
Playing credit games may get you into a house or commercial building, but only sustained income can keep you there.
Even the “cash for clunkers” program hides a more basic message that auto prices are too high given current wage levels for people to afford them, even with supposedly attractive financing options.
Ultimately, Obama should be focusing working harder with the Secretaries of Commerce and Labor on programs to get people working and to raise wages. The macro economic stuff that the Fed and Treasury love will then fall into place.
SGEW
Sometimes the words “the economy does not appear to be worsening at the same alarming rate and a global financial meltdown seems less likely to occur now than it did several months ago, all due in part to governmental intervention” sounds an awful lot like “hooray, everything is all fixed now, all praise Obama,” I guess.
Napoleon
@ThatLeftTurnInABQ:
The most he says is he thinks we may have or shortly will hit bottom, and he is clearly talking about from a classic GDP basis.
Like in this Talk of the Nation appearance on NPR a week ago.
http://www.npr.org/templates/transcript/transcript.php?storyId=111504703
gizmo
We need to stop using the financial indicators out of Wall St. as a barometer for the economic health of the nation. There are many other metrics that would tell us more about where we stand. I’d like to know how our kids are doing academically, whether the water is drinkable, and how much topsoil there is left in Iowa and Nebraska.
Fricking ‘housing starts’ is the dumbest statistic out there.
bystander
Krugman isn’t an idiot. Neither is Roubini. But, I’ve been very uncomfortable with their apparent ‘optimism’ for about the last month or so. Back in late April, noted on his blog in May, Krugman and Stiglitz had dinner at the White House. Within a month or so of that, I noticed that Krugman appeared to have backed off from his overt criticism of Obama’s economic policies. He was still writing about the weaknesses in the economy, still satirizing and debunking Republican talking points, and criticizing his colleagues (Krugman’s What Happened to Macro series), but he had stepped away from Obama. I don’t follow Stiglitz or Roubini as closely as I follow Krugman, so I don’t know if my observation holds for all three.
I abhor finding myself in tin-foil hat territory, which is where I may be treading now. Still, I hold in reserve that some of Obama’s dissenting liberal economics voices may have chosen to mute some of their criticism. I hope it is not the case, that they have begun to make the kinds of noises, which could be construed as ‘optimistic,’ where there is no good basis for making them. Krugman and Stigliz are as close to Keynesians as we currently have who can speak in plain English; apart from Jamie Galbraith.
It has always been true that the nominal economy could leave the real economy behind. And, while it appears that the financial industry is in remission, if not recovery, the goods and services part of the economy is still collapsing – albeit more slowly than it was. This is the part of the discussion that Krugman used to just hammer, and I don’t see him doing that now.
YMMV.
WereBear
Commercial is not going to recover, I think. (Not that I’m an economist.)
But I’m a consumer who is on the poor side. Unlike most of the US population, I don’t have a bunch of malls nearby. To get what most people take for granted, I have to drive for at least an hour. And I won’t do that.
If I can’t buy it locally, I get it on the internet. I pay for shipping and get a visit from a truck which is in the neighborhood anyway.
And that’s the future.
Combine global warming and peak oil, and what do you get? You get The End of our present consuming system. Building huge buildings that have to be heated and cooled and stocked from fleets of trucks, for consumers who drive their individual cars into the parking lot and haul stuff home again.
Neither side is going to be able to sustain that kind of overhead.
Brachiator
@Halteclere:
Here in the Dallas there are several mixed-use apartment complexes that have been recently completed or are coming online who can’t find renters for either the apartments or the ground floor retail spaces. The builders, investors and bankers are all losing their shirts. I know of at least two areas of vacant land where the building process was stopped after the old apartments were scraped.
There was a great article in the NY Times recently about a 32 story condo that was practically empty.
http://www.nytimes.com/aponline/2009/08/02/us/AP-US-Lonely-Highrise.html
Another article indicates how loss of jobs and insecurity over wages affects day-to-day living decisions in New York City:
http://www.nytimes.com/2009/07/21/nyregion/21vacancies.html
There are similar problems throughout the nation.
