Bruce threatened to terminate my account when he was home alone. For that I request that his posting privileges be suspended to 27 days. You’ll make a better site once the lefties understand that they’re not invincible.
What do people think of the story about Goldman and Greece. As has been noted in some reports, playing with governments is a bit different than playing with companies, the government can bite back. I suspect the EU will come down hard on Goldman, triggering one of the every so often near death experiences for Goldman (LTCM and Goldman following the LTCM strategy did in Corzine, Goldman Sachs Trading in the 1929 time frame, a bond market scandal in the 1980s and the like). The EU would probably like nothing better than to take Goldman down a peg or two.
It is interesting too that in 1998 the US bailed out a hedge fund which bet (hedged the lire) on Italy’s monetary policy to go one way and it went opposite.
How much bubble banking has Wall Street shared with the world?
***How much bubble banking has Wall Street shared with the world? *** ilsm
Somehow, I think that the world is perfectly capable of bubble banking with no help whatsoever from the US. I would imagine that bubble banking was invented shortly after the invention of money — and probably independently in China and in the Mediterranean.
Thanks for posting the links. It’s an important article that it being widely cited.
That said, somehow, I don’t find the article enormously persuasive. It seems to me that there are alternatives other than return to unsustainable bubbling and utter collapse. Just plugging along, getting balance sheets in order and scaling back to essentials and a limited number of important luxuries is dull and mundane. It’ll take ten or fifteen years to get back to get world production and consumption levels of 2006. But it’s probably what the G7 should have been doing all along.
And I think the stuff about “investing in the future” is mindless. Not that it is a bad idea. But what does it mean? I have no idea, and I doubt Wolf does either.
One of those phrases that has no inherent meaning, but allows everyone to feel nice and cosy while filling in the image they like best. I suppose for a lot of people the images are “fresh-faced schoolchildren,” “big yellow machines building roads,” and maybe “scientists holding up test tubes with cancer cure inside.” Very 1950s, but persistent and powerful imagery.
To me, “investing in the future” means quite different things, most of them dull and boring and a little counterintuitive. For instance, mass transit and single payer health care are near the top of the list, as are subsidies for higher education. These three would deeply cut unnecessary, obligate expenditure and make America far more prosperous than now, thus freeing up more disposable income.
“investing in the future” means more than preparing for one or another predicted future. Far more importantly it means deciding which future we want, and putting in place the foundations for THAT future, while identifying and scrapping things that interfere with it, or even render that chosen future impossible.
Noni, I don’t disagree entirely, but I’m coming increasingly to question the univesiality of mass transit. It works after a fashion in large cities with high population densities. I spent some time travelling around the world in my yourth and later lived for a year in Tokyo without a car. That was fine. But getting around on public transportation is annoyingly slow and I’d really prefer to buy more stuff than I can easily carry on my occasional visits to the grocery store.
I think perhaps what those of us in the burbs and in rural areas need is compact, effcient, cheap individual transit. Think Segway with a bit more protection from the elements. Maybe electric scooters would do the job if renting a car when one was needed weren’t so much aggravation. (And I suspect that they behave badly in snow).
Interesting piece, albeit rather depressing. The most depressing part is not that there is not solution, but that human nature being what it is, our politicians will probably take the coward’s way out and listen to their Ersatz economics intuition.
The fact that the world is awash in savings and there is pitifully small private sector demand this would be the perfect time to take up public investment projects. And if higher private savings rates become a permanent way of life and still don’t have adequate private sector demand, then the govt should eventually raise taxes to soak up the private savings and divert it to public investment.
And it’s not like there’s a shortage of projects begging for government investment. For example, in a few days one of the major bridges on I-80 will be closed because it was recently found to be structurally unsound, so I-80 traffic will have to be rerouted. Something like a fourth of all bridges in this country need significant repairs. The one thing we don’t need is the Gov. Tim Pawlenty (MN-R) approach to bridge repair.
I understand VtCodger’s point about mass transit being largely an urban solution, but that doesn’t make it trivial. I agree that mass transit isn’t practical for grocery shopping, but most people spend most of their time in cars going to and from work. And mass transit can do a lot to solve that problem.
