Ah Cristina… What A Rotten Solution to Argentina’s Housing Problem

Reckoning today from Paris, France…

“France is rotten,” said a friend yesterday. “I don’t know why you came back. Half the people are broke. The other half are crazy…

“…and you foreigners still come here, pay $1 million for a hole- in-the-wall apartment…and walk around the city and step in dogsh*t.”

Yes, dear reader, that is a fair description of France circa 2012. The new president, Francois Hollande, says he won’t wait for the private sector to create jobs. He will do it himself. He’ll hire more teachers. Never mind that the payback on educational spending is zero – or less. It sounds good to the lumpen-voters.

And how will he pay for these new teachers? This week, he is expected to raise taxes on the rich. The top marginal rate, he says, will go up to 75%. And the wealth tax will go up too.

In short, the elites who control France will soon control, directly, more of it…and more of the rich will move to Switzerland, England or Belgium.


But here at Markets and Money, we like rotten countries. For example, in a state of even more advanced decay, there is Argentina, where president Cristina Fernando de Kirchner has just announced a solution to Argentina’s housing problem.

We pause to give dear readers a quick résumé of how housing got to be a problem south of the Rio Plata. In the ’80s, the generals who ran Argentina tried to pay their bills by printing money. This led to consumer price increases of more than 1,000% per year.

They had to throw out one currency, start a new one, and then throw that one out too. And then there was the war with England. Eventually, people got sick of it and threw the generals out. Then, President Carlos Menem promised a “hard” currency for Argentina, which he would achieve by tying the peso directly to the dollar.

No one is more persuasive than an Argentine when he is trying to borrow money. And since the currency risk was eliminated – or so investors thought – the Argentines soon were able to borrow more money than they could possibly repay, which led to the biggest default – about $100 billion – in world history.

The official inflation rate is now still in single digits. But the actual inflation rate – which is apparently illegal to report – is near 25%. This – combined with the fact that when you lend Argentines money they don’t pay it back – greatly reduces the availability of credit…and housing. People have to pay all cash…or nearly all-cash…to buy a house.

Well, you can imagine what the US housing market would look like if people had to save money before buying a house. There wouldn’t be so many houses. And that’s why there aren’t so many houses in Argentina. And many of those that were built in the past are not in great shape.

So, in comes Cristina. Rather than give any hint that her predecessors and her own political party bear any responsibility for the housing problem, she offers another crackpot solution.

We just want to point out that this situation is classic. Government causes problems. It then offers solutions that make them worse.

And today’s note is about rotten economies. And while the US is developing large brown spots and a sticky-sweet smell…it’s not nearly as ripe as some others. For example…Argentina. Here’s Cristina’s solution to the housing problem; if the private sector won’t make mortgage loans, the government will:

She’ll take money from pension accounts (that she seized 2 years ago) and then lend it to homebuyers at one-tenth the rate of inflation!

Gee, you’d think that people would line up around the block to get that kind of money…which is exactly what they do. So, how do they decide who gets a loan? By lottery! Here’s the report:

Argentina Denies Runaway Inflation Subsidizing Loans: Mortgages
By Camila Russo

June 29 (Bloomberg) – Argentines are lining up at banks again. This time, they’re leaving with loans.

Veronica Cajal, who wants to move out of her mother’s house, is among 1.4 million Argentines who applied for subsidized home- construction loans in the first week they were offered as part of a program designed to ease a chronic housing shortage and help revive growth in South America’s second-biggest economy.

The plan calls for the national pension agency to lend about 20 billion pesos ($4.4 billion) for new homes at rates as low as one- tenth the pace of consumer-price increases. The government is trying to foster home building as private banks balk at issuing long-term loans amid inflation that economists estimate at 24 percent a year, a legacy of government policies that followed a $95 billion default in 2001, when Argentines queued at banks to buy dollars before a currency devaluation.

The program calls for making 100,000 loans by the end of 2013. Recipients will be chosen randomly from all eligible applications.

Why didn’t you think of that, Mr. Market? You dumb-bell. All you can think of is tired old formulas – protecting the value of the money…then letting willing buyers and sellers work out for themselves how much credit they want…and at what price.


C’mon, Mr. Market…use some imagination…!


Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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In Argentina it’s not only that they have free hospitals for everybody (like in England) but whenever you feel sick you can go to the hospital and after waiting for a few minutes, the doctor will see you, and if it’s serious, or even if they are not sure of what’s your problem, they will send you to make the tests, right away! In London you have to wait for hours until a nurse (not a doctor) comes, then you have to wait even more for the doctor and most of the times, they tell you to take a paracetamol/ibuprofen… Read more »
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