ThatLeftTurnInABQ
@The Grand Panjandrum AKA Americans for America:
I’ve been kicking that thought around in my head for years but keep coming back to one problem. If you look at the lifecycle of a modern product (say an iPod) and find out where the money is made, there isn’t a whole lot of money made in actually manufacturing the thing. Most of what you as a consumer pay for a product like that goes to folks in concept design, R&D, sales and marketing, and the consumer facing retail channel. Wage slaves in China actually putting bits of plastic together don’t make more than a fraction of a percent of the total purchase price. So how much good does it do us to pull that activity back to the US via tariff reform?
It seems to me that there are really many different kinds of manufacturing, some of which would provide middle class wages, and others for which you might as well be out plowing the north 40 for all the good it will do you in terms of providing middle class wages. And if you look at the manufacturing of very complex capital intensive goods (what GE does for example), the US manufacturing sector is still very much larger than say China in that area – but it isn’t apparent at the consumer level because those aren’t primary consumer goods. You don’t go to Target and buy a turbine. Thus people don’t realize that the US is still a manufacturing giant, they think everything is made in China these days because that is all they see in the retail stores.
So when we talk trade policy and protectionism, we need to focus on our competitors in Europe and other places where they make high value add products which generate real middle class wages, not on putting little bits of useless plastic together to make cheap crap for the local Walmart. I think a bigger problem is that too much of our high value add manufacturing today is in the area of weapons design and production – which is a market with natural limits from an export standpoint, unless we are willing to sell the good stuff to folks who we can’t control or who might copy the technology or worse yet turn it around and use it against us in a future conflict. We need to transition off of the MIC economy while continuing to focus on high value add production.
jwb
@bystander:
One thing about Krugman: I don’t think he’s capable of modulating his tone on command (he’s just not that kind of writer), and so, if he seems more optimistic, I think that is because he is in fact less pessimistic (no Great Depression Redux, yay!). To the extent that there has been a change, I think it has primarily taken shape in the topics he has chosen to write about; and I think you are right that he has simply written less about specific Obama adminstration policy choices so as to have fewer reasons to write critically of the administration. Still, Krugman just doesn’t strike me as someone who could be bought, which suggests to me that he must be convinced that his current strategy is a better way to see the sorts of policies he wants enacted put in place.
The Grand Panjandrum AKA Americans for America
@ThatLeftTurnInABQ: I agree. And that is precisely what I mean by protectionism. Not a blanket high tariff on all imports. We never did that (nor should we now.)
Do we have enough steel production capacity left in this country to stave off catastrophe if something happens and the so-called low cost overseas manufacturers stop selling us the steel? I don’t know.
MBSS
@ Keith G
LEGALIZE CAT NIP NOW!!! we can tax it and make a bundle of tax revenue. remember if toots the cat is caught driving high it will still be a d.u.i.
i saw an recent article saying that dogs are as smart as two year olds.
http://www.myfoxchattanooga.com/dpp/news/dpgo_Study_Dogs_as_Smart_as_2_Year_Old_Kids_mb_08092009_2900558
you can tell animals are smart when you look in their eyes and read their expressions. it’s almost as obvious to decipher as a wife or g.f.’s “you’re sleeping on the couch tonight,” looks.
Brachiator
@WereBear:
Great example about how people making decisions in the free market pushes employment, and wages, down. People want good wages for the work that they themselves do, but paradoxically, want low prices and convenience from Big Box Stores like Wal-Mart and No Box stores on the Internet, even though this puts huge numbers of small merchants out of business.
But the truck isn’t just in your neighborhood anyway. It is routed there as the result of your Internet purchase decisions.
And here you have not really solved global warming problems, you have just shifted energy use. Instead of people driving to the mall to buy things or to go to eat or to see a movie, they have the stores deliver products to their homes and then use energy locally as they stay in and eat and watch videos. But people are still consuming energy.
