Foreclosure

[cloa513]

Banks are heavily heavily regulated. Perhapsthat is why so manylawyers run banks. See Bank of America today....citi, yesterday...etc. Despite all that government regulation...chaos happened.

 

 

Banks were bailed out by Bush and by all politicians because they were told the banking system was going to crash and the world would end....to put it in harsh words.

 

 

They had to make a decision in real time with imperfect information. 2 years later the debate goes on...was it the best or at least semibest decision to make....

Banks are barely regulated- maybe a lot of laws, rules but not applied. Why do you think they (America) have got away with massive poor assessments of loans and then poor consideration of foreclosures. Rules are worth anything without enforcement.

[mike777]

you raise a great point.

 

 

 

 

That is kind of the bottom line again....if I own a bank and it makes tons of bad loans....well i guess I should not be a VICTIM, you need to bail me out.

 

It is not my fault...blame the government for lack of enforcement.

[kenberg]

OK, but let me try a different bottom line:

 

There are more than a few people standing for election on Tuesday on a platform that the bail-outs were a horrible mistake and certainly they would not have voted for them and certainly they would not support any further action to rescue banks.

You see this as a reason to vote for this candidate?

 

My own view: The bail-outs, as near as I can understand it, were needed and were as successful as we could expect in a situation that needed action pretty much immediately. With our now enlarged time-frame I expect better planning in the future but my guess is there needs to be further bailing. I may be un- happy about it, but, to use my favorite quote from W.C. Fields, sometimes you just have to take the bull by the tail and face the situation.

[mike777]

If option one is the world is going to end, food riots, society breaks down worldwide or option two you flood the banking system with money....well at least we have a choice.

[PassedOut]

There are more than a few people standing for election on Tuesday on a platform that the bail-outs were a horrible mistake and certainly they would not have voted for them and certainly they would not support any further action to rescue banks.

You see this as a reason to vote for this candidate?

 

My own view: The bail-outs, as near as I can understand it, were needed and were as successful as we could expect in a situation that needed action pretty much immediately. With our now enlarged time-frame I expect better planning in the future but my guess is there needs to be further bailing. I may be unhappy about it, but, to use my favorite quote from W.C. Fields, sometimes you just have to take the bull by the tail and face the situation.

Paul Krugman discussed the effect of debt on job creation yesterday in the NYT: Mugged by the Moralizers

 

The key thing to bear in mind is that for the world as a whole, spending equals income. If one group of people — those with excessive debts — is forced to cut spending to pay down its debts, one of two things must happen: either someone else must spend more, or world income will fall.

 

Yet those parts of the private sector not burdened by high levels of debt see little reason to increase spending. Corporations are flush with cash — but why expand when so much of the capacity they already have is sitting idle? Consumers who didn’t overborrow can get loans at low rates — but that incentive to spend is more than outweighed by worries about a weak job market. Nobody in the private sector is willing to fill the hole created by the debt overhang.

 

So what should we be doing? First, governments should be spending while the private sector won’t, so that debtors can pay down their debts without perpetuating a global slump. Second, governments should be promoting widespread debt relief: reducing obligations to levels the debtors can handle is the fastest way to eliminate that debt overhang.

We clearly need to solve our jobs problem, but I don't hear many candidates discussing how they plan to accomplish this in a clearly stated, specific way. Must be that only simplistic sound bytes get votes these days.

[mgoetze]

Right, governments should spend more money, because they clearly don't belong to that group with excessive debt. After all, they can always print more money! Isn't it wonderful!

 

...or maybe Mr. Krugman's "sound byte" is also a bit simplistic.

[Gerben42]

there seem to be four potential victims...

 

(1) The homeowners. If I've paid off some portion of my mortgage and then get foreclosed on, I've lost some equity in the house and thus lost money.

(2) The banks. If they're forced to modify the terms of the loan to be more favorable, or if they foreclose but can't recoup the value of the loan by selling the house.

(3) Investors/insurers. In many cases the investors have bought housing-backed securities, which may now be worthless due to the problems above.

