Sticks and Stones

For the last thirty years one of the loudest way to demonstrate wealth was by building a McMansion. These ostentatious homes could be built on a budget while retaining a grand appearance. Building with pre-fabricated materials, not hiring an architect, and skimping on design by only having the face built in stone - or even out of composite that looked like stone, cut costs dramatically, allowing people to build houses that looked more expensive than they were.

The result was ugly, disproportionate homes. They had glamorous faces but sides built with plywood and very few windows. These homes had large heating and cooling bills. They loomed over their diminutive lawns. They were unoriginal; that cost-cutting decision to not have an architect meant many houses looked alike.

What few people predicted was another format growing around the same time: prefab modular houses, would later rise from its roots as trailer-park centerpieces to the sort of thing Silicon Valley billionaires like Phillipe Kahn want to live in. The difference is of course a dramatic change in style and building quality; but two things remain the same: affordability and convenience.

I was drawn to Marmol Radzinger’s designs for a totally different reason. It seems odd to say these homes are beautiful - they are designed to be purely fuctional and completely ignore aesthetics  - but in their drive to lower costs and reduce the amount of energy needed, the designs bear a striking resemblance to the work of the Internationalist architects of the 1930s - 1970s. The homes are not adorned with pediments and columns, they are purely functional, which ironically forms a style of their own.

Firms like Resolution: 4, Marmol Radzinger, and Jeriko House have designed striking model homes. These can be up to 5,000 square feet and include pools, second floors, and garages. These three firms in particular, along with LivingHomes and Michelle Kaufmann design beautiful modern homes for six, sometimes seven figures. Those on a much tighter budget can also build their own brand new, green, modern homes from Rocio Romero, whose LV homes can be bought, built, and completed for $80,000.

Some of the particularly appealing aspects are the modular designs, which allows for easy extendability and customisation: if you choose to add a library, it’s fairly simple to do so, and that library can be built exactly to your specification. Another recent draw is green technology. Marmol Radzinger offers the option of installing solar panels, and all firms use materials and building techniques which limit the impact on the environment. Most firms build to LEED certification.

In these ways, the firms have turned a cheap, efficient, and highly customisable medium into a luxury good. They come with 20 year warranties, are built to a truly impressive standard with high-grade materials, and by being easily customised are usually unique. The only downside is that as a relatively new phenomenon; you can’t just go and buy one on the street. While appealing because you can build exactly what you want, in densely packed, highly urbanised cities and suburbs, the cost of tearing down an existing house is included. Nevertheless, the impressive qualities outweigh these costs, which is why this option is growing in popularity so rapidly.

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We’ve had major surprises in the past few weeks. Politically, the Eliot Spitzer revelation and resignation caught everyone totally unaware. Socially, some of us witnessed a gory geek-led attack on Sarah Lacy for soft-balling an interview with Facebook’s notoriously-shy Mark Zuckerberg. Culturally, France’s foreign minister suggested an EU boycott of the Olympic opening ceremony as a result of China’s repression of Tibet.

But economically, the-tip-of-an-island blew the world into searing chaos. The three firms most heavily involved in the sub-prime mortgage crisis; Bear Stearns, Lehman Brothers, and Merrill Lynch all teetered on the edge of bankruptcy. While so far only one has collapsed, the other two remain balanced, delicately, on the whims of Wall Street traders.

The collapse of Bear Stearns was only surprising because it seemed Wall Street believed these firms could get away with their incredibly profitable but totally absurd subprime lending. The International Herald Tribune reported yesterday from within Bear Stearns, about the employees’ reaction. Many spoke of total shock, a feeling of betrayal, and ominously; none seemed aware that this sort of collapse was well within the realms of Bear Stearns operations.

Bear Stearns’ operations were so risky because they were bundling valueless loans with some good loans and then sold them to other institutions which were totally unaware of what they had bought (other than seeing the AAA rating on the bundles).

Surely a firm operating in this manner should go bankrupt. It had made risky financial maneuvers, assumed it would not get caught, and when it all fell apart - everyone was surprised. The story should have ended there. Bear Stearns would have collapsed into a smoking heap, other firms would peer at the wreckage and learn some valuable lessons. Although the following year would be fraught with panicking traders feeling insecure about deals, it would be the ultimate culmination of Milton Friedman’s pro-free-market ideals. Leave it to the market, we chanted.

But when the market fell apart because their brash deals collapsed, they called in the Federal Reserve. Although the Fed deserves blame for not reigning in Wall Street during Alan Greenspan’s boom years, it should not be paying for Bear Stearns collapse. Nevertheless, it floated $30 billion to grand old JP Morgan and Bear Stearns was snapped up on Monday for $236 million, massively down from the $3.54 billion it was worth on Friday.

Most impressively, JP Morgan has an option on Bear Stearns World Headquarters (photo above of the Kohn Pederson Fox-designed skyscraper built in 2001) so if Bear Stearns stakeholders vote down the JP Morgan bid, not only will they likely be bankrupt immediately, they could get evicted from their own headquarters; a building which is worth approximately 5 times what JP Morgan bid for the whole company.

Here in England when our government did something very similar: nationalising Northern Rock, our Senior Staff Writer wrote a sarcastic article labeling the Prime Minister a ‘dyed-in-the-wood Commie’. While joking, the point is that the nationalisation of Northern Rock was direct government intervention in the financial system after its collapse. Which is exactly what the Fed did for Bear Stearns. Headlines across the world trumpeted it as JP Morgan saving Bear Stearns, but this was funded by the Fed’s $30 billion.