Unless you have a solar powered laptop.
bystander
@jwb:
It is true that Krugman has said he lacks the “temperament” for government service. And, this might suggest his unwillingness and/or his inability to moderate his inclination to call it as he sees it. But, I don’t discount Krugman’s ability to make a trade. Like, I’ll focus on other things for the opportunity to meet with you face to face and lay out my objections in plain language.
I ask myself, were I Krugman, where do I think I can get the best bang for my buck? Pounding the keyboard at the NYT preaching to the choir, or speaking mano-a-mano with the Pope?
As I said, I’m holding that judgment in reserve. The most critical issue facing an average American right now is what is happening in the goods and services segment of our economy. Globally, as ThatLeftTurnInABQ and The Grand Panjandrum are kicking around, those investment dollars at the NYSE are free to seek their highest return in the goods and services economies abroad. I become uncomfortable watching Krugman take his eyes off Obama’s TARP and stimulus policies.
There is one other thing that rattles in the back of my head. Do I become a Krugman-cultist by ascribing a level of integrity to him that is based on what I want to believe about him, as opposed to what I witness him doing? Not unlike those who would defend Obama’s choices for better or worse, in sickness or in health…, I don’t want to be blinded by my previous warm and fuzzy feelings for someone who told it like it was during the Bush years.
I’m merely trying to pay attention, stay aware of my own biases, and examine the empirical evidence as it becomes available.
MBSS
@ bystander
Krugman isn’t an idiot. Neither is Roubini. But, I’ve been very uncomfortable with their apparent ‘optimism’ for about the last month or so.
ditto
@ThatLeftTurnInABQ
I think a bigger problem is that too much of our high value add manufacturing today is in the area of weapons design and production –
ditto. that’s what we make. weapons. we still manufacture, it’s just we make the worst things that you can make. we sell guns to mexico to fuel their drug wars, and they sell us drugs. we sell arms across the world, and then we have our leaders tell us to vote for them because the world is a scary place, and they can protect us. it’s a joke as far as i’m concerned.
inkadu
@Brick Oven Bill: Thank you, Bill, for yet again bringing my turn-of-the-century American history classes to life.
In the even more interconnected world we live in, protectionism is even dumber than it was 100-years ago. And for every tariff the United States imposes, there will be a counter tariff placed on US products by other markets. It’s a no-win downward spiral. A protectionist war is partly what pushed the depression down even further.
Tariffs are bad politics and bad economics. You’ll have inefficient industries siphoning off a percentage of the economy that is not due them while lobbying congress for a maintenance, increase, or expansion of their pet tariffs.
If the United States can not compete, we need to find other solutions. Health care, for instance, puts US product pricing at a severe disadvantage.
Steeplejack
@jwb:
Also, Krugman doesn’t have to be convinced that the Obama administration is the greatest thing ever to realize that the alternative, the
do-nothingactively obstructionist Republicans, are far worse. So maybe he has decided to not fan the fires and to modulate in an “I won’t complain that the lifeboat that picked us up doesn’t have comfy seats” way.The Grand Panjandrum AKA Americans for America
OT: Earliest LOLcat?
MBSS
@ john cole.
i never weighed in on the layout thread. btw, you have a fantastic layout and use great fonts. easy to read, easy on the eyes, good colors. some sites actively try to make you go blind.
but one thing i would appreciate is a comment preview button. considering my crappy grammar and punctuation i need all the help i can get.
Napoleon
@The Grand Panjandrum AKA Americans for America:
I fully thought when I clicked on your link it would go to some Cro-Magnum art or Egyptian hieroglyphics.
gopher2b
Folks, “not headed for Great Depression II” and “economy returning to 2008 levels”……two entire different scenarios.
It is not either/or. Anyone who thinks we’re returning to “pre-2008” economic numbers is naive to say the least (stupid is more accurate because (1) you’re wrong, and (2) why would you want to return to “pre-2008” economy; it was based on consumer spending 110% of their income.
Max
I work for a retail REIT, a very large one, and we are starting to see some turnaround. Retail Sales for this year are down 10% at the property I run, but are starting to stablize, and the bankruptcy of the retailers is starting to subside. My hope is that this holiday season will be better than last year, with retailers being very cautious in their inventory buy up. Consumer confidence feels like its getting stronger.
