Are we Living in the Bizarro World?

The government has seized the opportunity of not letting a good crisis go to waste.They have forced banks to take TARP money, against their will in some cases, and when those banks want to pay it back they are discouraged from doing so. Why? The government wants to control the banking industry and dictate what bankers can earn. You know that the TARP money “lent” to the auto industry will likely be converted to common equity in order to provide additional control. Even without common equity they had enough influence to fire the chairman of GM.  Money is being printed and spent at unprecedented levels because we are told that, “The world will end if we don’t do this”.All of this spending could balloon the deficit to the point where our interest payments could approach $500 billion per year. That would be just the interest and that is more than any deficit we have ever had.For more than 50 years, democratic capitalism constructed its modern framework against the backdrop of its death match with totalitarian communism. In the last 20 years, the American model of capitalism was largely unchallenged by ideological alternatives and became increasingly dominant around the world. It drifted toward what conservatives viewed as a more pure form of economic liberty and what liberals came to view as misguided free-market fundamentalism.Today, we hear a lot of ideas coming out of Washington regarding the need to diminish the consumerism that has been the backbone of economic growth in the United States. They say we should move away from consumerism and reorient towards saving and investing. They say wealth should be redistributed and we should make the rest of the world less dependent on the US market for their prosperity.They argue that an activist government is an acceptable and necessary partner for a stable, market based economy. Smart political advisors describe the philosophy in terms of pragmatism rather than ideology.Transparently, the government is trying to have much easier access to manipulating the private market economy. This philosophy and approach is not limited to the federal government as state and local governments have been following suit.In New York, our multi-family housing market is subject to a rent regulation system which is advantageous for tenants at the expense of the property owner.  Rent controlled and rent stabilized housing is misallocated, as financial need is not part of the equation. The laws provide maximum benefits to those who have been in place for a long time reegarless of their financial status and need. This results in a system that makes tenants resistant to moving which constrains the supply of available units and puts upward pressure on the average rent a New Yorker pays.Recently, the New York State Assembly passed a package of bills to strengthen the laws to an even greater extent in the tenants’ favor. Even before the present package was passed, over the long term, allowable rent increases did not keep pace with the increases in operating expenses. If the Senate passes these bills in June, making ends meet will be even more difficult for owners. (go to www.masseyknakal.com and check the “Reel” for a commentary piece I wrote on April 20th which goes into greater detail about  the potential impact of the pending bills).Moreover, this past week, Housing Preservation and Development Commissioner, Rafael Cestero, announced that he is concerned about how much debt property owners place on their properties. He claims he has spoken to officials in Washington “to discuss how to make sure future property sales are sound” and that they are “looking at ways in which we could potentially work with the federal government to bring resources to bear that will help us ensure that ownership – when it needs to be transferred – is transferred to responsible owners.”Is “property ownership” becoming an oxymoron?If Jane owns a 50 unit property and wants to sell it to Joe, will Jane have to get approval from the government to sell the property? Will it be rubber stamped if the price is low enough? Will the sale be disallowed if the price is too high or if the amount of the mortgage exceeds some limit? What will Joe have to do to prove that he is “responsible”?The argument is that the quality of life for the tenants is jeopardized if debt service eats up too much cash flow to allow the owner to make improvements. Oddly enough, most of the owners on the “slumlords” list published each year are long time owners with little or no debt on their properties. Additionally, more capital improvement money is poured into properties in the first two years of new ownership than at any other time.George Orwell would love our Bizarro world……Remember, Big Brother is watching!