And there are other things that we know we will have to do sooner or later anyway, so now is the perfect time to begin. We know that we will have to improve the electric grid. And it’s going to be very expensive. I’d rather do a project like that when the interest rate is low than when it is high. And we know that we will have to invest in greener technologies, so why not start now? And higher education is slipping in the country. University level education used to be this country’s strong point, but lately the top 50 colleges and univerisites have slipped fairly dramatically. Cutting back on higher education is just another way of eating your seedcorn.
High population density is more economical than suburban sprawl.. we know it. Maybe some day people will get realistic, we can’t have it both ways, we can live either in the country or the city, the suburbs are neither.
The morning I sat down for coffee at au bon pain. While I was reading I was offered a refill which I accepted. They don’t usually do this but I suspect they are doing it because of the recession. Its things like these along with more significant actions taken by private business that is the face of economic recovery. Not public infrastructure projects. It’s like in the rocky movie where the rock had to get the eye of the tiger again; and tigers don’t live off unemployment, make work, or complain about derivatives or about capitalism in general.
There is no free breakfast, I paid for that coffee. The business is trying to stimulate business by providing value. It seem to me that is the ticket and a much better idea than building a bridge too far.
But the world is about more than economic efficency. Many people prefer to live in less dense surroundings not cheek by jowl with the neighbors. All the elite seem to feel that they are deluded but if its what people let the elite move to the city. Small towns are better all around. As we up the efficency of cars we can reduce energy usage. Why for example insead of people all coming to one office building in the city, not allow people to lease offices for themselves in local buildings with good telecom, driving say not more than 5 miles to work, or if possible telecommute. (If the boss focuses on the work done, not the face time and being a control freak this does work).
You mean those endangered tigers that are likely to go extinct in the wild?
No, you are talking about metaphorical tigers. But real or not, tigers that are caged without a food supply are unlikely to become self-sufficient, much less a Rocky-like success.
People who cannot access income from a job have few steady, legal resources to support a home and family. For every six job hunters today, there is one job out there. What shall the other five do?
Let me predict a couple of your replies, to save you time.
a) those five people shouldn’t have had a family if they’d thought they might have lost their jobs. Time-travel birth control should take care of that. b) those five people should work smarter and become entrepreneurs. Boost the “sell your neighbours lentil stew” industry. The neighbours can get the money to buy your stew by selling stew to you. Odd and even days ought to work. c) those five people should move to where there are jobs. Mexico, for instance.
Why oh why do people reference movie heroes when giving economic advice? Rocky, indeed. But just to refresh our memories, Rocky was “an uneducated but good-hearted debt collector for a loan shark in Philadelphia.” (Interesting…)
How did he train for the big fight? “To prepare … Rocky trains with a 1920s-era ex-bantamweight fighter and gym owner … while Rocky’s good friend, Paulie, a meat-packing plant worker, lets him practice his punches on the carcasses hanging in the freezers.”
What’s this? the tiger got help? Would imaginary Rocky have gone the distance in the imaginary fight without the imaginary (and presumably free) help of his friends, who had resources (a gym, a meat locker) to train and practice? I imagine not.
Tigers are solitary creatures. People are not. People succeed because of constantly accessing the aid and generosity of their fellows. Even an apparently lone genius like Tesla, depends on dozens or hundreds of people every day to support him while he hones his genius. (And he, in turn, “supports” them with the fruits of his genius.) Mostly, they do not meet, but they support each other nonetheless.
But when those dozens and hundreds are weakened by financial stress, and the loss of their jobs and resources, there’s little left over to support tigers, amateur boxers or geniuses. Expecting people to thrive without this support is like expecting plants to flourish without roots.
I didn’t know the Fed raised the Fed funds rate. At least that is what Maxine Waters told Ben Bernanke (he seemed as schocked as I did). And it seems Maxine read a story about how mortgage rates are likely to go up when the Fed stops buying Freddie/Fannie MBS (when you take away demand equal to half of supply this tends to happen), but conflates this trigger with the increase in the Fed funds rate driving up mortgage rates. And she seems to think econmist’s predictions that foreclosures will increase in the next few months has something to do with the mythical increase in the fed funds rates (as opposed to say the absolute failure of HAMP, which will only manage to allow a few deadbeat homeowners to live rent free for a few extra months).