It’s been horrible the past 15 months or so, but I think the free fall is over.
Tsulagi
Another real estate shoe ready to drop or already starting to drop on local and state gov is a not unsubstantial decrease in revenue from property taxes. About a one to two year lag in property valuation tax assessments. Recently got mine. First time ever a decrease; almost 20%. You can bet CRE owners have been applying to assessors to adjust their valuations.
Napoleon
@Max:
If that happens to be Simon the guy who runs it (one of the Simon’s) came out a few days ago and basically said new retail development is dead for the next 8-10 years (which of course doesn’t mean existing properties will not rebound to a sustainable level).
inkadu
@Brachiator: You are confusing morality with economics. People have been trying to find cheaper ways to do things for as long as they’ve been able to count shiny pebbles.
Even beyond lying athwart history, your point here is particularly weak. It’s not just a matter of convenience or a slightly lower price, it’s a matter of offering different and better services. Amazon offers way to evaluate books that a local bookstore does not. The last local bookstore I went to was staffed by a 20-year-old college student; how much do you think that student knows? More than the community knowledge of Amazon reviewers, combined with sales and search rankings? The only time I’ve bought a book at a bookstore is when I already knew I wanted it from my research on the internet, when I was desperate for a read, or if I was behind on my shopping.
I’ve tried to support a local hardware store a few times, because it was within walking distance of my house downtown. It was owned and operated by a guy in his late 60’s, who apparently wasn’t very interested in keeping things stocked, and wasn’t particularly helpful.
I once got a lecture from Jello Biafra on buying used clothing. He pointed out he was wearing a very fancy shirt he bought at a used boutique store. I’ve been to those boutique stores, and they sell more yippie cache than clothing; I don’t have that kind of money. And have you tried finding a pair of pants that fit at a Goodwill?
I do support local businesses when they are worth it; there is another very good hardware store that is well stocked and has very helpful people who know what they’re talking about. I go to health food stores because they have food I can’t find at the grocery store. Liquor stores are almost all local. If you want good picture frames made by competent people, you really can’t go to the mall.
Small businesses will have to adjust to the new realities of the marketplace, just like big businesses do. But, hey, if you want to go back to the days of visiting the suppository maker to administer your drugs, you feel free to do that.
And you are also comically wrong about the energy it takes to run a computer and the energy it takes to run a car. But the other guy does not go far enough. Suburbs are long-term unsustainable; so he’s not going to be able to sit at home and have his groceries delivered every 3 days; I’m also not sure where he plans to work or how he’s going to get there. If we can’t drive to Target to buy our DVD-players and greeting cards, we’re going to do what people have always done — move to the cities, walk, and take public transit.
ThatLeftTurnInABQ
I think there is a bigger problem here that we are sort of grappling with the edges of like the blind men and the elephant. Historically speaking the US has almost always had a political faction which is friendlier to the interests of commerce, finance and big business, and an opposing faction less friendly to the major players in what today we would call the FIRE economy.
Now we may take it for granted that the GOP is the party of big business (because that is the framework we’ve grown up with) and tend to think of them as being the champions of the FIRE nation. But the FIRE nation party has also traditionally been the one with its regional base in the Northeast, and culturally based on the Puritan/Yankee diaspora.
While we take it for granted that the Dems are less the party of big business than the GOP, that is really a historical anomaly due to the weird way that the two parties have exchanged places with each other over the last 100 years in terms of their geographic and cultural bases. The Dems legacy from the FDR era of being less pro-big-business than the GOP is partly a result of them having come out of a regional base in the Southeast and rural areas during that era.
But today the Dems are for all intents and purposes the same regional and cultural block as was GOP of the late 19th Cen. Which means that if they hold to past patterns then the progressive legacy of the Democratic Party from FDR’s era will wear off with time and the Dems will become the party of big business and the FIRE economy.
