Thu, 12/04/2008 - 11:49am — lambert
Deflation redistributes wealth from debtors to creditors.
Big Money: Creditor. Homeowners: Debtors. And there you have it.
And all you need to do to ask yourself who owns the Village
is ask yourself who the Village handed two trillion dollars to NOW NOW NOW NOW, and who might get something LATER LATER LATER LATER.
Obviously, debt peonage is far too lucrative a revenue stream to be lightly foregone....
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trying again...
well, thanks for taking care of the spammer, crashed me browser it did, as i was trying to deal with it.
and on topic: i'm glad krugman came up with an elegant and simple way to get this thru the thick haids of the low information types. perhaps this will spur them to some action when other discussions have merely caused eyes to glaze and channels to change. most americans have debt, few have a gummint revenue stream to help pay for it when they go on a reckless binge.
On the flipside
Deflation would increase the effective purchase power of fixed entitlements like Social Security, and of those with retirement accounts in fixed rate investments (T-bills, etc.). And just like the Republicans used inflation to decrease the relative impact of entitlements, Democrats could use deflation to increase the relative impact of those programs.
But they won't, because there is no flipside and in heads I win, tails you lose fashion, deflation will be used as an excuse to decrease entitlements.
"Every crisis is an opportunity: the bigger the crisis, the bigger the opportunity."
-----------------------------
I'm not such a bad guy once you get to know me.
Treasury considering plan for Freddie/Fannie to offer 4.5% 30-yr
fixed rate mortgages. To purchasers of new homes (I'm not sure that "new" means first time buyers or buyers of new homes or...?). As in, screw those with dodgy mortgages: Let them be foreclosed.
(This on top of the WSJ article about the Obama team's attitude toward Sheila Bair. Not a team player. Well, if the team was BushCo, thank dog for that. But Obama? What does this mean?)
Supposedly there are a million and a half buyers who will jump at the chance to buy (new?) at the low interest rate being considered--and that will sop up enough of the surplus in housing stock to make things good again...housing prices will stop falling and eventually go up again. Happy, happy, happy, happy talk....
Professor who proposed plan initially onNPR tonight.
Uh, wonder why Treasury isn't proposing that from the gitgo?
jaw, do you know a lot about mortgage and finance?
I got some questions. You're smart. Can you help me out?
How does this help on those people who have lost their jobs? How about the people already in foreclosure or in trouble since it doesn't apply to refinancing? Also, isn't a refi based on your ability to repay and not on the house as collateral? If you got no job, you can't pay the loan back---so you won't get the better rate anyway.
How did whispers of this lower rate affect sales? I mean, how many people said no to a deal because they heard about this? And how many people will just wait anyway because they expect housing prices to drop lower still despite the interest rates? Bet there'd be lots---which is why we just have to hit rock bottom, admit we have a problem---oh, wait. That's AA. Well, hell, maybe that's what we need---admit the problem is that we're borrowing ourselves broke.
Isn't this partially how we got into this mess---cheap money lent to people who couldn't afford the loans? If you know someone else will clean up your mess (like Fannie Mae), why not write the loan and sell it off whether the borrower is a good credit risk or not? Privatized profit, socialized risk. That's crappy, that is.
How in the world does this even touch the larger problems of the instruments derived from mortgage-backed securities---the CDSs and CDOs and all that crap? I mean, there is so much debt there, multiples of the mortgages, and that's the big problem.
And how is this not a way to inflate home values? I mean, cheap money is inflationary, right? The only way to stabilize home prices is for the market to correct, so why not let it finish correcting? Don't fuck with the healing process, my mom always said.
Doesn't this sound like a a second housing bubble bursting? I mean, how does this help with the udnerlying problem of too many houses?
This blogger, Tom Vanderwell, is saying a lot of stuff I'm thinking. http://straighttalkaboutmortgages.com/20...
Do you have any insight? I'm just not understanding this.
Uh--not much--but this does seem like an attempt to reinflate
the bubble. At least partially.
