Look what the Republicans have done to our economy by following their core "trickle down" economic ideology, which really means borrow and spend.  They have run up a massive debt which combined with no oversight, a near total removal of regulations on corporate conduct, and watched and let Neil Bush run a savings and loan (oh, sorry, that was that other Bush presidency -- when S&L owners and Republican campaign contributors robbed us blind and bribed Senators like John McCain and then got a massive government bailout.)

We have all been hearing a lot about housing prices falling, and about the effect housing prices have on the economy.  The impact to date, while real, is actually overstated. Why? Well, housing markets and their impact are the turtle of economics, they happen very very slowly. Prices have to fall and people have to sell, when they sell they, if they get less than they expected, may not spend as much as they would have if they had reaped a huge profit.

Of course, the lack of higher equity is hurting those home equity lines people were tapping like McCain at an open bar.  But ask yourself, honestly, how many people do you actually know who have either been forced to sell or have sold and not made a profit? Not that many -- yet.  People are still holding out.

Unquestionably the economy is slowing. Consumer debt is massive, companies are cutting jobs, inflation is rising, unemployment is a full percentage point ABOVE where it was a year ago, and with a work force of 200 million plus, that's 2,000,000 newly unemployed Americans.

Just this morning, we saw that planned July Job Cuts skyrocketed to over 100,000 meaning that unemployment will continue to climb, the economic impact of those layoffs won't be felt till mid-fall at the earliest when severance packages run out and the reality becomes apparent, new jobs are hard to come by.

But now the time is arriving when we will start to see and feel the real impact of the slowing economy -- layoffs will pick up over the next year and the forecast is for increasing and increasing unemployment, it almost surely will be another point or more higher next year than it is now.

Slowing economies manifest themselves in many ways. But the most prominent is in the corresponding fall in housing prices.  In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy's effect on housing prices.  So if you think prices have already dropped, and might even be reaching a bottom, we think it's the other way around:  prices are about to start dropping.  

Even Alan Greenspan agrees with us.  Greenspan Says Housing Prices Not Yet Near Bottom

Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are "nowhere near the bottom'' and the resulting market turmoil isn't showing signs of abating.

How can this be?

How can prices that have fallen 25% in Los Angeles year over year be about to start falling? Well, because unlike every other real estate boom of the past century, this past boom was, in fact, a boom and a bubble. This numbers below, from the Case-Schiller Housing Index showcase that and how the first bubble may have popped, the excess speculation bubble, but the underlying bubble remains, and now will begin to deflate.

Prices in San Francisco were set to an index of 100.00 in January of 2000.

By January 2004 prices had jumped to 155.93, a massive jump by historical standards. This alone is a real estate bubble.

By January 2007, they had already softened a bit but still were at 211.78. This is the second bubble.

Now the index stands at 162.70. Still up 60% since January 2000.

The prices have lost some of the home equity / no money down madness bubble, but have let to be impacted by the slowing economy. And they will be

How far will they go down? Well, economics is ruled by larger trends and post bubble, prices eventually revert to the historical mean.  

For example in the ten years from January 1987 to January 1997, prices increased 22%. And, fyi, that's after inflation, meaning a house purchased for $400,000 in January 1987 was actually worth less, in real dollar terms, in 1997, ten years later.

That's not a rant, that's a fact, all of these prices don't include inflation.

In real dollar terms, house prices really don't escalate much. Some studies of ONE HUNDRED YEAR time frames of the US Market show, in real dollar terms, that house prices remain flat.

How can that possibly be?

Well, we've been inundated with ten years of powerful powerful advertising messages that tell us, "housing prices always go up."

We borrowed money and spent it like good Republicans, because housing prices always go up.

We just know we can buy more and more because housing prices always go up.

But they don't.

So how can you estimate what the actual value of a house in San Francisco really is? How far can they fall? Another 40% to historical norms of growth? More?  Well, Dave recently calculated how far prices in the San Francisco Bay Area could fall using three different methods.

The first was the rent to price ratio.  With this method you take the average rent and calculate the amount of money you need to put into a decent investment to make the same amount.  For example, if you are clearing about $833.33 per month ($10K oer year) from a rental property unit (remember to account for maintenance and property taxes and something for your time...) then the price of the property would be around $100,000 for a 10% return ($10K is 10% of $100K) and $200,000 for a 5% return (sufficiently higher than a CD pays right now).  

