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Why no recovery?
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pueno



Joined: 03 Mar 2007
Posts: 2639

PostPosted: Thu Nov 17, 2011 5:33 am    Post subject: Reply with quote

coboardhead wrote:

Maybe they should apply to one of the Repub campaigns. Laughing

Need a degree in clownology to qualify. Wink
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mac



Joined: 07 Mar 1999
Posts: 5143

PostPosted: Thu Nov 17, 2011 8:55 am    Post subject: Reply with quote

Unlike Iso, bard seems to have read the article but not my original post. I certainly didn't propose nationalizing banks or wholesale forgiveness of debt. I said that nothing that has been done so far has fixed the problem of bad loans. The banks lied about the value of those loans because they made big money on the origination fees and sold them as fast as they could. Sold many of them to the Federal government, as well as pension funds. So to CB--two of the reason that we can't afford the pensions we promised is that governments stopped paying into those funds, and the fraudulent valuation of high risk zones evaporated a big chunk of value.

The reason that this persists is there seems to be at least a trillion left in bad housing loans--bigger than the size of the stimulus. Mike Fick's comment is, as usual, laughable and paranoid. No sign he read more than the title. It is unclear whether or not Keynsian economics could have helped--it really hasn't been tried at the scale needed, and is politically impossible because of nut jobs like Mike--and the really scary debt we accumulated during the boom times when we should have instead been paying down the debt if we were sound economists.
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capetonian



Joined: 11 Aug 2006
Posts: 897
Location: Oahu

PostPosted: Thu Nov 17, 2011 9:38 am    Post subject: Reply with quote

To anyone that is really interested in how to fix this mess, I suggest you start reading anything John Hussman has written on the subject. Here is a good place to start on how to prevent it happening again:
http://www.hussmanfunds.com/wmc/wmc100125.htm

With respect to underwater mortgages, here is an open letter he wrote to congress in 2008 on how to reduce principal without creating moral hazard:
http://www.hussmanfunds.com/wmc/wmc080922.htm

If you are prepared to think, read these articles. The rest of you are welcome to comment without reading them.
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coboardhead



Joined: 26 Oct 2009
Posts: 1927

PostPosted: Thu Nov 17, 2011 9:40 am    Post subject: Reply with quote

Mac

I think we agree. My comments were in regard to the article...not your post.

I watched this unravel for years. My wife and I (both highly paid professionals) would ride our bikes through the outlying subdivisions of a small town near us and marvel at the size of houses, sport utes and big shiny boats in the driveways. How did folks afford this? I guess they didn't. If I could see this wasn't working, why couldn't the banks, the regulators and the governments?

Meanwhile, we weren't paying taxes at the rates we should have to finance a government that was promising to secure the world and provide extended pensions and health care. What we did not do was to keep our educational system and energy infrastructures up to par. And, as you said, save for a rainy day.

I agree the stimulus was too small...we can't go cold turkey. I dislike the idea of debt forgiveness as a substitute for stimulus spending. It seems inherently unfair. Payroll tax reductions (even though they are too low to sustain their purpose) seem to me to be a fairer way to put money in folks pockets.
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coboardhead



Joined: 26 Oct 2009
Posts: 1927

PostPosted: Thu Nov 17, 2011 10:09 am    Post subject: Reply with quote

Capetonian

Thanks for the articles.

Some of the bondholders and shareholders of these banks are public pensions that have obligations regardless of losses in the market. Public funds may be required to sustain these systems and cover those losses. In fact, for some pension plans, exposure to bank stocks and bonds has prompted their managers to become critics of the banking foreclosure process in an effort to protect their assets.

Sometimes the private investors that the author suggests should be secondary claimants to the govenment, in a banking bailout, are, actually, the state and local governments. Large businesses become so intangled in the economy that it is difficult to see where the private and public interests diverge.

Regarding the author's proposal to fix the foreclosure crisis by utilizing future property value increases, IMO makes some real sense. The details could be tricky. How do you refinance a 300k debt to 200k and let the owner sell without loosing the future value increase?
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mac



Joined: 07 Mar 1999
Posts: 5143

PostPosted: Thu Nov 17, 2011 8:32 pm    Post subject: Reply with quote

Capetonian--good postings, especially the first one. Sounds a lot like my financial advisor, and what used to be moderate Republicans. I agree, now, with booting Geithner and Bernanke. I thought it was wise of Obama to go with them at the early stages when there was both a bank panic and toxic assets, and it staunched the bleeding on the panic side. But I agree with Hussman that it is very bad economics, and bad Keynsian policy, for the public to eat all of the bad deals that produced toxic assets. That, and the lack of meaningful reform, virtually guarantees another bubble.

I think that Obama didn't tend to this, either directly or by moving to a different team, because he is inherently cautious and because his priority was health care. In effect, the admininstration let the banks hide the toxicity of a substantial number of their remaining loans in hopes of an economic recovery that would cushion their revaluation.

We made this mistake before, in a milder virus, with the deregulation of S & L's, which had Bush family fingerprints all over the deals. Whether the politicians doing the deals were hopelessly corrupt, or hopelessly naive, is impossible to discern. But in the S & L aftermath, everyone involved in a badly valued deal took a haircut. That should have happened here after the stress tests, IMO.

It would have been nice to see the Republicans use reasoning like this to support their own version of re-regulation and accountability rather than bet on economic stagnation sinking Obama for a second term.
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isobars



Joined: 12 Dec 1999
Posts: 14050

PostPosted: Thu Nov 17, 2011 8:42 pm    Post subject: Reply with quote

coboardhead wrote:
If I could see this wasn't working, why couldn't the banks, the regulators and the governments?


One important government official did, and repeatedly and with ever-increasing emphasis repeatedly called publicly for the madness to stop. Unfortunately, he lacked the power to steamroll the blockade.

That official was President Bush, and the blockade was the Democrat-controlled Senate.
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pueno



Joined: 03 Mar 2007
Posts: 2639

PostPosted: Thu Nov 17, 2011 8:46 pm    Post subject: Reply with quote

isobars wrote:

One important government official did, and repeatedly and with ever-increasing emphasis repeatedly called publicly for the madness to stop. Unfortunately, he lacked the power to steamroll the blockade.

That official was President Bush, and the blockade was the Democrat-controlled Senate.

Unbelievable. Rolling Eyes
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mac



Joined: 07 Mar 1999
Posts: 5143

PostPosted: Thu Nov 17, 2011 9:35 pm    Post subject: Reply with quote

isobars wrote:

Quote:
One important government official did, and repeatedly and with ever-increasing emphasis repeatedly called publicly for the madness to stop. Unfortunately, he lacked the power to steamroll the blockade.

That official was President Bush, and the blockade was the Democrat-controlled Senate.


and then Pueno commented:

Quote:
Unbelievable.


Must be drugs. We know he doesn't read anything posted here, or listen to anything except Faux news.
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pueno



Joined: 03 Mar 2007
Posts: 2639

PostPosted: Fri Nov 18, 2011 5:59 am    Post subject: Reply with quote

mac wrote:

Must be drugs.

Paid for by a "socialist" government program and dispensed by the "socialist" VA that he thinks are such a drain on our "socialist" economy.
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