(4) Taxpayers. If the federal government decides to bail out some group above, either by raising taxes or (more likely) increasing the deficit.

 

My view.

 

1. The homeowners are not the victims. They were part of the problem as they bought a house they couldn't afford. Okay they were told they could afford it, and sure that's why they might feel like victims, but there's nothing wrong by thinking for yourself. There seems to be a difference that Americans are more likely to pay for things on credit than Europeans do. Perhaps more people should go for getting the money togehter first, then spending it. Sorry if this offends you but that's how I feel.

 

2. The banks. They are really not the victims. They sold mortgages to people who couldn't pay them, yet included in their greed possible gains in property value. In most European countries, say you borrow $200,000 to finance a $250,000 property. Then the loan defaults and the property gets sold for only $150,000. Now the debtor still owes the bank $50,000! Apparently US banks voluntarily let this part go to take part in property value increase. Bad idea.

 

3. They were victims, as they got sold stuff that had good ratings but shouldn't have. In fact they were tricked by the rating agencies.

 

4. They were really the biggest victims. They wanted no part in all of this yet have to pay.

[mgoetze]

2. The banks. They are really not the victims. They sold mortgages to people who couldn't pay them, yet included in their greed possible gains in property value. In most European countries, say you borrow $200,000 to finance a $250,000 property. Then the loan defaults and the property gets sold for only $150,000. Now the debtor still owes the bank $50,000! Apparently US banks voluntarily let this part go to take part in property value increase. Bad idea.

 

No, that's due to US law. So the taxpayers are obviously not the victims because they elected the government which made this law.

 

3. They were victims, as they got sold stuff that had good ratings but shouldn't have. In fact they were tricked by the rating agencies.

 

So you're saying you expect a normal individual with no education in finance (I'm afraid that's a worldwide norm) to think for themselves rather than believe the people telling them they can afford their debts, but professional institutional investors with in-house risk analysts get to rely on what the rating agencies are telling them? Come on, you can't be serious!

[PassedOut]

Right, governments should spend more money, because they clearly don't belong to that group with excessive debt. After all, they can always print more money! Isn't it wonderful!

 

...or maybe Mr. Krugman's "sound byte" is also a bit simplistic.

Government debt should indeed be reduced during good times, as Professor Krugman has often noted. That was done most recently during the Clinton years, over the unanimous opposition of Clinton's opponents. An important reason for chopping down the federal debt is to give freer rein to government spending during bad times like these. But, with two unpaid-for wars, a large (previously) unfunded new drug entitlement, and poorly thought out tax cuts, that was not done during the Bush years.

 

The deficit from the first Obama fiscal year was less than that from the last Bush fiscal year, and Obama has taken strong measures to reduce the projected deficit in the future. However, Obama's deficit reduction at this point works against job creation, so the tension between those goals must be resolved. That's what I'd like to see candidates, not just Professor Krugman, discuss.

 

It's not just the Bush tax cuts that are due to expire. One-third of the Obama stimulus was in tax cuts that are also due to expire next year. Like all responsible voters, I would like to see every one of those tax cuts expire to chop away at the federal debt. But the question is how to do that without also depressing job growth. I'd like to see one honest politician explain that.

[Gerben42]

So you're saying you expect a normal individual with no education in finance (I'm afraid that's a worldwide norm) to think for themselves rather than believe the people telling them they can afford their debts, but professional institutional investors with in-house risk analysts get to rely on what the rating agencies are telling them? Come on, you can't be serious!

 

With the investors I mean the normal individual who lost their money by investing their pension in some fund that was rated AAA+++ super duper by a rating agency that hadn't disappointed anyone for decades, but who had no realistic chance of checking what was in the package. If you are a professional investor and you burnt your hands, better buy a good lotion as you are not getting any from me.

On the other hand, if you want to by a house while on a rather low income, you can imagine missing payments is a real danger.

[kenberg]

Recall the old adage:

 

There's no free rain. :) Ah, now rein.