***The government is not competent to manage down to this level so they should not try***
If guys like you were running it — and regretably they were — that would certainly be the case. … We would be probably well and truly doomed. Fortunately, not everyone is as inept at running stuff as the Bush administration. You might want to compare the economic results achieved by say China with those achieved by right wingers in the US or — even more clearly — with the results of Bush’s attempt to reorganize Iraq’s economy along lines they and you would approve of. It’s hard not to conclude that a bit of govenment management (and taking a bunch of failed managers out of circulation) might improve things.
I don’t think it is really necessary to shoot the bankers which I expect the Chinese might do. Jail and banishment from financial sector might be enough
***. They should not try to micro manage healthcare either.***
The fact that governments elsewhere provide universal health care and do so more cheaply through government management makes no impression whatsoever? Y’know kid, there are times that you just have to shut up and go where the evidence takes you. Here the evidence is overwhelming. For whatever reason, unregulated free markets simply are not effective at providing health care.
======================
***You’re too screwed up to understand the point I was making.*** [to Noni]
Cantab — has the possibility that you don’t know much, select your evidence, and can’t think clearly even when you have facts to hand ever crossed your mind? Because I have to tell you that it is impressed on the frontal lobes of many of us here. Behaving like an adolescent jerk doesn’t help your cause much either.
Not mythical. The key here is that there are two different things with similar sounding names — the Federal Funds Rate and the Federal Discount Rate. The Fed did kick the funds rate up a notch to 0.75% about a week ago. But the discount rate remains at 0 to 0.25%. I don’t remotely understand this, but the consensus among people who sound like they might is that the Funds Rate hike is purely symbolic and has no impact on anyone’s cost of borrowing.
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“Another way banks can borrow funds to keep up their required reserves is by taking a loan from the Federal Reserve itself at the discount window. These loans are subject to audit by the Fed, and the discount rate is usually higher than the federal funds rate. Confusion between these two kinds of loans often leads to confusion between the federal funds rate and the discount rate.” http://en.wikipedia.org/wiki/Federal_funds_rate
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Feel free to pursue this and explain exactly what went down if you can figure it out. My assumption that there’s nothing to see here and we should move along could be really wrong.
As a township planner in an area bordering two city type of communities 30 and 50 minutes away, we are mostly rural with 16,000 people. We would be considered a bedroom community as people commute to those areas and other areas for work. The highways are packed in the morning 7-9AM and 5-7PM.
The highways are necessary to get to work because we have no other way to get into the cities, no trains or buses. Both forms of transportation could alleviate the traffic congestion somewhat. We are planning a Transit Oriented Development. Briefly, it is a walkable community that people can park their car at home and not leave (other than work) and still hopefully obtain the necessities of life by walking. In the “olden” days, we would walk to the store towing a shopping cart behind us to carry groceries. It was a way of life as the car was usually gone with dad to work.
The costs of living in suburbia and having two cars has really increased and both of these factors have hurt the middle class as necessities in order to live in rural areas. The mass transit hooking these communities together, I believe will become more important as costs go up and income remains stagnant or decreases.
“The government is not competent to manage down to this level so they should not try”
The government is actually counterproductive when it micromanages. For example in my area there are old red wood septic tanks still being used. Most of them are leaking, and in the anaerobic enviornment of the tank waste products are not rendered harmless. They need to be broken down in the oxygen rich enviornment of the leach fields. Problem is that the Government has created conditions that make it prohibitively expensive or illegal to replace these septics. They will not allow grey water and black water to be treated seperately. These laws which are supposidly designed to adress septic systems are in fact used to limit population growth in areas outside municiple sewage service, so they are purposefully onerous. The end result is that many systems in my neighborhood are failing and leaking raw sewage into our shared aquifer, but some of my neighbor, becuase of new enviornmental laws, can not or will not replacing them, so I have to drink contaminated water, because of a ridgid don’t give a damn, over paid bureacracy. In most cases the Government is a problem rather then a solution. People who argue otherwise, usually root at the public trough or hope too.
***which will only manage to allow a few deadbeat homeowners to live rent free for a few extra months***
Actually, they are going to do that anyway as banks for the most part have demonstrated a great reluctance to foreclose. The problem is that if the property is foreclosed, the bank has to sell it and quite likely write off part of the loan. As long as they let the property sit unforeclosed, they carry the loan at its full paper value even though a realistic value might be a fraction of the loan value. In addition, bankers apparently prefer that houses are occupied by “owners” even though the inhabitants have quit making payments. At least the lawn gets mowed; pieces that fall of may get duct taped back on; and the plumbing and wiring aren’t being ripped out. (It’s really more complex than that).
