Housing Subsidies, Debt Expansion, and the Death of American Liberty

Today we examine housing subsidies and how they contribute to the growth of debt and the slow erosion of liberty in America.

Irvine Home Address … 11 SUNSET Riv Irvine, CA 92604

Resale Home Price …… $739,000


And I don't think it'll be so bad

And I know it won't be so bad

'Cause the man said "that's the way it is"

And the man said "it don't get better than this" no no no

Sell out, with me oh yeah,

Sell out, with me tonight,

Reel Big Fish — Sell Out

Properties are encumbered with too much debt, and buyers in markets where prices have not crashed are being asked to pay much higher prices as a percentage of their incomes than generations past. Today's buyers are being asked to pay for the excesses of those that came before them and sell out to the money changers.

Mom, Apple Pie and Mortgages


Published: March 5, 2010

FOR decades, the federal government has subsidized housing — particularly owner-occupied housing. This has been especially true during the continuing financial crisis, with Fannie Mae, Freddie Mac and the Federal Housing Administration propping up the housing market by issuing guarantees for investors on most new mortgages.

But what is the long-term justification for putting taxpayers on the line to subsidize homeownership? Is this nothing more than a sacred cow in American society — a political necessity because so many voters own homes and are mindful of their resale value?

How much of our government's response is tyranny of the majority? Are the owning taxpayers paying this subsidy comfortable with the face of housing entitlement today?

This time, the best answer isn’t found in traditional economics but rather in American culture: a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity. Historically, homeownership has been associated with freedom, while renting — often in tenements or mill villages — has been linked to the oppression of a landlord.

In his classic 1985 book, “Crabgrass Frontier,” Kenneth T. Jackson of Columbia University delineated the complex train of thought that over the last two centuries has produced the American belief that homeownership encourages pride and good citizenship and, ultimately, preservation of liberty. These attitudes are enduring.

The middle road is often a path between two evils. In the left ditch is the weakness of landlord dependency, rent controls, and other government subsidies of transitory housing. In the right ditch is an array of market subsidies to encourage home ownership, even if that form of home ownership is really money rentership — and, pardon my cynicism, our lending overlords want it that way. Wouldn't you want to have 40% of society's earnings if you could get it?

People forget they are merely substituting one form or weakness for another; landlord oppression is one evil, and lender oppression is another. Somewhere along the way, we lost ourselves. We escaped one form of bondage and fell into another. Why did we do it?

Back in 1899, in “The Theory of the Leisure Class,” Thorstein Veblen described homeownership, particularly of large and expensive dwellings, as “conspicuous consumption.” By that, he meant that it was undertaken substantially for the purpose of impressing others by showing the amount of money one can afford to waste on space one doesn’t need.

What is specifically American here — though it’s increasingly seen in other countries, too — may be the modern sense of equal citizenship, engendered by the illusion that we can sustain conspicuous housing consumption even among a majority of the people.

In short, this all has a great deal to do with culture, and little to do with financial wisdom. After all, financial theory suggests that people should not own their own homes, at least not in the way that many do today.

We are witnessing the final stages of a societal change. We have embraced debt as if it is capital or wealth; the change has been gradual, and the individual steps toward this end seemed natural and necessary; however, a significant number of people no longer distinguish between debt and wealth and truly believe obtaining debt bestows wealth and power.

"Twelve voices were shouting in anger, and they were all alike. No question, now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which." — George Orwell, Animal Farm.

We are generation pwned. Lenders seek the maximum debt-to-income ratio people are willing and able to support. The lure of appreciation and HELOC spending increases borrower willingness far beyond borrower ability and this willingness (or kool aid intoxication) helps keep prices inflated and debt loads large. Lenders and realtors exploit our modern American delusions, and everyone pays higher housing costs as a result. What good is a large income if so much is spent on housing? Aren't the lenders the real beneficiaries?

It’s time to take back The American Dream

By Greg Fielding:

On home prices, Shiller writes:

If many of these homes needed to be converted to rental units, home prices might well drop.

The Emperor’s clothes are beautiful indeed.

Though the policies are economically insane, they are worth the cost in order to perpetuate “a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity.”

In other words, the concept of “The American Dream of Homeownership” is worth spending trillions to uphold because it is a central to our culture.


Is our National Identity really defined by lust for a material good?

Consider the alternatives…

Americans: Smart and Hard-Working

Americans: Gracious and Strong

Americans: Helping Each Other

Americans: Character and Perserverance

No, we’re Americans: People who want to Buy Houses

How twisted and materialistic have we become as a culture to openly define ourselves by something we own?