 

 

I will attempt a more serious reply later.

[PassedOut]

Recall the old adage:

There's no free rain. :)

I will attempt a more serious reply later.

A good editor is always appreciated! :)

[kenberg]

I imagine that the home buyers who got burned span a wide length of responsibility. There will always be folks who truly have unexpected major misfortunes and others who simply can't seem to grasp, or make sure that they do not grasp, the concept of not spending more than you have. It's easy to identify extreme cases, in the middle it's tougher.

 

I was listening again today about how consumers just are not spending. A lot of folks who still have their heads above water look around at others and have a "There but for the grace" moment. They are now thinking maybe they do not really need that second or third, or even first, flat screen tv. They may not be relapsing to enthusiastic buyer mode anytime soon. I'm thinking that maybe businesses that make things that people actually need will thrive in the recovery, others may not do so well.

 

Of course this may all just be my misunderstanding. Recently in the Washington Post Charles Murray explained, http://www.washingtonpost.com/wp-dyn/content/article/2010/10/22/AR2010102202873.html, that since I do not follow NASCAR I am hopelessly out of touch with real people. Real people such as himself, I suppose.

[blackshoe]

I'd like to see one honest politician explain that.

 

Heh. I'd like to see one honest politician.

[mike777]

Heh. I'd like to see one honest politician.

 

 

I am from Chicago.....so I could care less about an honest politician or one that never lies.

 

 

Lets get an effective one that can focus on a climate to create private jobs.

 

 

I aint looking for a saint.

[Rodney26]

Government debt should indeed be reduced during good times, as Professor Krugman has often noted. That was done most recently during the Clinton years, over the unanimous opposition of Clinton's opponents. An important reason for chopping down the federal debt is to give freer rein to government spending during bad times like these. But, with two unpaid-for wars, a large (previously) unfunded new drug entitlement, and poorly thought out tax cuts, that was not done during the Bush years.

 

Clinton never reduced spending, but he can be credited for keeping government spending on a steady path despite enhanced revenues for the dot-com bubble. I don't think there is a lot of evidence he was trying to pare down debt but he certainly was more fiscally responsible than Obama or Bush. I agree with the first two points on Bush, but the lower marginal rates resulted in more federal revenues, not less. So, they weren't "poorly thought out" at all -- they worked.

 

The deficit from the first Obama fiscal year was less than that from the last Bush fiscal year, and Obama has taken strong measures to reduce the projected deficit in the future. However, Obama's deficit reduction at this point works against job creation, so the tension between those goals must be resolved. That's what I'd like to see candidates, not just Professor Krugman, discuss.

 

There's just no evidence whatsoever of this. Obama's first fiscal budget was close to one trillion dollars in deficit. Saying it was better than Bush's last budget (which included the bank bailout and was also ridiculous) is like arguing who killed more people between Stalin and Mao. Both budgets were extraordinarily irresponsible. Trying to spin the second worst budget of all time as better than the worst is an exercise in futility.

 

It's not just the Bush tax cuts that are due to expire. One-third of the Obama stimulus was in tax cuts that are also due to expire next year. Like all responsible voters, I would like to see every one of those tax cuts expire to chop away at the federal debt. But the question is how to do that without also depressing job growth. I'd like to see one honest politician explain that.

 

China and Singapore are two countries that currently have very high personal rates of savings and excellent economic growth. If Krugman's theories were correct, these economies would be in deep recessions. Instead, they are the best the world has to offer today. The expiring tax cuts probably will result in lower revenues and not higher ones based on past history. What we need is more saving, investment, and ultimately production from the US. We can't eat our way to prosperity as all these Keynesians surmise.

[mike777]

I do think that those who claim/hint that productivity is huge...should say more.....

 

Dont say what we should NOT do.....

 

 

 

Suggest/hint what we should do!