One thing is that many people were sold mortgages with balloon payments after 3 years or so, and were told they could refi at a better rate bcz their house would be increasing in value, yada, yada, yada. Not happening, so they're being hit with monster monthly increases.
Some posit that offering lower rates to those who can make those lower payments will keep people in their homes and keep the houses off the market. Another approach would be to reappraise the houses, since some lenders did do really funky appraisals so they could make the loan and flip it into the securitization market.
What will actually work? Damned if I know. Treasury's plan might work to get some stock off the market, but more houses will be coming on as they're foreclosed. And this does nothing for that. I find the idea that waiting for distressed homeowners to get into foreclosure as the way to get interest or whatever adjusted is just amazing and stupid. And cruel, very cruel.
(But it's OK to give very favorable terms to the few who are uberwealthy since, well, there aren't as many of them and their wealth , current or previous, indicates their worthiness. There are just too damned many little people, and, while they don't need a lot, in the aggregate they're just too expensive to assist. )
I think this may go down really badly--I don't think anyone knows how to correct the mess our Big Banker Boyz have gotten us into with their crazy exotic financial instruments. As has been noted, in the 30's the US was still a producing nation; now we're a consuming nation. What works in that kind of situation? Letting the one of the largest producing industries to belly up? Scary times. And no insight.
Bernhard at Moon of AL has said the CDS's, or at least the side bets made on the CDS's, should have been declared null and void. As long as they sit out there with no one knowing how many, which banksters hold what, who's exposed in what ways, there's no trust among the the banksters.
Now I'll go read your link.
Heh, uberwealthy
jaw, every time you type that word, an angel pawns its wings.
So we're pretty much in agreement and we can turn it to eleven regarding waiting until people are in distress before giving them a hand. Unnecessarily cruel. This is where a HOLC type program makes sense---re-negotiate the loan as part of a recovery plan before people are thrown into the stress of unemployment and at least give them some psychological relief as well as financial relief.
This seems right from a business perspective, too--better some money than no money and all that.
As far as voiding the CDS and CDOs and all that. I was reading that this presents equally massive problems because many of the instruments are fine---for now. It would wipe out assets from all sorts of institutions, even those that are okay, and cause a new round of problems. But no one can tell the bad ones from the good ones, yet. And I understand Treasury would just buy up or guarantee or even repackage these instruments, except no one can value them.
Can you believe that? They can't value them. I saw an assgrabbing estimate of $60 trillion and even that guy admitted he's probably low. This is unbelievable. Just unbelievable. Can't value the financial instrument? And they couldn't value them while they were buying and selling,
Sorry---I will stop being gobsmacked soon and maybe generate critique of some of these ideas in a more constructive fashion. I was questioning everything I thought I knew about how money worked and the goals of business and capitalism, etc., until I just asked myself, "When is neverending debt a good idea? Answer: When the borrower never demands payment. And when does that happen? Answer: Uh...never." And then I rememberd what I know about people and my ship righted itself.
People may invent new words for the same old ideas, cut their hair, wear weird clothes, embrace cults, pierce parts of themselves the FSM meant to be treated kindly, or eat soylent green, but human nature never changes. Never.
Thanks for your patience, jb.
Today's auto mfrs hearing: Congress demands PLANS, detailed,
precise, measurable results, etc. With government oversight, even.
Where was this great care and concern when the Paulson Fix (Is In) was being pushed to be passed NOW, NOW, NOW???
It was touching, actually, to see senators so concerned about know exactly what would be done with the money. Maybe one can't give PLANS about money? And can't give away company secrets if the company is a Big Bank? No one mentioned the lack of transparency from even Treasury. Just demanded plenty of tranparency --and precise details, dammit!-- from those manufacturers of actual, tangible products.
Oh, and there was great fear those mfrs might come back to Congress later for more money.
Unlike those Big Banker Boyz...who cannot be allowed to fail.
But auto industry? Eh.