I think this has not yet happened as much as it might have, that’s because the Dems were out of power so frequently during the Reagan-Bush1-Bush2 era. Big business cleaves to power, and the Dems didn’t have it as much as the GOP did. But if the GOP is now going to be in a demographic wilderness for a while, watch out. The long delayed switch over is going to happen. You saw it already during Bill Clinton’s administration and in the way that powerful Democratic congresscritters like Dodd and Schumer are already creatures of the FIRE sector. That trend is only going to accelerate, and progressives will have their hands full fighting to maintain the older tradition dating back to FDR.
Woody
Did anybody mention the next wave of ARM ‘resets’ looming in September?
Outta the woods?
Sheeeeit.
We ain’t even got outta the tree up which the last Bear chased us…
Francis
CRE much more than residential RE is fixed by one simple step: keep lowering prices. There are enough ambitious businesspeople in this country to clear the CRE glut if the price goes low enough.
But that may mean wiping out the equity of big institutional investors, who in turn fund public and private pensions. So, we get the economy going again, but then need to pay higher taxes to fund the pension gaps. I can understand why pension funds are anxious not to realize their losses just yet — they can’t go back to the state legislatures for more money.
So I understand. If I’m completely wrong I look forward to energetic corrections.
Zifnab
@gopher2b:
(1) I don’t see why.
If you’ve got increased government spending filling up paychecks and a rock bottom interest generating lots of free money, why wouldn’t we see the economy zoom back up to pre-’08 levels? The big hold-back is the job loss. If the economy starts cranking again, you’ll start seeing more hiring and less firing, and that will quickly restore life to the market.
By 2010 or 2011, I don’t see why the market won’t work it’s way back to ’07 numbers. We haven’t implemented any serious checks on the “too big to fail” industries. You’ve got a glut of empty homes on the market – a void just waiting to be filled. And people are stupid. They’ll happily all pile back into the clown car the moment someone can get the engine rumbling again.
Max
@Napoleon: Not Simon, but close. I agree on the new development comment, but I don’t think that will have an impact. For the most part, the country is over-retailed. Plus, retailers will be fewer at the end of this. Once we are thru this downturn, the remaining retail will be in a stronger position and the occupancy rates will go up.
We are still trying to stop the bleeding with the retailers that I deal with, but soon, I expect the requests for rental reduction to lessen and sales to start growing.
Retailers have to do their part too. They need to focus on the product that sells, smartly control inventory, do some grass roots marketing and manage their visuals. Gone are the days when all a retailer had to do was turn on the lights.
Elie
Brachiator @ 45
While I generally agree with you that salaries/wages are too low, they are only in relation to prices — that are way too inflated from overuse to generate unbridled wealth (see real estate baloon, inflated costs of food and everything else). If we could normalize those prices, the pressure on wages to gallop after prices would be less necessary. Our rising price structures to fund excessive wealth is not what I want to have to keep up with. (I know, hard to do though)
inkadu
@ThatLeftTurnInABQ: For the unedumacted, FIRE stands for Finance, Insurance, Real Estate
Why a question mark pops up over FIRE I have no idea. I click and right click and get nothing. Maybe firefox was confused about the term, too.
liberal
Anyone have any suggestions on financial moves to benefit from this? Shorting some chunk of the financial sector?
liberal
@inkadu:
OTOH:
* Amazon et al. benefit from the injustice of sales taxes being levied on brick’n’mortar stores but not internet retailers
* Amazon et al. benefit from freeriding: people go to brick’n mortar stores, check out the item, and order it online. Of course, this can happen in reverse (someone looks at amazon reviews, then buys in a brick and mortar), but it’s hard to believe that the balance isn’t internet stores freeriding on brick’n mortar
liberal
I have no idea why that last post was bolded…
liberal
@Zifnab:
(1) My impression from Krugman is that the Federal Keynesian stimulus is far too small to make up for the drop in private demand.
(2) I don’t know how things are actually working out in the financial sector vis-a-vis the cheap money, but AFAICT it’s very possible that the total amount of money is declining as banks repair their balance sheets. (While the amount of green stuff being handed over from “Helicopter Ben” to the banks for very cheap is enormous, banks could be deleveraging and the amount of money out there could still be shrinking.)
inkadu
@liberal:
You might have thrown in asterisks somewhere to bold it. It’s a relic of a time when people didn’t have ways of WYSIWYG formatting.
