1115.org

“It’s nine five, i survive, hard shit is still real
You know sex, money, drugs, death, the whole ordeal
Murderers to kill, Alizé makes me ill
Jump in my rocket to the moon, spark an L and just chill
I got to own stocks and bonds, kid, just because i want ‘em
And million dollar bidnesses with Darkman written on ‘em
Not a front but an economical stunt
I want it all, i hope i didn’t put that too blunt
Sellin’ yay, moving on up like the Jeffersons
Cop a Lex, a Jag, a Land Cruiser and a Benz”

- La the Darkman “I Want it All“

If you’ve heard a hip hop record in the last 15 years, you’re no doubt familiar with La’s message, but probably not the man who wrote it*. And so it goes, the hidden secret of the game: everyone raps about their Bentley/jewelry/homes/clothes, but few go past renting it for a video shoot, the cost of which is added to their advance and then deducted from their royalties. Very few rappers, even ones on MTV, ever become millionaires, but the game perpetuates the stereotype that rappers feel the need to live up to, which draws more youngsters into the game. But the utility of this isn’t limited to those in the music business, just witness how rap critics, overwhelmingly conservative, love to bash the materialism the lifestyle encourages.

So it’s fascinating to look back at six years of the Bush administration and note that one of its main policy pillars has always been “the ownership society.” With the memory of the 2005 battle for Social Security still fresh, it shouldn’t be hard to recall how often the President did his imitation of a stock tout as he pushed his privatization scheme. Americans, he argued, would be uniformly better off with retirement portfolios holding stocks rather than government bonds. As I wrote repeatedly at the time, owning stocks isn’t for everyone. As the crash of 2000-2001 showed, even intelligent people get caught up in “irrational exuberance” and act in ways that run counter to their best interests. Insufficient diversification, panic, poor timing, and lack of research are factors that plague even experienced investors. But Bush wasn’t selling stocks to investors, he was selling them to everyone as part of the gold standard of social insurance. And to sell his plan that would have increased the exposure to risk faced by all Americans, Bush sold it as ‘American as apple pie.’ According to a 2005 study by the Securities Industry Association, 91.5 million Americans own stock. Doing the math, more than two-thirds of Americans aren’t American after all.

Stocks are far from the only heretofore neutral item that the President has decided wasn’t neutral anymore, but worthy of privileged status and the accompanying promotion from the bully pulpit. Religion was boosted with the federal funding of faith-based programs, and marriage (hetero, of course) was promoted to the tune of $1.5 billion in grants. And who can forget our little war in Iraq, sold under the banner of democracy promotion. Like stocks, religion, marriage, and freedom aren’t for everyone at any given point in time. Some may say they are valuable, others consider them worthless, and still others have more pressing priorities. But the government has no business in any of these businesses. Unfortunately, the suspect salesmanship doesn’t end there.

Homeownership has also been the subject of the full court press. The administration is far from the only entity responsible for the state of the housing market. Easy Alan Greenspan kept the liquidity flowing with artificially low interest rates and inexplicably recommended adjustable rate mortgages with rates at or near historic lows. And with all that liquidity sloshing around the banking system, lenders were all too happy to offer financing in increasingly risky forms, leading requirements down to just north of “Has Pulse.” But it was the Decider out there, passing off his schemes for increasing homeownership as leadership. And the combination of these factors has resulted in a pretty scary scenario. For anyone who has been paying attention to the numbers, this scenario has been as predictable as the tides. Easy Alan was succeeded by Helicopter Ben Bernanke who continued pumping paper as the administration decided to stop publishing M3, a key measure of how much money is in circulation. As the price of just about everything people use in their daily lives has increased, the Departments of Labor and Treasury have used accounting tricks to offset the price of gas and milk by counting your new $1200 flat screen plasma as half as expensive as your old $600 TV because it’s four times as good. And by reporting inflation is lower than it actually is, they were able to postpone doomsday past the 2004 and 2006 elections with mixed electoral results.