The basic problem is that virtually everyone in America who wants and can afford a house “owns” one. And thanks to the demented behavior of our bankers, a lot of people who can not afford a house also “own” one. What HAMP is proving is that mostly you can’t make people who can’t afford a house healthy by juggling details of their loan.
Y’know what? Sooner or later the banks really are going to have to admit that they lost a bunch of money. And they are probably going to have to absorb losses beyond the downpayment themselves. If they didn’t get a downpayment, well, whose fault is that?
And yes, mortgage rates are going to increase someday — probably someday soon. IMO, that will mostly affect homeowners who can actually afford a house who move. They will have to manage larger payments on their new home. But many of those folks already face a huge problem in selling their old house (… sell? to whom?) and extricating themselves from their “investment” with enough cash to make a downpayment in their new home town.
Mobility is going to be a problem for non-renters.
Actually, it’s the other way around. The Fed Funds Rate is for all practical purposes at zero and the Discount Rate was increased from 0.25% to 0.75%. For a really good discussion see Prof. James Hamilton’s blog posting on the rate increase and what it means…as well as what he thinks it doesn’t mean.
“…the consensus among people who sound like they might is that the Funds Rate hike is purely symbolic and has no impact on anyone’s cost of borrowing.”
If you replace the words “Funds Rate” with “Discount Rate” then I would agree.
And for what it’s worth, I suspect that you actually intended to say that but had a case of brainlock and you were thinking Discount Rate but typed Funds Rate. I know the feeling.
***so I have to drink contaminated water, because of a ridgid don’t give a damn, over paid bureacracy***
Given any thought to doing something about it other than whining? If you don’t like the code, get it changed. Betcha a six-pack that there is a mechanism to do that. Ah yes … but that’s so much work? Government seems to work a lot better if people make an effort to make it work.
(I would submit that most rural areas would be best off with a public meeting form of governance. And it does work pretty well in Northern New England. Unfortunately, it surely won’t scale well to populous areas.)
The country did survive 12% mortgage rates in 1980. I paid 9.5 in 1978 as well. It does mean more renting, but IMHO thats a good thing. Given the proclivity of americans to move the 10% real estate industry property turnover fee (Real Estate Commission, Title Insurance, Lawyers Fees, various checks on taxes flood situation etc, and the various fees on mortgages such as appraisal, credit check, etc) mean that one will have to hold propery 5-7 years at a minimum in the future to just break even.
Anyone who understands what the discount window is used for would fully understand that this interest rate has no material impact on banks mortgage origination process.
As for…
“Y’know what? Sooner or later the banks really are going to have to admit that they lost a bunch of money.”
You obvisously do not understand basic accounting principles. The banks were forced to start writing off loans as they went delinquent. The reason few foreclosures occurred in December and January is because our socialist government that indirectly runs the mortgage industry told the big players not too foreclose on proprerties, or else _____________. The blank is the equivalent of what they told BoA would happen to them if they didn’t buy Merrill Lynch. It probably involved pointing a gun at someone’s head.
Of course the issue is how much of shopping etc can be done on the way home from work? When I was working in the big city that was how I did my grocery shopping. Now perhaps most people can’t pre plan, but if you drive any distance in an urban area, chances are you pass a grocery store. Of course one of the other issues is that today due to fear children are not allowed to walk to school because the bogie man might get them. I say teach self defense in the first grade, a little of this will ensure that attackers will regret the day they attacked unless with a gun, and that tends to get urban police more interested. But in the specific case what about park and ride, move to centers in the township and mass transit from there? The comments about planning fly in the face of the trend of the last 70 years of development. I could see the difference in the neighborhood where my grandparents lived (built in the 1920s) there were stores within walking distance. Now of course one can expand the radius by 5 to 6x by looking a bicycles and tricycles. It is supprising how many groceries one can get in a set of panniers. Just build the bike paths and you expand the size of the community to 2 to 3 miles. (10 mins on a bike)(Assuming it is flat land).