[phil_20686]

Paul Krugman discussed the effect of debt on job creation yesterday in the NYT: Mugged by the Moralizers

 

Paul Krugman has been wrong before. And multiple other high profile economists disagree with him. His internal logic of his post is somewhat sketchy: he says someones debt is someone elses asset, and therefore borrowing leads to no net change in world income. By the same logic borrowing less can never lead to a change in world income. Therefore it can hardly to be to blame for the extended recession.

 

Probably there is some truth in what he says, but more likely it is the recapitalisation of the financial industry that is taking time. The financial industry is responsible for most investment, as it takes money from savers and invests it in companies in a (hopefully) productive manner. Normally as one person pays down their debt the banks invest that money either in more loans, or in the stockmarket etc. However, now they wish to enhance the mount of capital then they must do it by taking in the money from loan repayments and *not* investing it. This will obviously depress job creation. Whether banks do it now or later is somewhat irrelevant. Having large governments pay of their debts will help to recapitalise the financial industry, as it will convert bonds into capital. How much depends on who holds the bonds, which I don't know, but it may well be that continued government borrowing from financial markets, by slowing recapitalisation, may slow the process of recapitalisation and lead to a longer recession.

 

I see the arguments in both directions. Macro economics is complicated, and Paul krugman pretending that the answer is simple doesn't really help anyone.

 

====================

 

Suppose I make the following argument:

1) There is only so much capital in the world.

2) Government borrowing extracts capital from the financial markets

3) Investors in possession of free capital try to find somewhere to invest it.

 

Thus, government borrowing always reduces private investment.

 

Alternatively I could argue:

1) Government spending stimulates the economy.

2) Higher consumption makes investment more appealing.

3) This will lead to greater investment in the local economy.

 

Krugman obviously thinks the second argument is sounder than the first. Perhaps, since the second argument being a argument for investing in america, as opposed to generally, so it could be true that government borrowing reduces world investment but increases the proportion invested in america, which means you would be founding your future prosperity by keeping other countries in poverty. Alternatively it could be the case that these effects are automatically of the same size, and provided the government uses the money wisely, it has no effect on total investment.

 

If economists really knew the answer to these questions, there would be a consensus, the lack of consensus shows that no one really knows what will happen. Compare this to the overwhelming consensus of economists that the bank bailouts were a good move.

[hrothgar]

Dont say what we should NOT do.....

 

Suggest/hint what we should do!

 

I seem to recall being fairly specific in times past regarding what I'd like to see, however, lets try again:

 

Short term

 

1. A real stimulus policy (large enough to have an actual impact on on the economy)

2. Revenue neutral carbon tax (announce it today, phase it in starting in 2014)

3. Single payer system for health care

 

Medium Term

 

1. Eliminate all the Bush tax cuts for everyone

2. Start making significant cuts to the defense budget

3. Tax code simplification (eliminate deductions, treat capital the same as wages, look into a VAT)

4. Start means testing social security

[mgoetze]

With the investors I mean the normal individual who lost their money by investing their pension in some fund that was rated AAA+++ super duper by a rating agency that hadn't disappointed anyone for decades, but who had no realistic chance of checking what was in the package.

 

I don't think pension funds were a big buyer of CDOs/CMBSs. Certainly no responsible pension or life insurance fund had more than 1% or 2% of their portfolio in such assets. If someone was looking to invest in a pension fund and accidentally invested in a hedge fund instead, then yes, they might be a victim. They are probably rather naïve as well.

 

But really, the large bulk of the "investors" were institutions such as German state banks, hedge funds, etc. They get no sympathy from me.

[phil_20686]

I seem to recall being fairly specific in times past regarding what I'd like to see, however, lets try again:

 

Short term

 

 

2. Revenue neutral carbon tax (announce it today, phase it in starting in 2014)

 

 

 

Never really saw the point of this. Why not just levy a massive tax on energy. Suddenly anything that saves energy starts to look economic :). Since governments build build their own energy plants themselves the carbon tax doesn't really do anything from the supply side. Just seems like a massive bureaucracy for no reason. In fact, in most proposals that I have seen (for most businesses) it comes down to how much energy to you use from the grid anyway....