So if houses in your area are renting for about $1400-1500 per month this is a rough way to tell that similar houses might be worth around $150K at best.  If you double that and they rent for $2800-3000 then house prices would be $300K.  And those prices assume that rental prices are not dropping.

James lives in a rental house in Boston which at market peak might have sold for $800,000 or $900,000 but now rents for $2,400. What does the landlord clear? Not $28,000 because he pays the taxes so more like $20,000. If you had $400,000 in the bank would you be happy with 5% return? Perhaps. But that's the highest amount you can estimate the house is worth in the market. And guess what? 10 years ago, the house was worth about $350,000. So it actually is about the right value.

The next method involved the average person in the area's income affording an average priced property.  Look around at prices in your area, and average wages.  At what price can the average person (or husband-wife) (or husband-husband/wife-wife in Dave's California and James' Massachusetts) buy a house?  Right: uh-oh.

The third method is to look at the historic mean plus inflation.  When prices triple in a few years, then when they correct they have to fall to 1/3 of the peak (plus inflation).  It's just the way it is.

When Dave calculated these for the Bay Area all three methods came out the same and showed that prices can still fall as much as 30-40%.   We say "can" but an economist might say "should."  

If it falls 30% from that index where it is now, it only drops to 112. Can't happen? Well, remember that 1987 - 1997 DECADE, it was up 22%. Now, after 8 years, it would be up 12% on that index. That's pretty normal growth to be honest.

And what is cumulative inflation of the past 8 years?  Let's make it easy on ourselves, and we'll say an average of 3%. The 100 Index goes from 100 to 126 with the combined effect of eight years of Inflation at 3%.

You see, housing is not the perfect "always goes up" investment. And it is clear that the housing prices in San Francisco and many more places could have 30% - 40% to go down from where they are today.

But, you guessed it, the news is actually worse than this.  First, there is a huge amount of excess housing inventory on the market.  So this needs to be factored into your thinking about where prices can go.  On top of the need for prices to revert to the mean, these extra houses have to find buyers before prices can stabilize. This is supply and demand, nothing more, nothing less.

Next is the effect of gas prices.  Many, many housing developments have gone up in areas that are far from city centers and far from non-automobile transportation like light rail or even buses, and buyers are going to be factoring the price of gas now.  Along with this, the price to heat and cool the monster homes that developers tended to build will become a consideration and will reduce demand for these houses.  

Another factor is that the "boomers" are starting to retire, and will be selling the larger homes in which they raised their families or ended their careers, looking for apartments, condos and even senior facilities.  This will also reduce demand.

And, just as the price of energy was not considered when these houses were designed and built but has lately become a factor, one day the implications of global warming will start to sink in.  In particular, is the house sufficiently above sea level?  Is it located near an area that is experiencing increased fire danger?  LOTS of Californians are starting to think about these issues.

But if you think we're wrong, and the above factors are non factors. Consider the recent decline in the stock market, General Motors and their 15.5 billion dollar quarterly loss, that's the recession that's here.  

This is the big one:  A falling economy always forces housing prices to fall.  Even when housing prices are not in a bubble to start with a recession forces prices down.  And this hasn't even started acting on housing prices yet -- the falling prices we have seen are not because the economy is slowing, they are causing the economy to slow.  The slowing economy will make this worse as people are laid off around the country.  The foreclosures we are seeing today are not the result of people losing their jobs, but they are causing people to lose their jobs.  THEN the foreclosures that come FROM people losing their jobs will start.

There are no, none, nada, zilch factors that we see driving any hope for a "bottom" in housing prices any time soon.  

Thanks Republicans for ignoring the country's problems for so long, refusing to regulate the financial companies, refusing to address the need to find alternative energy sources, refusing to fund mass transit alternatives and refusing to provide oversight and enforcement of our laws.  Thanks for bringing us to where we are today.  

They borrowed and spent. We borrowed and spent and drove the housing prices up through a double bubble. One bubble may have popped. The next one will soon.

Post-Script: We worked on this post last week and over the weekend. This morning, The New York Times has this article: Housing Lenders Fear Bigger Wave Of Defaults. It echoes many of our arguments in this piece.

In a democracy, every person has a single vote. Unfortunately, what is becoming increasingly true is that someone with millions of dollars and the willingness to fund front groups has the ability to influence millions of votes.

Take the issue of the Iraq War - by any and every national poll, millions of Americans want the war to stop as they see through the lies that got us in the war, the lies that have kept us in the war and now with even the Iraqi leadership asking we leave, the vast majority of Americans see no reason to fund billions on dollars in war every month.

