Cathy Come Home meets Las Vegas
Posted on Monday 26 November, 2007
Filed Under Economics
On some credible estimates, the subprime crisis could lead to two million repossessions in the United States. Hopefully most of those affected will find somewhere else to stay, even if entire families have to cram into friends’ spare bedrooms; inevitably, many won’t.
Tens if not hundreds of thousands of working-class Americans will be out on the streets. If that happens – and it is difficult to see what might avert it – the impact can only be highly visible. Think Katrina aftermath on steroids.
We could even witness the return of the Hooverville, as US shanty towns were known in the 1930s, lampooning the particularly dumb Republican president of the day. Whatever they get called in popular slang this time round, the term is likely to include some reference to the incumbent sitting in 1600 Pennsylvania Avenue.
But such considerations haven’t stopped one subsection of the rentier class making a killing, the Financial Times reports today:
A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the world’s best-performing funds of all time.
Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil. The fall in the value of subprime-linked securities has boosted a group of funds which spotted the problems in advance.
According to the FT, a ‘select group’ of hedge funds – is there any other kind? – has profited to the tune of $20bn by shorting subprimes through derivatives. You do not have to be a Marxist to recognise that this activity is absolutely parasitic.
In theory, derivatives have the legitimate function of allowing mortgage lenders to hedge against adverse market outcomes. But what Mr Lahde and his pals have done is to bet borrowed money on a sharp rise in homelessness.
I’m sitting here with my Hayek hat on, trying to think what defences an intelligent and reasonably-minded free marketeer might put forward for this. I cannot come up with a single one, although obviously I might be missing something.
Meanwhile, Mr Lahde has written to his clients, predicting deep recession:
“Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals.
No chance of donating even a few of the tens of millions of dollars secured by your cynical bet on other people’s housing chances into an emergency housing construction programme, Mr Lahde? Thought not.
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Comments
4 Responses to “Cathy Come Home meets Las Vegas”
Good post, Dave.
Re: the arguments free marketeers may use to defend their system, well according to a talk I went to last Wednesday (write up on my blog, plug, plug), Blair did just that by hailing the growth in inequalities as evidence of individual achievement under his tenure. Expect the US right to come up with something as equally as cynical.
On some credible estimates, the subprime crisis could lead to two million repossessions in the United States. . . . We could even witness the return of the Hooverville … the term is likely to include some reference to the incumbent sitting in 1600 Pennsylvania Avenue.
Don’t you wish! The number’s that high because the fact of lying on applications means the media can include ALL the subprime/monster loans. But, of course, the overwhelming majority are likely to be fine. You’d have more trouble if the economy was in serious rather than minor trouble. But it’s likely to only be some of the construction workers who have trouble, because they’re the only class of poor worker hurt by the crisis (I hope you aren’t worried too much about the jumbo loan recipients).
I bet we don’t even see a recession here in the US.
…has profited to the tune of $20bn by shorting subprimes through derivatives. You do not have to be a Marxist to recognise that this activity is absolutely parasitic.
Oh, yeah you do. We capitalists understand that economics isn’t zero-game. That is to say, that 20BN wasn’t torn from the wallets of starving subprime victims. Money iis regularly created, even opportunistically in connection with crises, without it being taken from others.
I’m sitting here with my Hayek hat on, trying to think what defences an intelligent and reasonably-minded free marketeer might put forward for this. I cannot come up with a single one, although obviously I might be missing something.
Yeah, we can tell you were working SO hard. Don’t forget to let the steam from teh ears cool off before continuing. Hmm, hmm, hmm, hmm, hmm…hmm. Could it POSSIBLY be give somebody on the edge a better chance of getting a house? Except, since we capitalists are all Evil, that can’t be it. I’m stumped.
Erm, Grumpy, even the most orthodox economist would say that gettign someone into unaffordable debt. is undesirable and poor economics – getting a house is worthless unless you can keep it and your credit rating – losing both is bad.
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