Mixed Village Use soning and Transit Oriented Developments are not new; but, we are one of the first to be putting it in place in the state. A light rail is coming through our area and will have a stop 2 miles away. A bus will be coming down the highway also. The bus “may” alleviate the need to drive to the train station . . . hopefully. In any case, both alternate forms of transportation will minimize the need to drive somewhat.
“These laws which are supposidly designed to adress septic systems are in fact used to limit population growth in areas outside municiple sewage service, so they are purposefully onerous.”
It sounds more like a citizenry attempting to stop growth at all costs.
was talking to a friend this morning about an expensive treatment his wife is undergoing for sleep apnea. he, and i, think she could cure her problem with more exercise and less weight. whether we are right about that or not, i’d have to say that “universal health care” that means that everyone gets all the treatments some doctor can think of trying means that all of us spend all of our lives working to make doctors rich.
now i’m not saying this is not a viable economic model, but i would say that “universal health care” is a concept that needs more careful examinatioin.
as far as mass transportation goes… well, same deal: we could all use more exercise. i feel that if you can’t walk there it’s not worth going. sure don’t want to see a streetcar on every block so people can commute fifty miles to work every day. maybe investing in the future means thinking about where we really want to go. and not just getting all excited about the latest futurist fad that comes down the pike.
What expensive treatment for sleep apnea? All you need is a CPAP machine and a sense of humour. Other treatments (including weight loss and exercise) are either more invasive or less effective or both. Maybe mention to your friend…
And, as much as I admire your beautiful curmudgeonliness, “ if you can’t walk there it’s not worth going” is not an option for most people.
To tie these two themes together — I myself use a CPAP machine (cue laugh-track) which has lasted me about 5 years so far. It was supplied by Manitoba Health, and filters and new masks are also supplied, a very cheap management of a common problem. But they don’t mail out supplies, and the site where you pick up supplies is a 78 minute one way bus trip from my place. Google Maps tells me its a 3 hour walk one way, and a 22 minute drive. Guess what people choose to do, if they can? The same for where I used to work — an 18 minute drive, a 60 or 70 minute bus ride with two transfers. And my town has good mass transit.
It is not a choice of walking or driving. To walk to this medical place would take all day, and the roads and sidewalks around there are token or absent.
Yes, proud pioneers would go under their own power, but they might not be healthier at the end of it. Like a friend on social assistance who had received a scholarship, and biked 12 miles each way to university a few years ago. He never finished that masters degree because he was hit by a doctor in a Volvo. Twice. True story.
Economic recovery comes from the spirit of individuals either trying to make money or save their jobs. Waiting for government is a delusion and distraction since they don’t have the answer. The best way out of any economic downturn is to losen reguation and keep taxes low and let the guys give us an extra coffee or create a new product that nobody knew they wanted. The liberals want to build a bridge or dam or some other meaningless gesture. They’re clueless and we’re unlucky to have democrats in charge at this crucial time since they are going to delay the economic recovery.
Cantab — has the possibility that you don’t know much, select your evidence, and can’t think clearly even when you have facts to hand ever crossed your mind?
No, because I know as fact that the negative things you want to believe are not true.
***You obvisously do not understand basic accounting principles.***
Your civility hasn’t improved any. Unfortunately neither has your knowledge or your essentially nonexistent research and analytic skills.
***The banks were forced to start writing off loans as they went delinquent.***
On what planet? Banks do not — as you seem to believe — operate under mark-to-market rules. How could they? They are going to get each property appraised every time a “homeowner” misses a payment? Remember that in almost all cases the “value” of the property on the banks books is more than adequate to secure the outstanding loan balance so the only perceived risk is that some future interest might be lost and a few other modest costs might accrue if the house is foreclosed, resold and the loan is paid off early.
Or do you think there are accounting rules that say the value of delinquent loans must be reduced in some defined fashion? Maybe there should be, but there don’t seem to be.
I believe that the normal practice when payments are missed is for banks is to add the missing payment(s) plus a fee or two to the end of the loan — unless and until they decide to foreclose. That may change (increase it would seem) the book value of the loan by a few dollars.
***The reason few foreclosures occurred in December and January is because our socialist government that indirectly runs the mortgage industry told the big players not too foreclose on proprerties, or else _____________.***
Knowing several people who with even a 5% rate could continue to pay if restructured loan interest rates were possible for them, much less a look at principle, this would be true. The merry go round to obtain any change, usually involving new docs but previously submitted, makes for simple postponement by the bank on declaring a loss instead of looking to the loan.