As a renter, I am offended. As a citizen and a taxpayer, I am outraged.

Shiller suggests that The American Dream is too sacred…that our fragile national ego would collapse if its credibility were threatened. But, he’s wrong. The jig is up and the public knows it. In fact, they are asking for it, desperately wanting to find some financial purity after a decade of decadence. Social mood is shifting.

Shiller mistakenly suggests that home prices are worth propping up. But the problem isn’t that home prices are falling, it’s that home prices are still too high. Falling prices and foreclosures aren’t the problems, but the solutions, not the illness, but the cure.

The time has come to shout out that the Emperor has no clothes: The American Dream is simply a marketing campaign, a gimmick, perpetuated by industry groups and their lobbyists. That a home can define one’s success or national identity is simply a symbollic, mutually-shared illusion.

Well said.

Low-cost housing has benefits

The economy in Riverside County is dismal. Nearly 20% of Riverside County employment was in the building industry, and since about 40-60% of workers in homebuilding are unemployed (that is my anecdotal estimate), there is significant distress in both the employment and the housing markets. But that sorry state of affairs is ripe for recovery. Expanding or forming businesses in Riverside County currently enjoy inexpensive labor and they can attract more with inexpensive housing. Orange County and Irvine do not have those advantages.

Many are focused on maintaining inflated home values without considering the broader societal impact. We may be forced to choose between our house values and our jobs if the economy remains soft because house prices are such a deterrent to business expansion. Also, if all future generations really are priced out forever, is that an accomplishment bubble buyers will look back on with pride? The parties to the bubble have reduced future generations to debt slavery. I see little benefit in that.

Irvine Home Address … 11 SUNSET Riv Irvine, CA 92604

Resale Home Price … $739,000

Home Purchase Price … $350,000

Home Purchase Date …. 5/22/1991

Net Gain (Loss) ………. $344,660

Percent Change ………. 111.1%

Annual Appreciation … 4.0%

Cost of Ownership


$739,000 ………. Asking Price

$147,800 ………. 20% Down Conventional

5.01% …………… Mortgage Interest Rate

$591,200 ………. 30-Year Mortgage

$153,191 ………. Income Requirement

$3,177 ………. Monthly Mortgage Payment

$640 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$62 ………. Homeowners Insurance

$147 ………. Homeowners Association Fees


$4,026 ………. Monthly Cash Outlays

-$777 ………. Tax Savings (% of Interest and Property Tax)

-$709 ………. Equity Hidden in Payment

$288 ………. Lost Income to Down Payment (net of taxes)

$92 ………. Maintenance and Replacement Reserves


$2,921 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$7,390 ………. Furnishing and Move In @1%

$7,390 ………. Closing Costs @1%

$5,912 ………… Interest Points @1% of Loan

$147,800 ………. Down Payment


$168,492 ………. Total Cash Costs

$44,700 ………… Emergency Cash Reserves


$213,192 ………. Total Savings Needed

Property Details for 11 SUNSET Riv Irvine, CA 92604


4 Beds

3 baths Baths

2,544 sq ft Home size

($290 / sq ft)

5,700 sq ft Lot Size

Year Built 1975

21 Days on Market

MLS Number S605701

Single Family, Residential Property Type

El Camino Real Community

Tract Dc


PRICE REDUCED…MOTIVATED…This handsome home has three large Bedrooms and two Baths up, and one Bedroom and a full bath down-Outstanding curb appeal with manicured landscaping,a newer concrete tile roof,roll-up Garage Door & A DOUBLE PANELED, LEADED AND BEVELED GLASS FRONT DOOR-There is a formal Entry-The lower level has dramatic vaulted ceilings and a split-level floor plan-The home is VERY LIGHT AND OPEN IN FEELING!-Located on a quiet inside cul de sac- There is a formal Dining Room and separate eating area in the Kitchen-The Master Suite is larger than most you will see and has a Sitting Room/Office area/Dressing room/Walk-in Closet and Bath-The Air Conditioning/Furnace and Water Heater are 18 months new-Children can walk to school crossing only one residential street – The Kitchen is large and sunny with a wall of pantry storage. The large back yard is perfect for a childrens' play yard. There are no homes overlooking the back of the house. Standard sale.

The writer mentioned the plan is light, open, large and sunny without saying "light and bright." Thank you. It can be said without tired cliches.

I like playing golf, but I prefer to leave the greens on the golf course.

40 thoughts on “Housing Subsidies, Debt Expansion, and the Death of American Liberty

    1. Jwinston2

      Krugman mentions how much Canada has done right with regulation yet they are in the middle of developing a bubble as well. Granted the bubble may not become as big as the US or Ireland but a bubble certainly appears to be developing.