The tax advantage is real, but I’m not sure how much more impact that has than economies of scale. People like things cheaper, and it almost doesn’t matter HOW much cheaper. I wonder if someone’s done a study on the tipping point.
Who knows what the impact of the free-rider is. I’ve never been tempted to buy a book at amazon after I’ve seen it in a store. I’d have to pay shipping for Amazon AND I’d have to wait a week or two. If I was going to be the imaginary rational actor, I’d factor in the cost of immediate shipping and realize that buying it at the bookstore is more cost effective. However, I’m not a rational actor. I’m a seven-year-old, and I WANT IT!
Local bookstores have lost when I’ve wanted to do more research; in that case, they’ve most likely lost a sale.
I’m not tempted to do the free-rider thing; I feel shitty about it, but ONLY if someone has actually helped guide me to the product and talked to me about it. That’s because I want that service to be there next time I need it, and I know that if I don’t buy the product there, I might be at the mercy of very confusing web pages and impossible to locate reviews. And the guy at the store is likely to be there if something goes wrong. I’m not going to have to pay for shipping, and I’m not going to have to be in voice mail hell for 20 minutes.
If the only thing the brick-mortar offers is a shelf to display the product, well, then screw ’em.
I think it’s also kind of funny that we’re talking about books, because who we’re really talking about protecting is Borders, B&N and Waldenbooks. Waldenbooks sucked ass even when it was The Big Thing in the 80’s — a glorified magazine rack as far as I was concerned. But the other two have driven out most of the small bookstores with the same economics of scale that the internet stores are using to drive them out of business. Hoist on their own petard, there’s always a bigger fish, plus ca change, etc.
ThatLeftTurnInABQ
@liberal:
If you want to see a truly terrifying take on this deflationary angle, head over to Steve Keen’s Debt Watch site. See for example: The Roving Cavaliers of Credit
Comrade Darkness
Sorta OT, but I loled at the banner ad of Ben Stein that is now gracing the left column… that’s the one he got canned for from the NYT, isn’t it?
He should have been canned for being a clueless buffoon, but whatever works, I guess.
Svensker
I’m not tempted to do the free-rider thing; I feel shitty about it, but ONLY if someone has actually helped guide me to the product and talked to me about it. That’s because I want that service to be there next time I need it, and I know that if I don’t buy the product there, I might be at the mercy of very confusing web pages and impossible to locate reviews. And the guy at the store is likely to be there if something goes wrong. I’m not going to have to pay for shipping, and I’m not going to have to be in voice mail hell for 20 minutes.
Friend of ours just closed his two retail stores for that very reason (plus shitty economy). People would come in, sit down with him, go over what they wanted to order, options, pricing, design, etc. Then say “thanks!” and walk out and order the product on-line. He could not compete on price against the internet.
Comrade Darkness
@Evinfuilt: Can we get a real-time cam pointed at that futon? I think I’d have an orgasm if I could tune in anytime.
I mean that in the most secular and platonic fashion, of course.
Brachiator
@inkadu:
People looking for cheaper ways to do things have economic consequences. There is always a degree to which economic decisions are amoral. You have to pull in other values in order to mitigate the essential amorality of most economic transactions.
On the other hand, the user reviews of books and music on amazon are notoriously unreliable and rarely rise to the level of “I loved it/I hated it!” And the Internet killed Tower Records and other music stores. The Tower stores in Southern California, especially the jazz and classical annexes, were staffed with tremendously knowledgeable people, some of whom were also musicians. The staff at the Sunset store knew all musical genres from rock to rap to whatever. When the stores closed, all these people lost their jobs.
I find that buying clothes online that fit is a crapshoot. I have no problem finding clothes that fit at local stores.