Many want their loans restructured since they’re under water even though they can afford to pay their morgages on the overpriced homes they chose to buy. Now they want to pass their mistake onto society. My advise to them is to hold their poperty and pray for inflation.
run has the right idea. This is a blatant attempt to avoid more population growth or higher densities. I saw this happen myself while living in Fairfax County VA (next to DC). There were sections of the county where the inhabitants living insured a low density envirnment with regulations like you described (think every house having its own leach field). It made it impossible to build in the area, kept home prices high, and commutes a little easier. The people in the area also prevented any new roads being built or expanded for the same reason. Going to your local government will not work – the locals will show up with lawyers or just plain out vote you. Must local rural gov. are pretty much controlled by the locals who like the way things are done….and don’t want change
As for mass transit. yes it can work in high density areas. Otherwise its basically crap – specifically light rail/subways. Yes Bus service is necessary but the rest is just a waste of time anywhere but in NYC/Tokyo type places. I worked for a grand total of 5 years in the DC metro area. I took the metro many times, but really the only time it was a BETTER solution was during absolutely bad snow weather. Why? Becuase I could drive home from work faster than taking the metro every time. In the morning it didn’t make a difference since I left before my famility was awake. But there was no way in he** I was going to trade the extra 30 minutes to take the metro home since that came right out of the time with my kids before they went to bed. In some cases that 30 minutes would be the difference between seeing them at all before bed. (I worked at teh Pentagon which had horrid hours). This is why people don’t take the metro. Their time is more valuable than any proposed savings. Heck a Prius didn’t even cost on on a ROI bases for my commute and their was no way the metro did since I still had that second car (out of walk/bike range of the metro stations and taking the bus would have added another 30-45 minutes to my commute).
Right niow I live ‘in’ the city. It takes me 20 minutes door to desk. By car. By bus it would take me well over an hour. I could almost bike/walk faster than the bus.
And, as mentioned above, most people don’t like going to the grocery store on a daily basis. This was very common when I was living in Germany. The Germans went to the market EVERY day, rain or shine, snow or sleet, becuase the couldn’t buy more than they could carry. Very time inefficient.
We have great public transportation right now. Its called a car. Highly flexible point to point transport with large frieght capacity.
I’ll beleive in mass transit when I see the people pushing it flying coach class on planes…
The problem with a lot of restructuring is, by law, the restructured loan would have to place a mark-to-market value on the home. Yes, the people living their could meet the 5% loan 30 year fixed repayment. But you can’t make that loan to them when the collateral on the loan is LESS than the loan amount. Simple example, Buyer gets a 0% down loan on a house in NoVA on 2006 for their $550,000 house (medium home price in Fairfax County in 2006). Now its 2010 and their house is now worth $450,000 with a outstanding balance on a loan at $520,000. Doesn’t matter if they can repay the $520K loan at 5%. Someone has to eat the $70,000 delta at closing. The buyer sure doesn’t want to (and probably can’t cover it) and neither does the owner (the bank). Now multiply by hundreds for the bank…
The solution for the buyer is to 1) stop paying and wait out the foreclosure process living rent-free in the meantime (especially in non-recourse states like California) 2) Cough up $70K, plus any new downpayment requirements !!! and redo the loan or 3) get the Feds to pass a cram-down in bankruptcy provision so they can force the banks to eat the loss.
For the banks they are hoping to solve their problems with a slow un-winding so the blood on the books doesn’t all happen at the same time. Also hope that inflation will take some of the hit off and maybe, just maybe the Feds will start the housing bubble back up somehow. So far its worked and Government cash has kept them afloat. But they are NOT doing mark-to-market on these houses….
You area is still in bubble pricing if the median home price is greater than 3 times the median income. Very simple. Lots and lots of people are still underwater and can expect to be for a LONG time….
Rdan,
What happened to the html code in the comments? No bold, et al.
Checked and fixed. 🙂
Rdan,
Bruce threatened to terminate my account when he was home alone. For that I request that his posting privileges be suspended to 27 days. You’ll make a better site once the lefties understand that they’re not invincible.