      The problem with Krugman is he lets his ideology get in the way of his analysis. He criticized the Bush administration for policies which Obama has continued. Has he criticized these same policies under a liberal president? Of course not because he is politically motivated. Nobel prize or not I am hesitate in trusting economists who clearly have skewed viewpoints because of political views.

      1. HydroCabron

        “Krugman mentions how much Canada has done right with regulation yet they are in the middle of developing a bubble as well.”

        I derive a heueuge amount of pleasure from the base emotion of schadenfreude, but Canada is a tough call for me.

        For a while I thought Canada was headed over the cliff just behind us, but now I’m uncertain. As IR pointed out a few days ago, the government shows signs of sanity on lending.

        I would characterize most of Canada as frothy, with a potential for long-term price stagnation, or a 20 percent haircut.

        Vancouver, on the other hand, is a complete bubble, and may prove to be the largest bubble in the history of mankind. Only mass delusion and a continual stream of Asian investors has allowed Vancouver to persist. I think that Vancouver will finally implode when the Chinese economy goes into recession.

      2. Perspective

        You’re being too kind to Krugman. He has become a complete political hack. He is no different than any of the Fox News hosts (well, he’s actually educated – that’s a big difference). I can respect that he has a “government can solve all problems” ideology, but don’t present your arguments under the veil of “cold hard economic facts.” He hides facts and most economic discussions revolve around opinion.

        e.g. He recently wrote about how “we” can’t deal with Republicans because they’re “living in a different universe.” His example was Senator Bunning’s filibuster regarding another extension of unemployment benefits. Krugman’s argument was that Bunning’s stunning lack of consideration and understanding as to what the average American is going through right now is shocking, and proof “they” live in a different universe.

        What Krugman conveniently omitted, was the real reason Bunning was filibustering. Bunning was attempting to illustrate how hypocritical it was for Democrats just a week or so earlier passing the “Pay-Go” rule again – this is the requirement that ALL spending bills be balances with spending cuts or tax increases so as to not increase the deficit. Democrats want to appear fiscally responsible, so they pass Pay-Go, and then immediately thereafter pass billions in spending that’s not paid for with any cuts or tax increases.

        Full disclosure – John Stewart did the same thing, but he’s funny, and he hits Democrats hard too.

        Final point, Krugman never looks anyone in the eyes while speaking. That’s just creepy.

        1. Woodbury Renter

          Perspective, you are implying that you are more formally educated than the lead personalities on Fox news, are you sure?

  1. wheresthebeef

    What the hell is that thing above the garage? Is that a balcony, basketball backboard? Love the green carpet too.

    739K…we are far from the bottom!

  2. Planet Reality

    “Many are focused on maintaining inflated home values without considering the broader societal impact.”

    What in the world are you talking about? Are you talking about the United States as a whole or a very small sub market in Southern California? Sometimes this blog gets lost in the thinking that Irvine is some how the center of the universe.

    1. Perspective

      Our Federal government is doing everything possible to maintain inflated home values. That has little to do with any Irvine-centered bias.

      It’s just another shocking example of the hypocrisy of our government. When the bubble was inflating, there was little talk about how it was unsustainable and possibly dangerous. The talk and action (especially from Democrats) was solely about how we could help more people get into homes (that they couldn’t afford).

      Now that prices are coming down and becoming more affordable by the day, all the talk in DC is about how we can arrest this decline. What about those “poor” people you complained about not being able to afford homes just a few years ago? Do we not care about them any longer?

      1. HydroCabron

        “action (especially from Democrats)”

        If only the GOP had controlled the House, Senate, or Presidency for 5-6 years during this bubble, we might have been spared.

        1. Jwinston2

          This is such a tiresome argument. Controlling a majority verses a super majority in the Senate are two completely different animals. A majority control can still be filibustered while a super majority can not. Can you tell me when in the last 20 years the Senate had a super majority and the House had a majority for one party?

          The last time this happened was in 1977; again the Democrats had a majority in the House, a super majority in the Senate, and controlled the presidency.

          The GOP had a majority in the House, Senate, and Presidency for 3 years, not 5-6. ( http://uspolitics.about.com/od/usgovernment/l/bl_party_division_2.htm )

          1. HydroCabron

            I made no claim that they had all three for 5-6 years. Refer to my post, which uses the word “or” so as to claim one or more of the conditions to be true for 5-6 years, and not all three at once.