This is a trivial observation that does not invalidate my points at all. Businesses have to adjust. Big Whoop. The question is how to make this happen with good wages and low unemployment.
inkadu
@Svensker: That’s just damn sad. I paid about $30 more for a GPS unit because it was worth it to have someone explain it to me. Oh well, I guess I’m just going to be at the mercy of the internet for the remainder of my future.
Excepting acoustic guitars. Only a fool would buy an acoustic guitar over the internet.
terry chay
Ahh yes, remember this article?
http://economix.blogs.nytimes.com/2009/02/04/a-commercial-real-estate-crisis-probably-not/
FYI, Casey Mulligan (U Chicago) and Paul Krugman (Princeton) have been sniping at each other for a while. Looks like PK is getting the better end of that exchange…
CalD
On the plus side, sounds like a great time to buy a skyscraper. I also think a lot of cities might well benefit from a little decentralization in their commercial real estate markets.
cliff
there is a fairly direct link to office occupancy and u-6 unemployment.
think about that if you are holding leveraged REITs.
inkadu
@Brachiator: You are stating the obvious. People already know what you’re saying, and they obviously don’t care. They like going to the internet and they like going to big box stores. You can talk all you want, but nobody’s listening.
I also don’t understand your point about energy costs. We somehow started comparing the cost of heating a house to the cost of heating a warehouse. If we were storying our own goods that would make sense; but really, what we should be comparing is
– the energy cost of deliver vs the energy cost of getting it yourself and
– the cost of storing the goods at a warehouse vs the cost of storing the goods in several small stores.
Let’s say a truck loads up five widgets, drives to a neighborhood, and delivers them. That’s one trip to the neighborhood, and one trip back to the widget warehouse. If those five people drive to the store, that’s five trips there and back.
For the warehousing issue, the size of the warehouse is directly proportional to how much inventory it has; and that warehouse can handle it’s energy usage much more efficiently than a bunch of small businesses with the same inventory.
Now you have to weigh that against the very possibility that there might be more stores and that people will have to drive less, but you’d also have smaller inventories, all of which would necessitate more trips to different places from suppliers.
But small businesses will have a lot of trouble surviving in a suburban environment. You can’t be simultaneously against big box retailers and for suburbs and for energy conservation. They just do not go together.
Suburbs and big box stores go together. People live far away from highly populated centers where smaller stores can generate enough foot traffic to stay in business. Suburbs mean people drive everywhere; that means if they have to got small businesses without a wide variety of goods, they have to get back in their cars and drive maybe 5-10 minutes to buy their next product.
You know where small businesses survive? In cities. I’m in one right now, and I’m a block away from a bakery, and 2 blocks from about 3 fruit stands. I have 2 small eye glass places to choose from, a men’s clothing store on my block, 3 banks… The city is where it’s at. Because the people are here, and people can walk around, buy what they need conveniently, and then walk home.
And you miss the point about suburbs. Suburbs have always existed, but up until the last fifty years, they have only existed for the rich. There were commuter suburbs around New York City; but they were expensive to buy, and even then people took the train into the city and mostly likely did a majority of their business there, then took the train back home.
Look at how expensive cars are. They are a good chunk of a lot of people budgets, between purchase, maintenance, gas, and insurance. That’s a real cost; and it’s necessitated by the suburbs. If the economy continues to tank, or gas prices sky-rocket, a lot of people are going to be starving in very expensive jail cells.
But, yes, I agree. The challenge is to create an environment that has well-paying jobs and low unemployment. Usually what works is strong unions, an economy that isn’t based on pushing paper around, and progressive tax policy. If you have a specific policy proposal, let’s hear it. Haranguing people about where they buy their underwear hasn’t been effective.
(PS — Goodwill seems populated by the pants of people who grew out of them, so they’re usually too small for me; I’m also a bit on the tall side, and don’t really like to show off my ankles. But I have trouble finding pants that fit right even in the big box stores. Pants are tough. Plus, I hate jeans, which seem to be the only style of pant that come in every kind of fit and dimension people can come up with. The word “pant” makes me giggle. Also)
inkadu
Oh, yeah, I read a great book “Serpent and the Rainbow” about zombies. The author makes a wonderful point that Haiti was not on the economic radar for about a century, because the people all held small farms and supported themselves and sold or traded goods at local markets. Only when everyone started working at slaves in sugar plantations did economists begin to notice or care about Haiti.
