respect to property rights, 1913 was a terrible year. This
was the year when the Sixteenth Amendment to the U.S. Constitution
was ratified allowing the federal government to directly
tax its citizens. To add insult to injury, the Federal Reserve
was established and the fiat-banking cartel was born. Therefore,
in 1913, the federal government was empowered to tax its citizens
in two ways. One way, of course, is via direct taxation. The
other, and more pernicious method of taxation, is through
inflation by the Federal Reserve debasing the dollar.
In essence, Americans became slaves to the state, via taxation,
as they do not fully own the fruits of their labor (i.e. money)
and what fruit they are allowed to keep is debased by central
banking. The long-term effects, of the federal government’s
assault on money (as private property), have certainly spilled
into the arena of real property as well. For it is a logical
progression to go from not fully owning the fruit of one’s
own labor to not truly owning one’s own real property. The
U.S. Supreme Court’s June 2005 decision, in the Kelo vs.
City of New London case, has seen to this. Incrementally,
Americans have been conditioned to believe that the state
decides which rights, including property rights, are granted
to the people. Such conditioning will prove to be disastrous
when America’s housing bubble collapses.
but surely, private property rights have been eroded. In cities
and counties all over the U.S., Americans are being subjected
to real estate fascism. County commissioners, city councilmen,
and other public officials have literally gained dictatorial
powers over real property. Homeowners are being told that
trees cannot be cut down from one’s yard, that soil may not
be imported to establish a new garden, that a small structure
may not be built in a back yard, that a home remodel must
meet certain arbitrary standards, and the list goes on and
on. Even worse is the use of the powers of eminent domain
where local government seizes property and, often times, hands
it over to politically-connected companies. Accordingly, the
Fifth Amendment has become a mockery. When summing all of
this up, one must ask if individuals and businesses really
have private property rights?
is so alarming here is that Americans, in general, see no
problem with this creeping real estate fascism. I have some
friends (a married couple) who live in a Seattle suburb and
have blindly accepted the dictates of the local city planners.
Five years ago, I helped my friends build a storage shed in
their back yard. As it turns out, the cinder-block foundation
upon which we built the shed was deemed inadequate by the
building inspector he stated that city code required
a concrete-slab foundation for such a sizable shed. Consequently,
we literally sawed off four feet of the structure in order
for the shed to meet the city code pertaining to using a cinder-block
foundation (as a side note, a neighbor tipped off the city
inspector, prompting this unpleasant alteration to the structure).
My friends just shrugged their shoulders and have unwittingly
accepted the fact that they share their property’s ownership
with the local government.
the New Deal, the federal government has massively intervened
in the private housing market which, in many ways,
has lead to the aforementioned real estate fascism. The Federal
Housing Authority (FHA) was established in 1934 with the objective
of rescuing a housing industry that "...was flat on its back."
The following lame reasons were given for the creation of
this federal monstrosity during the Great Depression
as found on the Department of Housing and Urban Development’s
million construction workers had lost their jobs.
were difficult to meet for homebuyers seeking mortgages.
loan terms were limited to 50 percent of the property’s
market value, with a repayment schedule spread over three
to five years and ending with a balloon payment.
was primarily a nation of renters. Only four in ten households
1965, the FHA became a part of HUD. On a combined basis, the
"FHA and HUD have insured almost 30 million home mortgages
and 38,000 multifamily project mortgages representing 4.1
million apartments, since 1934." Undeniably, the federal government’s
intervention into the housing market has been enormous.
1934, an alphabet soup of government agencies and government
sponsored enterprises (GSEs) have intervened in America’s
housing market with the objective – as stated on Ginnie Mae’s
website, using this agency’s statement as a proxy – to "...help
make affordable housing a reality for millions of low-and-moderate-income
households across America by channeling global capital into
the nation’s housing markets." In addition to Ginnie Mae,
other federal agencies involved in the housing market include
the Department of Veteran Affairs, the Department of Agriculture’s
Rural Housing Service, and HUD’s own Office of Public and
Indian Housing. Not to forget the GSEs, Fannie Mae and Freddie
Mac have become behemoths in providing liquidity to the housing
combining the Federal Reserve’s current (and reckless) low
interest rate policy with the housing-market interventions
perpetrated by the above-mentioned governmental and quasi-governmental
housing entities, millions of otherwise unqualified Americans
now "own" homes. Members of Congress and even President
Bush are taking credit for helping Americans realize the American
dream of home ownership. What these politicians fail to recognize
is that they have enabled a circumvention of the customary
route to home ownership in which Americans saved enough
for a 20% down payment in order to qualify for a traditional
30-year mortgage. Hence, Americans now have very little "skin"
in the game as the mortgage lending system has been so distorted,
by the government, that literally anyone with a pulse can
qualify for a mortgage loan including loans that require
minimal to absolutely no down payment. Millions of households
have interest only, reverse amortization, or adjustable rate
mortgages and typically depend upon having two wage earners
in order to afford the monthly house payment. Indeed, with
federal involvement, mortgage credit is easy to secure. Thanks
to Uncle Sam, never have so many people, with so little at
stake, been able to borrow so much money.
the big question becomes what will happen to the real estate
market when long-term interest rates (and, most likely, unemployment)
begin to rise? One must look at how Americans have become
conditioned, by the federal government, to uncritically view
the issue of private property rights. We have a draconian
tax system which makes it clear that Americans do not fully
own the fruits of their own labor (i.e. money earned via hard
work). We have local governments now emboldened by
the U.S. Supreme Court which decide for themselves
what real estate property rights may or may not exist. We
have federal bureaucracies that provide shortcuts allowing
Americans to purchase homes without having to work and save
for a meaningful down payment essentially, home mortgage
credit has been socialized. We have a fiat-money system that
steals our wealth via the pernicious tax of inflation. Thus,
we have a society in which the meaning of private property
ownership has been debased by the federal government itself.
So when long-term interest rates begin to rise, I see massive
mortgage defaults ahead. Heck, I can hear the mantra now:
"I can’t afford my house payment anymore, so it’s the
government’s problem now, not mine." Consequently, hugely
expensive bailouts of the GSEs, and other federally backed
institutions, lay on the horizon. Of course, this will mean
higher taxes (both directly and via inflation) and, therefore,
further violations of property rights. Does anyone care anymore?