The results of these actions, and the crackup that seems to be in the offing is the reason I’ve been tracking Treasury Secretary Hank Paulson’s public comments about the economy in general and the housing market specifically. Many, including Sarabeth here, point out that anyone relying on public officials for investment or home-buying advice is earning every bit of the financial ruin they are courting. Certainly there is merit to that line of thought, and if it were just one or two administration big wigs impersonating carnival touts, the problem would be smaller in scale and only affect those who went way out of their way to hear only what they wanted to hear. But Greenspan, Bernanke, Paulson and Bush are just one facet of the housing bubble inflation apparatus. How many versions of “Flip this House” can be shoehorned into television schedules? How many greedy mortgage companies stoked the “keeping up with the Jones’” jones with misleading offers? And how many no-money-down-no-income-verification loans were dished out over the last few years? The difference? Government officials aren’t supposed to have a profit motive, be it financial or electoral.

As I mentioned, none of what’s happening in the housing market now (the developing credit crunch, the rise in foreclosures, and the carnage that comes next) required an advanced degree or a crystal ball. I’ve been following this story as it relates to housing prices for a few years simply as someone who is blessed with cheap Bay Area rent and wants to avoid buying at the top. Greenspan, Bernanke, Paulson (and John Snow before him) and Bush have constant access to real time data, and the first three supposedly have enough training to know the consequences of easy money and dropping credit standards. And Bush has an MBA from some marginal university or other. But it was allowed to happen anyway, because the interests of the administration (creating more and powerful Republican voting blocs, financial gain for campaign contributors) have become dislocated from the interests of the rest of the country (not losing their houses or jobs.) And average consumers bitten by the McMansion bug don’t have enough economics education to allow caveat emptor to kick in.

The President took full credit when homeownership as a percentage of population hit a record in 2004. Now that foreclosures are up 90%(!) and people are realizing that owning a home isn’t the unalloyed equity machine it was pitched as, will the President give some of that credit back? Will he apologize for not showing good leadership or judgement as the bubble inflated? If history is any guide, the answer will almost certainly be no. In fact, earlier this month, Bush and Paulson had an opportunity to come clean at a media availability; they didn’t exactly take advantage:

Bush:

The economy is “thriving” and “we continue to grow at a steady pace,” Bush said. At a separate briefing later, he added: “There is a lot of liquidity in our system. Liquidity will provide the capacity for our system to adjust.”

Paulson came closer, but still played pass-the-buck:

“Borrowers weren’t quite as disciplined as they should be,” Paulson said. “Lenders clearly weren’t as disciplined as they should be. We’ve seen some excesses. We’ve seen it in the subprime area, and that will be with us for a while.”

There’s liquidity in the system because the Fed is pumping it in as fast as they can, Mr. President. And while you chide borrowers and lenders, Mr. Secretary, you leave out your own role. But neither addressed what happens next. With all credible predictions pointing to continued weakness in the housing market, and many pointing to recession, someone is going to have to decide what, if anything, to do. Some, including Democrats like Senator Chuck Schumer, want to see government-funded bailouts to allow people to keep their homes. I’m happy to see Bush come out against this, although it is extremely hypocritical given his absolute assertions that homeownership is good and that he is responsible for pushing it to new heights.

Seems I’m in a bit of an awkward position myself. The last few years, I’ve been watching people (some of them my friends and colleagues) stretch to buy houses with the worst kinds of mortgages while telling me that I’m throwing away money every month on rent. I’m vindictive, but not enough that I want to see them lose their investments, or worse, be subject to the toxic state of bankruptcy “protection” in the wake of 2005’s “reforms.” But using taxpayer money and/or creative accounting to keep people in homes they can’t afford just because they’re in the house now, or to stop inventory from piling up, isn’t the answer either. I’m not a market evangelist, and I’m not in favor of exposing people to the consequences of certain markets (health care, for one), but the decision to own vs. rent is hardly life or death. Would it really be the end of the world if large numbers of marginal homeowners had to go back to being renters? Only in a society that has become as blindly materialistic as ours has, and is lead by men eager to stoke this trend for their own ends.

Reforming the bankruptcy bill to allow those affected by the mortgage blowup to discharge their debt without destroying their chances to learn from their actions and become homeowners again would be a good start. Calling on the Fed to police lending practices in order to prevent speculative bubbles, a.k.a. doing their job, would be a good next step. And demanding better leadership from elected and appointed officials is crucial to stopping the mentality that has ruined hip hop and contributed to the mortgage mess. Not everyone can be an expert on everything, just like not everyone is going to own a home.

*Despite being affiliated with the Wu-Tang Clan, La the Darkman never had another single or album.