[hotShot]

Never really saw the point of this. Why not just levy a massive tax on energy. Suddenly anything that saves energy starts to look economic :). Since governments build build their own energy plants themselves the carbon tax doesn't really do anything from the supply side. Just seems like a massive bureaucracy for no reason. In fact, in most proposals that I have seen (for most businesses) it comes down to how much energy to you use from the grid anyway....

 

If you tax any energy, you would also make wind and solar energy more expensive.

If you use a carbon tax, wind and solar energy can be sold a little cheaper than carbon based energy and still have a great margin of profit.

This should make it more interesting to invest money in such concepts.

[hrothgar]

Never really saw the point of this. Why not just levy a massive tax on energy. Suddenly anything that saves energy starts to look economic :). Since governments build build their own energy plants themselves the carbon tax doesn't really do anything from the supply side. Just seems like a massive bureaucracy for no reason. In fact, in most proposals that I have seen (for most businesses) it comes down to how much energy to you use from the grid anyway....

 

I don't give a rat's regarding energy consumption.

 

The purpose of a carbon tax is to correct for a specific negative externality.

[kenberg]

I seem to recall being fairly specific in times past regarding what I'd like to see, however, lets try again:

 

Short term

 

1. A real stimulus policy (large enough to have an actual impact on on the economy)

2. Revenue neutral carbon tax (announce it today, phase it in starting in 2014)

3. Single payer system for health care

 

Medium Term

 

1. Eliminate all the Bush tax cuts for everyone

2. Start making significant cuts to the defense budget

3. Tax code simplification (eliminate deductions, treat capital the same as wages, look into a VAT)

4. Start means testing social security

 

 

Remarks on short term 1 and medium term 4.

 

 

Stimulus: Perhaps I agree but I think that it is not simple. Start with me: We just had our back porch replaced. This was not due to the extra $250 the the Social Security put in my bank account. If it gives me a much larger stimulus, I will not add on a second back porch. OK. maybe I am not the target. But a lot of people are concerned about their debt, their future in general and their house in particular. Give them some stimulus and I would recommend, if they asked me, that they pay down their credit card bill, pay down their second mortgage, or put it in the bank. I am guessing they don't need me to tell them this, and they will do just that.

Added: To the extent that "stimulus" involves spending on infrastructure, that would seem useful. Spending money on things that need doing is good.

 

Means testing for Social Security: Maybe, but for it to produce significant amounts this may have to involve me as well as the rich. Yes I can afford to pay a couple of hundred or so to take my wife to the Kennedy Center. On occasion, not regularly. But I have trouble remembering when we last went. If we go out with others to eat we split the check without looking over who ordered what, but no one picks up the check for everyone. There are lots of people my age who are in this financial stratum. Definitely comfortable, definitely not rich. A person who tells me I have enough and I don't need my Social Security is going to get an argument. I got my card when I was setting pins (that would be 1953) and I am still paying into it when I take on a job. I'll listen to arguments but the person presenting them had better be ready to explain what his contribution to reducing the national debt will be if he wants to decide on mine.

 

I applaud the presentation of a list. All the suggestions are good for thought. I am not convinced they are all workable.

[PassedOut]

I seem to recall being fairly specific in times past regarding what I'd like to see, however, lets try again:

 

Short term

 

1. A real stimulus policy (large enough to have an actual impact on on the economy)

2. Revenue neutral carbon tax (announce it today, phase it in starting in 2014)

3. Single payer system for health care

 

Medium Term

 

1. Eliminate all the Bush tax cuts for everyone

2. Start making significant cuts to the defense budget

3. Tax code simplification (eliminate deductions, treat capital the same as wages, look into a VAT)

4. Start means testing social security

It certainly would help the US get back on track if these measures were taken. And, to the extent that they are not, our problems will continue to fester. I would also like to see the age for social security eligibility continue to rise gradually.

 

I'm not optimistic though, in view of the current political climate.