I’m in agreement with your goal, just not sure what the best way to do it sustainably is. There are cases where African governments kick out the white former colonial farmers and distribute the land to more native blacks who don’t know anything about and have no desire to farm; much less access to equipment and farming material. The results are predictable.
Policy matters.
Brachiator
@Elie:
Not entirely. A recent NY Times story noted the following (“Costly Gas Pushes Up Consumer Prices”):
http://www.nytimes.com/2009/07/16/business/economy/16econ.html
Wages have in fact been stagnant since the 1990s, a situation made worse in states where layoffs and job declines have seen people taking new jobs at lower wage rates than seen in their previous careers.
Added to this is a real decline in our standard of living, seen in rising prices combined with decreases in quality and quantity of many products. For example, the real price of a can of corn increases if the price remains the same, but the contents decline from 14 to 12 ounces.
The Economist Magazine noted that whatever the relationship of wages and prices, in order to have a stable middle class, you must have a majority of workers earning enough money to deal with the cost of living (prices), and also have something left over in terms of savings.
Another recent NY Times article looked at US economic decline in terms of the loss of blue collar wages:
http://www.nytimes.com/2008/04/20/weekinreview/20uchitelle.html
And it was the deliberate policy of the Bush Administration to push wages low, while pushing the lie that the majority of Americans could enjoy membership in “the ownership society” by watching the wealthy pull down huge capital gains.
By the way, a residue of Bush policy is still in place. A family of 4 whose income is $90,000 coming from capital gains or dividends will pay ZERO income tax in 2009.
A family of 4 with a $90,000 income from wages would have a tax liability of $8,765.
Bill H
Okay, Kergman said “Disaster seems to have been averted,” then. Hooray. We were falling at 100mph and now we’re only falling at 40mph so maybe we won’t hit the bottom. I will believe that disaster has been averted, that we won’t hit the bottom, when we stop falling.
Nobody else is concerned that the stock market rises from 7100 to 9300 while everything else is still falling? That seems normal and rational, does it?
liberal
@inkadu:
The tax advantage is quite large, often 5% or more.
Well, that’s one datapoint. The fact is you can check out a book in great detail in a store, and you can’t always on amazon. And Amazon isn’t the only retailer out there. As Svensker wrote, it’s really a very common phenomenon. Just because you don’t do it doesn’t mean it’s not done. (I could see an argument that people don’t do it with cheap books, say books that are less than $20. I don’t see an argument with expensive books.)
liberal
@inkadu:
I’m not sure whether your interlocuter here doesn’t understand that—don’t have time to read, gotta get back to work, etc etc etc—but it’s interesting how many people don’t understand that.
inkadu
@liberal: The tax advantage is quite large, often 5% or more.
Where did you pull that number from? It’s a very complicated economic analysis to determine what the so-called “tax-advantage is.” Ha! I can be stupid sometimes.
I am only one data point. Figuring out other people has always been a difficulty for me. I often want to go up to drivers waiting ten minutes in line to save fifty cents on a tank of gas and ask them, “After you’re done filling your tank, would you mind going into that parking space there and idle your car and wait for twenty minutes? I’ll pay you a dollar.”
And I forgot to mention the other costs of the suburbs to my interlocutor. Energy expenses are cumulative all the way down the production pipe line, so everything is more expensive, not just the gas for your car or the oil for your boiler, but the metal for your car and the wood for your house, and the fertilizer for your lawn. I want to send him some New Urbanism books; or maybe a link to Ezra Klein.
Kirk Spencer
re protective tariffs, I have a simple counter.
That’s what Smoot-Hawley was.
mey
Everything’s going to look rosier until around November, when the S hits the F. It’s going to get a lot worse.
bystander
I couldn’t remember where I had seen this, and I didn’t want to make the claim until I could verify…