Collapse Of Housing Bubble Just Part Of Bush's Woes

by Alexander Cockburn

Disregard the momentary uptick in his approval rating, and ask yourself, was there ever a president in worse shape a year after reelection than George Bush? Nixon, maybe. Was there ever a president more fortunate in the quality of the party opposing him? Bush wins that one in a walk. These days, the only Democrat who sounds like Sam Ervin is John Murtha, and if his fellow Democrats had cold-shouldered Ervin the way they have Murtha, Nixon would have served out his second term.

The list of Bush's adversities scarcely needs repeating. On every front he's in trouble: the unpopularity of the war; the onslaught by fellow Republicans on the rendition flights and secret torture centers; the humiliation of Condoleezza Rice in Europe; the abandonment of New Orleans amid the surfacing of more incriminating e-mail traffic from the White House in the early days of the emergency. Even Haley Barbour, former chairman of the Republican National Committee, said in early December that the Bush administration was failing to live up to its obligations.

Each week brings fresh omens of unpopularity. Not everyone opens the New York Times or Washington Post, but everyone looks at their utility bill, and for those using natural gas the Christmas tidings are that it's going to cost consumers on average more than $300 over and above last year's bill to heat their homes this winter.

Larger troubles loom. Outgoing chairman of the Fed Alan Greenspan broods out loud about the deficit and the air hissing out of the housing bubble. In Georgetown, the most desirable real estate in Washington, D.C. For Sale signs that went up in the early fall are still there.

In the second week in December, Business Week took a look at Loudoun County, Virginia, 30 miles southeast of the nation's capital, which has been the hottest real estate market in the country since 2000.The median sales price went from $506,000 to $480,000 in just two months. The average time houses stay on the market has increased by 62 percent and is now at 42 days. Three For Sale signs go up for every two taken down. Spec developers are offering $10,000-plus discounts on new homes.

Nationwide, The Economist reports that prices for new homes rose by only 1 percent in the fiscal year ending in October 2005. The previous 12 months saw a rise of 16 percent. Unsold homes increased by 25 percent.

I asked Robert Pollin, professor of economics at U Mass, Amherst, for his take on the likely bust. His ominous response:

"The U.S. housing bubble began in earnest with the collapse of the stock market bubble in 2000, as investors, including foreign investors, moved their funds into housing as opposed to stocks. What will be the effects of the end of the bubble? If housing prices fall sharply, as is possible [as opposed to a "soft landing"], it could threaten the viability of Fannie Mae and Freddie Mac. These are two of the largest financial institutions in the U.S. and the world, and they are leveraged up to their teeth in mortgages, the collateral for which will collapse right along with the decline in housing prices. Homeowners have also been borrowing against their newfound housing wealth to sustain high levels of consumption, and that, too, will decline. A real estate market collapse will not be pretty: Japan has yet to fully emerge from its own collapse of 15 years ago."

On another front, General Motors darkened Thanksgiving by announcing the shutdown of 12 plants with a loss of 30,000 jobs. Imagine what it's like to turn on the TV news in Springhill, Tennessee, and hear that 5,576 jobs are scheduled to go out the window. So much for being a Right to Work state, same as Georgia, where GM is closing the Doraville plant (3,076 jobs gone) or Oklahoma, which is losing the Oklahoma City plant that employs 2,734. The city of Flint, Michigan reels yet again. GM says it will close Factory 36 there, where 735 workers turned out engines.

Ford is about to follow suit with more than 30,000 layoffs involving the closing of 10 plants.

Paul Craig Roberts, former assistant secretary of the Treasury in the Reagan years, derides Bush administration's cheers for the November employment figures. Roberts:

"Spinmeisters made the most out of the 215,000 jobs. Looking beyond the glitter at the real facts, this is what we see. Twenty-one thousand of those jobs were government jobs supported by taxpayers. There were only 194,000 new jobs in the private sector. Of those new jobs, 37,000 are in construction, and only 11,000 are in manufacturing. The bulk of the new jobs -- 144,000 -- are in domestic services.

"Very few of these jobs result in tradable services that can be exported or help to close the growing gap in the U.S. balance of trade.

Roberts points out that total hours worked declined as the average workweek fell to 33.7 hours. "The decline in the labor force participation rate, a consequence of the shrinkage in well-paying jobs, masks a higher rate of unemployment than the reported 5 percent. The ratio of employment to population fell again in November."

Furthermore, average hourly earnings are lagging behind inflation. So real incomes are falling.

Forbes magazine outlined its plan for boosting the economy: "Ten reasons why you should drink through the holidays."