What do people think of the story about Goldman and Greece. As has been noted in some reports, playing with governments is a bit different than playing with companies, the government can bite back. I suspect the EU will come down hard on Goldman, triggering one of the every so often near death experiences for Goldman (LTCM and Goldman following the LTCM strategy did in Corzine, Goldman Sachs Trading in the 1929 time frame, a bond market scandal in the 1980s and the like). The EU would probably like nothing better than to take Goldman down a peg or two.
Ad Hominems are really weak.
It is interesting too that in 1998 the US bailed out a hedge fund which bet (hedged the lire) on Italy’s monetary policy to go one way and it went opposite.
How much bubble banking has Wall Street shared with the world?
But accumulating huge balances is good, eh?
***How much bubble banking has Wall Street shared with the world? *** ilsm
Somehow, I think that the world is perfectly capable of bubble banking with no help whatsoever from the US. I would imagine that bubble banking was invented shortly after the invention of money — and probably independently in China and in the Mediterranean.
If you want to read something that might get your attention, try this piece. Martin Wolf leaves the bark on.
The world economy has no easy way out of the mire
By Martin Wolf
February 24 2010
http://www.ft.com/cms/s/0/5c6f1722-20e5-11df-b920-00144feab49a.html
or use this link if the subscription notice appears:
http://news.google.com/news/search?aq=f&pz=1&cf=all&ned=us&hl=en&q=The+world+economy+has+no+easy+way+out+of+the+mire
Just click on the FT link with that title at the top of that page.
Thanks for posting the links. It’s an important article that it being widely cited.
That said, somehow, I don’t find the article enormously persuasive. It seems to me that there are alternatives other than return to unsustainable bubbling and utter collapse. Just plugging along, getting balance sheets in order and scaling back to essentials and a limited number of important luxuries is dull and mundane. It’ll take ten or fifteen years to get back to get world production and consumption levels of 2006. But it’s probably what the G7 should have been doing all along.
And I think the stuff about “investing in the future” is mindless. Not that it is a bad idea. But what does it mean? I have no idea, and I doubt Wolf does either.
One of those phrases that has no inherent meaning, but allows everyone to feel nice and cosy while filling in the image they like best. I suppose for a lot of people the images are “fresh-faced schoolchildren,” “big yellow machines building roads,” and maybe “scientists holding up test tubes with cancer cure inside.” Very 1950s, but persistent and powerful imagery.
To me, “investing in the future” means quite different things, most of them dull and boring and a little counterintuitive. For instance, mass transit and single payer health care are near the top of the list, as are subsidies for higher education. These three would deeply cut unnecessary, obligate expenditure and make America far more prosperous than now, thus freeing up more disposable income.
“investing in the future” means more than preparing for one or another predicted future. Far more importantly it means deciding which future we want, and putting in place the foundations for THAT future, while identifying and scrapping things that interfere with it, or even render that chosen future impossible.
Noni
Noni, I don’t disagree entirely, but I’m coming increasingly to question the univesiality of mass transit. It works after a fashion in large cities with high population densities. I spent some time travelling around the world in my yourth and later lived for a year in Tokyo without a car. That was fine. But getting around on public transportation is annoyingly slow and I’d really prefer to buy more stuff than I can easily carry on my occasional visits to the grocery store.
I think perhaps what those of us in the burbs and in rural areas need is compact, effcient, cheap individual transit. Think Segway with a bit more protection from the elements. Maybe electric scooters would do the job if renting a car when one was needed weren’t so much aggravation. (And I suspect that they behave badly in snow).
ilsm,
Then stop doing them.
MG,
Interesting piece, albeit rather depressing. The most depressing part is not that there is not solution, but that human nature being what it is, our politicians will probably take the coward’s way out and listen to their Ersatz economics intuition.
The fact that the world is awash in savings and there is pitifully small private sector demand this would be the perfect time to take up public investment projects. And if higher private savings rates become a permanent way of life and still don’t have adequate private sector demand, then the govt should eventually raise taxes to soak up the private savings and divert it to public investment.
And it’s not like there’s a shortage of projects begging for government investment. For example, in a few days one of the major bridges on I-80 will be closed because it was recently found to be structurally unsound, so I-80 traffic will have to be rerouted. Something like a fourth of all bridges in this country need significant repairs. The one thing we don’t need is the Gov. Tim Pawlenty (MN-R) approach to bridge repair.