Government intervention in this ways is like giving candy to the class bully. Bear Stearns was ruthless in its quest to make money from subprime mortgages. For this, Bear Stearns should not be nursed back to life, it should be allowed to collapse because it brought its downfall upon itself. Notice Goldman Sachs, another player in Wall Street, has $21 billion to hand out in bonuses; it was not necessary for Bear Stearns to operate in this way. It chose to, and for that error, it should fall. Saying it is too big to fail should only be a justification for propping up necessities like waterworks, electricity suppliers, and so on.

The blame remains at the feet of Alan Greenspan. Bear Stearns, Citicorp, Lehman Brothers, Merrill Lynch, Countrywide, and the rest should be free to operate and make vast profits. Their activities fuel economic growth and generate wealth across the world. However, regulation should have been in place to ensure those worthless loans were not ‘mislabeled’ AAA. These firms should be free to invest, invent, foster entrepreneurship, and make trillions of dollars; but not by swindling others.

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Well, now it all makes sense. The Blairite, New Labour years were all a cover, just to get elected and in power in order to carry out the real, socialist work that the Labour party was founded to do. At long last, Gordon Brown and Alistair Darling have begun to undo the damage wrought by the bourgeois Conservative Party under Thatcher.

I refer, of course, to the long-overdue nationalisation of Northern Rock, which must be the right course of action, if for no other reason than the fact that Osborne doesn’t like it and will be opposing the legislation in the Commons. The real incompetence, of course, as many wiser and more knowledgeable spectators than myself (Anatole Kaletsky, Richard Lambert, et al.) have commented, was that this step wasn’t taken earlier. One hates to appear in any way similar to Vincent Cable, and I have no way of proving this, but I’ve been saying this from the start.

Of course, I’ve been advocating the nationalisation of all wealth since long before this ‘crisis’ started, but that’s another matter completely. The issue at hand is that Labour have lived up to their former ethos, and, as the Conservatives have moaned, taken Britain “back to the 70s”. Now, I have a lot of problems with the 70s (John Lennon, alive? No thanks), and many reasons that I wouldn’t want to live through them - and it’s probably true that if Labour had had their way back then the country would now be in ruins. But, of course, that is their plan.

Brown, like the dyed-in-the-wool Commie I always knew him to be, along with the Radical Darling (that man is a nutter on acid) and bona fide Bolshevik Straw, is flying the red flag high over Britain. Northern Rock today, the collapse of the capitalist behemoth tomorrow. This was truly a glorious day (or, perhaps, yesterday, by the time of publishing) for Marxists throughout the land.

And as for the shareholders - good riddance, say I. They made a gamble, it didn’t pay off, and now they are understandably upset. Fortunately, that hasn’t stopped Comrades Brown and Darling from setting the dynamite under the decaying and dilapidated structure of the capitalist system and unhesitatingly setting it off.

We can look forward to a future free from class boundary and the evil influences of capital and its bourgeois fetishists.

P.S. I’m joking.

P.P.S. But only a little bit.

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Ten years of stable economic growth is often spoken about when admirers (himself included) assess Gordon Brown’s economic legacy as Chancellor. The previous ten years of growth have happened and are undeniable, but will the UK economy grow in 2008 and 2009?

Alarmists were (unsurprisingly) alarmed yesterday at the publication of the Bank of England’s first Inflation Report for 2008, when Governor Mervyn King warned that inflation was rising due to higher costs, demand was dampening and a technical recession (two consecutive quarters of negative economic growth) was not that far away from the Bank’s projections.

January’s inflation figures, released on Tuesday by the Office of National Statistics, showed the highest annual increase in CPI (the consumer price index) for seven months, and a change in methodology may push the 2.2% inflation rate higher once increased energy costs are accounted for immediately. RPI (the retail price index), which is broadly believed to be a more accurate representation of UK inflation levels (and hence benefits, pensions, student loans and a lot of pay deals are linked to it), was up to 4.1%.

With inflation on its way up, and with the Monetary Policy Committee mandated only to target inflation, the hopes by businesses of a US Federal Reserve type slash of interest rates are likely to be dashed. Even a moderate cut looks unlikely, with Mervyn King prepared to write his second letter of explanation as to why inflation is not on target in 2008. The government are hardly helping the situation by prudently applying fiscal policy either. Fuel duty was raised towards the end of 2007, and is set to rise by 2p a litre in April 2008, at a time when the real price of petrol has never been higher.

So with a government determined to tax somewhat irresponsibly, a Bank of England worried about inflation and consumers unwilling to spend, the prospects for growth in 2008 are bleak.

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Many of you will have been as shocked as I was at the recent news that the World Bank has lambasted several Arabic countries for providing their children with extremely poor educations - “falling behind”. Reports the BBC:

The World Bank has said the quality of education in the Arab world is falling behind other regions and needs urgent reform if it is to tackle unemployment.

In a report, bank officials said Arab states had to make improving education their top priority, because it went hand-in-hand with economic development.

So many revelations to take in at once! Arab education needs reforming? But what’s wrong with textbooks that omit the Holocaust, maps that omit Israel, classrooms that omit girls? But not only does the World Bank deserves much praise for highlighting this sorry state of affairs, but also for the enlightening insight that education fosters economic development.

Come on. Is there anyone in the world for whom this was not blindingly obvious? Of course education encourage economic growth - we could ask first-year economics students at university the same question and get a much more edifying and learned response. I’m a Trotskyist - that shows how little I understand economics - and even I knew that. It really makes you wonder: what is the point?

What is more, how is this newsworthy? Arab countries, I thought, are renowned for their shoddy quality of education, it being on a par with their sinfully corrupt leaders and Islam-derived injustices towards women, homosexuals etc. Next they’ll be saying that these countries would be a lot better off with female emancipation and secular government - and imagine how surprised we’ll all be if they say that.

This is Senior Staff Writer Leo’s 14th post and the blog’s 63rd post. It was published on Thursday 7th February 2008, one month after Sticks and Stones was founded.

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