If you want to feel better about our housing melt-down, read this article from today's New York Times. I think a lot of people, myself included, knew the housing boom couldn't last forever but didn't realize the extent to which the problems there would drag down our entire economy. But check out the chart with the article: residential investment is a little less than 6% of the gross domestic product in the U.S.. In Ireland, it's almost 14% of GDP. (At least that is how it looks on the chart-- the body of the article says it's 12% in Ireland and 4% in the U.S. Maybe they need to draw those graphs a little more carefully!) Spain is also in trouble, with thousands of new homes sitting empty and prices dropping.
Economists have been busy cutting their growth forecasts for Spain, with a few saying that it may stagnate this summer. BBVA, a leading Spanish bank, forecasts that unemployment will rise to an average of 11 percent this year, from 8.6 percent in 2007.
Such cutbacks are well under way in Ireland, where the taxi drivers complain that their ranks are being swollen by laid-off home builders. The housing collapse has brought an abrupt end to more than a decade of pell-mell growth that earned Ireland the nickname “the Celtic tiger.”
But at least here in America, the rich are still spending:
Who said anything about a recession? Sometime between the government bailout of Bear Stearns and the Bureau of Labor Statistics report that America lost 80,000 jobs in March, Lee Tachman spent roughly $50,000 last month on a four-day jaunt to Miami for himself and three close friends.Here's another nice quote:
The trip was an exercise in luxuriant male bonding. Mr. Tachman, who is 38, and his friends got around by private jet, helicopter, Hummer limousine, Ferraris and Lamborghinis; stayed in V.I.P. rooms at Casa Casuarina, the South Beach hotel that was formerly Gianni Versace’s mansion; and played “extreme adventure paintball” with former agents of the federal Drug Enforcement Administration.
Mr. Tachman, a manager for a company that executes trades for hedge funds and the owner of “a handful” of buildings in New York, said he has not felt the need to cut back.
“I always feel like there’s a sword of Damocles over my head, like it could all come crashing down at any time,” he said. “But there’s always going to be people who are trading, and there’s always going to be a demand for real estate in New York.”
In October, Marc Sperling, the 36-year-old president of an equity-trading company, bought a new condo on the Upper West Side in a building where four-bedroom apartments like his cost more than $4 million. When he moves into the completed building next year, he plans to hold on to his other two apartments in Murray Hill and Miami Beach — each of which he values at about $2.5 million."Inverse class resentment." That is kind of a new one. Yes, there is greed and stupidity at both ends of the economic spectrum, but I'd point more fingers at the people in the mortgage industry who actually ended up benefiting from all this craziness, not at the middle class families who believed it when they were told they could have their little piece of the American dream and are now facing bankruptcy.
Mr. Sperling views the nation’s economic slump as a temporary problem, and is grateful that it has yet to affect him. “I think if you have the means to ride it out, that’s what you do,” he said.
His view of the subprime mortgage crisis seemed to reflect a sort of inverse class resentment.
“I don’t want to sound harsh, but the people who were buying million-dollar houses with a combined household income of $70,000 or $80,000 were the ones who were chasing easy money,” he said.