            I agree with you that a non-supermajority is useless for passing things if the opposition is not willing to go along. This means that the Democrats were not interested in sane fiscal policy. It also means, that the Republicans weren’t, either. Sure, Glass-Steagall was repealed under Clinton, with no attempt at veto, and Barney Frank is a Democrat, but the pandering to the American mortgagee on the part of both parties has been colossal.

            The argument that the Republicans controlled all branches for 5 years may be tiresome, but it was not the argument I was making. The argument that the Democrats are primarily responsible for this mess is the one I find tiresome.

          2. Jwinston2

            I see I missed the “or” and replaced with and. I agree Democrats are primarily responsible for this mess, as are the Republicans.

          3. Phillip W

            “I agree Democrats are primarily responsible for this mess, as are the Republicans.”

            What does this even mean? As far as I can parse it, you’re claiming that Democrats and Republicans are primarily responsible for this mess. Well, duh. That’s about as meaningful as saying “all those politicians screw up everything all the time!” Way to really get at the underlying causes.

          4. Jwinston2

            It was a play on HyrdoCabron and his last sentence. Obviously this does not get to the root of the actually causes but was merely a discussion on how both of us are sick of people solely blaming one political party or the other for the causes of the bubble and bust. If it was so obvious as you believe you would not constantly have people posting or making statements that one party is responsible for the mess that is our housing market.

            I am curious as to why you even posted. Your comment brings nothing to the discussion. You reinstate what is obvious and then attack me for not providing an essay on the cause of the housing bubble. Thank you for your astute observation.

      2. I agree

        Your comments are right on, except that the homeownership promotion came from people on both sides of the isle and including our former president as well.

          1. No Bull

            And the best reason to vote for independents and vote out the incumbent two-party system. Republicrats obviously care more about pandering to lobbyists, Wall St and their own party than to the people that voted them into office! This is the very definition of corruption. We must remove the current government and start over with a clean slate. If you’ve been fired, fire your legislator! If you’ve been kicked out of your home, then kick out your elected official from office! The Dems/Republicans don’t care about you, so why should you care about them? The time is now people.

  3. mike23w

    Don’t like Larry the Lamprey.
    Don’t like the Psycho Killer image either.

    I Ad Blocked both of them so I don’t have to see them anymore.

    I’m in bed reading this in the morning and prefer to start my day off without the serial killer picture (which pops up from time to time).

    I do like the butterball-turkey-in-a-dress picture every time I see it.

  4. newbie2008

    What Irvine is not the center of the universe?
    “There are as many centers of the universe as there are people.”

    The FHA make it policy official to inflate housing prices and thus walkaway loans. 5% down is too high? from Around the web on yahoo:
    “Responding to critics, officials of the Federal Housing Administration are set to warn in Congressional testimony Thursday that a double-dip decline in housing prices may result from even a slight increase in minimum down payments on FHA-backed loans. An increase in down payments to 5%, from the current minimum 3.5%, would limit new FHA-backed loans by 40%, equivalent to 300,000 fewer home sales, according to testimony that FHA Commissioner David Stevens is set to deliver on Thursday. “We share the goal of increasing equity in home purchase transactions, but determined after extensive evaluation that such a proposal would adversely impact the housing market recovery,” Mr. Stevens says in his testimony. The FHA doesn’t make loans but instead insures lenders against losses, and the agency charges…”

    I feel stupid for renting and paying off my old house loan.

  5. BeachRenter

    The article by Greg Fielding is right on and the anger and venom is palpable. It’s refreshing to hear unbridled anger again when so much of this discussion has become limited to banal technical jibberish. We should be outraged, stay outraged and do something about it. All that has been done by the government (Repub & Demo) is to try to mitigate loss and sacrifice. That is Bullshit. You live it up at the punchbowl of home equity, you better suffer through a serious hangover later. If not, guess what, we do it all over again and again and again. Addiction.

    1. norcal

      Yes, I agree we should do something about it, although frankly I’m getting a bit tired of all the outrage – I hadn’t noticed a deficiency of blame-casting or anger among the commenters on this blog.

      What actions would you suggest, BeachRenter?

    1. tonye

      Jeez… what a generalization of Baby Boomers.

      While the majority of Boomers were getting stone, this boomer was in Catholic Grade School learning the rosary.

      Not all boomers have Rolexes and Escalades and Bimmers.

      Some of us have use the clock in our “free” Verizon phone and drive Hondas.

      Of course, some of us have equity in our houses and pay off our credit cards.

      1. Soylent Green Is People

        Yes, It’s a generalization. You are the exception that proves the rule.

        I’m technically a boomer – born right at the very tail end of what they call boomers, so then I’m the pot calling the kettle black as well.