However, despite their wishes and their votes, the wishes of the people are countered by the wishes of the few, or in today's example, the wishes of one, Sheldon Adelson. Mr. Adelson is one of the very few wealthy "behind-the-scenes" manipulators that set up phony front groups and fund them with millions and millions of dollars to pollute our country's discourse, smear people, spread fear and lies and the worst kinds of dirty stories.  Every politician knows that this ugliness could be directed at them if they dare try to fight this kind of power.

Where do these Republican, pro-war front groups get so much money?

Thomas B. Edsell's July 25 post at Huffington Post, titled Sheldon Adelson: GOP's Answer To George Soros? provides us with a few clues.

Sheldon Adelson, the 74-year-old casino billionaire who has become the third richest man in America and who has strong ties to the hard-line Likud Party in Israel, has emerged this year a major benefactor of the American right.

Adelson has been a major backer of right-wing Republicans, including Tom DeLay, and has given $2.9 million to a Newt Gingrich organization, American Solutions for Winning the Future.

And now, according to Edsell,

. . .Adelson, according to the National Journal, has begun channeling cash and fundraising support to Vets for Freedom, which is expected to use the influx of money to finance what it claims will be a multimillion dollar "Four Months For Victory" ad campaign.

Why does a wealthy Jewish casino owner, so rich that he is flown around in his own Boeing 767,  support a veteran's organization?  Probably because Vets For Freedom isn't really a veteran's organization, but a Republican Party front group working to elect John McCain and keep the Iraq war going.

If Vets For Freedom was a veteran's organization, they would be front and center in holding John McCain responsible for voting against the new G.I. Bill? But they didn't say a word.

If Vets For Freedom was a veteran's organization, they would be concerned with the hundreds of thousands of returning wounded warriors and their need for care and assistance? But they're not.

In fact, Vets For Freedom has only one mission - build public support for continuing the war in Iraq and now it appears they really only have one donor - a hard line neoconservative who is determined to influence US foreign policy in the Middle East.  

Adelson is also a major funder of Freedom's Watch, another Republican front group that exists solely to help wealthy individuals like Adelson get around campaign finance laws that are designed to protect our democracy from this kind of dollars-outweigh-votes corrupting influence.  

These organizations are allowed to take unlimited donations and not disclose donors because they are supposed to be educating the public about issues, not polluting our elections with ads that support or smear candidates.  But, of course, who in the Bush government is going to stop them from breaking our campaign finance laws to support Republicans and smear Democrats?

In Israel Adelson has purchased a newspaper that he uses to try to influence Israeli politics.  According to some, he inspires resentment and fear there. A recent New Yorker article about Adelson says,

"In Israel, where political, academic and business leaders tend to be outspoken, there is a striking reticence at the mention of Sheldon Adelson. Even people who are diametrically opposed to his politics refuse to be interviewed. 'There is a discernible amount of self-censorship going on,' the liberal Israeli-American writer Bernard Avishai said. 'There is no ideological justification for what Sheldon is doing among the Israeli intelligentsia and a revulsion at an American weighing in so heavily on Israeli politics, in such a crude, reactionary way. But they won't speak.'"  

Post-Script: As we were about to publish it, news comes that Sheldon Adelson has hired Karl Rove with a mid six figure deal to help run "Freedom's Watch" another right wing front group.

We'd like to introduce the Vets for Freedom NewsLadder. Like all the NewsLadders that are up and running, this is a great place to find out all about an issue on one site with articles, blog posts, and videos linked up and voted up or down by readers like you.

At the Vets for Freedom NewsLadder we are linking to all of the stories and articles about this group and together we can ask, and potentially answer some very basic questions.

For example, there are lots and lots of stories about VFF supporting John McCain and wanting to stay the course in Iraq and keep our troops there literally forever, but how come there aren't any stories about VFF wanting John McCain to support the recent GI Bill?

Earlier this week, we wrote about the Republican group, Vets For Freedom, and their ability to run $1.5 million dollars in TV advertising with seemingly no support.

In our blog post, we noted that the founder of the group was claiming thousands of donors.   And the group claims to have 25,000 members.  A number which if true might give a hint of credibility to their claims. However, when it is becoming increasingly clear that more and more real veterans are coming out in support of Barack Obama, is it possible that VFF actually has 25,000 members?

In a recent story about Vets for Freedom's new campaign in support of Republican Presidential candidate John McCain, the Virginia-Pilot quoted VFFs Chairman Pete Hegseth on donor disclosure.

Vets for Freedom's efforts are being fueled by donations from thousands of people nationwide, Hegseth said. He said the group will not release donors' names nor the size of their donations. The group is registered under a section of federal tax law that allows it to advertise and organize on behalf of particular policies while maintaining the confidentiality of its donors. Donations to political campaigns or political action committees, by contrast, generally must be reported and are limited by law.

Thousands of donations? We looked up Vets for Freedom's reporting records and found a total of five (5) donors and $2,050 total donations in the most recent period they reported. This reporting is for their "527" committee, which is legally allowed to " influence the nomination, election, appointment or defeat of candidates for public office" but is not allowed to coordinate with any candidate's campaign. However, their 501c4 charity arm, the part of the group that does not have to report its donors, can not legally do any of those things.

What is a Front Group?

As a team that has spent a tremendous amount of time, especially over the last four years investigating and exposing these groups, here is a little history about where front froups came from.

The modern political front group actually got its start about 50 years ago in the tobacco industry. As the Surgeon General targeted cigarettes and scientific studies were being publicized about the dangers of cigarettes, the tobacco industry, quite simply, created their own front groups in order to counter the real groups.

They said, "Doubt is our product," and they used well-funded front groups to fool the public into believing there were "two sides" to the story that tobacco use cased cancer and other diseases.

What are the characteristics of those groups that help define a front group today?

Well, for one, the proponents are paid mercenaries, not concerned citizens.

Just as John O'Neill received $50,000 in August 2004 from the Swift Boat Veterans For Truth and Admiral Roy Hoffman's foundation received $100,000 in early 2005, the people working for Freedom's Watch are not tireless grassroots advocates, they are paid professionals.

The second characteristic of these groups is that they are launched fully-formed and well-funded, often directly from Washington, D.C. The funding comes from few sources, and the front group is designed to push yet mask the agenda of these few funders. The day that Freedom's Watch launched out of DC, it had $15 million in the bank and completed TV commercials.

Contrast this with say, MoveOn.org, which was launched from an online petition by Wes Boyd and Joan Blades in California and grew into an organization as thousands upon thousands of concerned regular citizens joined. Or VoteVets, launched by Jon Soltz living in his office in New York.

Movements come from outside in, ground up. Front groups are launched fully formed, top down.

One of the clearest ways to see this is to look at the traffic that two sites receive.

If you head on over to www.alexa.com and compare MoveOn with Freedom's Watch, you'll see a clear fact - Freedom's Watch doesn't get any traffic - there is no support from the ground up, there is only the front, from the top down.

Finally, while Joan and Wes have always been and always will be involved with MoveOn, just as VoteVets is always going to be Jon Soltz's group, the heads of front groups like Freedom's Watch will change.

It appears that Bradley Blakeman is now the President, former George Bush spokesperson. He wasn't the head of it when it launched. And six months from now, it will be someone else.

The donors and the missions of front groups remain, the employees change, a lot.

To find out more about Freedom's Watch, visit www.freedomswatch.newsladder.net.

This is our previous post in this series, Watching Freedom's Watch: The Donors.

By Dave Johnson and James Boyce

What could be more important than dealing with the threat of global warming? Exposing the companies and groups that continue to try and distort the issue for financial gain and holding the media accountable for their role and complicity in the continuing distortion of the truth.

Let's be perfectly clear. Global warming is a scientific fact - it is not a political issue. But a few  corporations are bringing in incredibly high profit margins from the status quo.  These profits depend on Americans and people worldwide burning more and more oil instead of working to put less carbon into the air.  So they pollute the "marketplace of ideas," deceiving people by spreading the lie of doubt that global warming is a real problem.  

Just as Big Tobacco was willing to spend hundreds of millions of dollars denying for decades that cigarettes caused cancer while hundreds of thousands died from their product each year -- spreading the same lie that the science was not clear -- so too is Big Oil willing to invest heavily in the global warming deniers.  

Over at Smoking Politics, we tell and re-tell and constantly point out that the right wing strategy of lie big, ignore the facts and shoot the messenger wasn't created out of thin air, it was started with great success by the tobacco companies almost a century ago.

The clearest current example of the attempts to muddy the water on whether cigarettes actually cause cancer, oh wait, that was the last example, now they're muddying the waters with Global Warming.