        The boomer generation did fight racism. I’ll give them that. What did they do after that milestone of any note?

        My .02c

        Soylent Green Is People

    2. newbie2008

      “… It appears that the fools are the Americans who lived their lives according to the rules. The anger is building. ”

      I still feel stupid for paying off my loans and renting. Could of did a negative down, lived high and walked away with the savings from the loan.

      The baby boomers are all not to blame. The Greatest Generation has a hand at draining Soc Security with unlimited medical expenditures just to prolong life a little bit, but drains what should of been used on a young child to prevent latter diseases. BB Protests against the Vietnam war, only to stop protesting just after enactment of the all volunteer military (maybe BB just did want to go serve). The pay charts were the most telling, but it took the Greatest Generation to approve those changes. Remember the Greatest Generation paid for the policies of the former generation who teaching came to fruition with WWI and WWII. The heart of man is wicked and thoughts are self serving.

    3. BD

      That link is excellent. The scariest part about where we are with boomers is that their children are even worse.

      Read the link… sad but, true. CA is in for the first piece of the disaster – we are GREECE but, WORSE…

  6. Planet Reality

    Ok, so that we are clear, in 95% of the US housing prices are back to fundamentals or below. It’s only the high end premier areas that are inflated LOL, where people are buying using fundamental loan products and large down payments.

    1. lowrydr310

      “Ok, so that we are clear, in 95% of the US housing prices are back to fundamentals or below.”

      What a relief to learn that. I guess any minute now we can expect foreclosures to stop. Since we’re back at fundamental values, we’ll start to see a surge of purchases since things are so affordable, right? (nationwide, on average, not in Irvine or other high end areas)

      “Fundamental values” depend on a number of factors, none of which are stable right now.

      1. Nicholas

        “I guess any minute now we can expect foreclosures to stop.”

        In case you’ve forgotten, the U.S. is attempting to recover from its worst recession since the Great Depression. There are towns in Bumblefuck, U.S.A. that experienced virtually no real estate bubble, but have foreclosures galore as a result of a near-collapsed regional economy. And there are the the well-known culprits–e.g., southern Florida, Vegas, California, New York–who have either returned to fundamentals (e.g., Vegas, Riverside) or are going to fight to the bitter end to ride their bubble gains (e.g., Bay Area, Santa Monica, Irvine). Planet Reality is right: Irvine is “different”, though not for the reasons it thinks.

      2. Planet Reality

        The reason is directly related to wealth transfer. The people buying in the premiere areas right now made out like bandits the past 3 years.

      3. IrvineRenter

        “The people buying in the premiere areas right now made out like bandits the past 3 years.”

        What are you talking about? Nobody who bought over the the last 3 years made money anywhere.

      4. Planet Reality

        You are joking right. There are two kinds of people who made a killing over the past 3 years. Those of us who made the most were on the opposite side of the debt bubble trade.

        The other folks who made out like bandits saw their salaries increase over the past 3 years, not decrease. They either were already heavily into cash, or started in late 2007, saving money like bandits and feeding their savings account.

        Time to look outward, not inward.

  7. norcal

    Hold on, I think you attribute too much evil intelligence to the federal government. After all, if homeownership is a public good, shouldn’t they be doing everything to hold down prices? or to force them down into affordable ranges?

    The run-up to the bubble was not federal policy, nor were inflated house prices. The policy was bank de-regulation. Everything else is side effects.

    National policy now appears to soften the landing of the banks so we don’ t have mass institutional insolvency.

  8. Frank

    “No, we’re Americans: People who want to Buy Houses”?

    I don’t think it’s that specific. It’s more like:

    Americans: People who want to Buy

    Consumerism here is definitely a large part of the culture, from Pimp my Ride to Flip That House to songs about bling.

  9. JDub

    I saw this story on the news yesterday. Its a “sad” story about a business man who lost his job and his condo in Newport Beach.


    What irks me is that he wants sympathy for his situation, but has a storage unit full of nice furniture, flat screen tv, golf clubs, expensive wine, is wearing a polo dress shirt, and drives a BMW.

    1. lowrydr310

      Driving a BMW or any other expensive car means nothing in regards to wealth (to a point). Besides, what if the guy bought his BMW and other toys with cash when he was doing well in his job?

      Think this BMW driver is loaded?

    2. No Bull

      Exactly, why doesn’t he sell his stash of goodies if he was in such dire straights? He probably has $5-10k worth of junk in there and then claims to be homeless? What a freaking joke. He’s also a fat ass which obviously means he’s not a starving homeless man.

Comments are closed.