I understand VtCodger’s point about mass transit being largely an urban solution, but that doesn’t make it trivial. I agree that mass transit isn’t practical for grocery shopping, but most people spend most of their time in cars going to and from work. And mass transit can do a lot to solve that problem.
And there are other things that we know we will have to do sooner or later anyway, so now is the perfect time to begin. We know that we will have to improve the electric grid. And it’s going to be very expensive. I’d rather do a project like that when the interest rate is low than when it is high. And we know that we will have to invest in greener technologies, so why not start now? And higher education is slipping in the country. University level education used to be this country’s strong point, but lately the top 50 colleges and univerisites have slipped fairly dramatically. Cutting back on higher education is just another way of eating your seedcorn.
High population density is more economical than suburban sprawl.. we know it. Maybe some day people will get realistic, we can’t have it both ways, we can live either in the country or the city, the suburbs are neither.
Or both if you’re an optimist.
The morning I sat down for coffee at au bon pain. While I was reading I was offered a refill which I accepted. They don’t usually do this but I suspect they are doing it because of the recession. Its things like these along with more significant actions taken by private business that is the face of economic recovery. Not public infrastructure projects. It’s like in the rocky movie where the rock had to get the eye of the tiger again; and tigers don’t live off unemployment, make work, or complain about derivatives or about capitalism in general.
Free coffee that’s the ticket.
Travis,
There is no free breakfast, I paid for that coffee. The business is trying to stimulate business by providing value. It seem to me that is the ticket and a much better idea than building a bridge too far.
But the world is about more than economic efficency. Many people prefer to live in less dense surroundings not cheek by jowl with the neighbors. All the elite seem to feel that they are deluded but if its what people let the elite move to the city. Small towns are better all around.
As we up the efficency of cars we can reduce energy usage. Why for example insead of people all coming to one office building in the city, not allow people to lease offices for themselves in local buildings with good telecom, driving say not more than 5 miles to work, or if possible telecommute. (If the boss focuses on the work done, not the face time and being a control freak this does work).
Cantab,
So are you saying that the cafe was not pricing coffee correctly before the recession?
Slugs,
The government is not competent to manage down to this level so they should not try. They should not try to micro manage healthcare either.
You mean those endangered tigers that are likely to go extinct in the wild?
No, you are talking about metaphorical tigers. But real or not, tigers that are caged without a food supply are unlikely to become self-sufficient, much less a Rocky-like success.
People who cannot access income from a job have few steady, legal resources to support a home and family. For every six job hunters today, there is one job out there. What shall the other five do?
Let me predict a couple of your replies, to save you time.
a) those five people shouldn’t have had a family if they’d thought they might have lost their jobs. Time-travel birth control should take care of that.
b) those five people should work smarter and become entrepreneurs. Boost the “sell your neighbours lentil stew” industry. The neighbours can get the money to buy your stew by selling stew to you. Odd and even days ought to work.
c) those five people should move to where there are jobs. Mexico, for instance.
Why oh why do people reference movie heroes when giving economic advice? Rocky, indeed. But just to refresh our memories, Rocky was “an uneducated but good-hearted debt collector for a loan shark in Philadelphia.” (Interesting…)
How did he train for the big fight? “To prepare … Rocky trains with a 1920s-era ex-bantamweight fighter and gym owner … while Rocky’s good friend, Paulie, a meat-packing plant worker, lets him practice his punches on the carcasses hanging in the freezers.”
What’s this? the tiger got help? Would imaginary Rocky have gone the distance in the imaginary fight without the imaginary (and presumably free) help of his friends, who had resources (a gym, a meat locker) to train and practice? I imagine not.
Tigers are solitary creatures. People are not. People succeed because of constantly accessing the aid and generosity of their fellows. Even an apparently lone genius like Tesla, depends on dozens or hundreds of people every day to support him while he hones his genius. (And he, in turn, “supports” them with the fruits of his genius.) Mostly, they do not meet, but they support each other nonetheless.
But when those dozens and hundreds are weakened by financial stress, and the loss of their jobs and resources, there’s little left over to support tigers, amateur boxers or geniuses. Expecting people to thrive without this support is like expecting plants to flourish without roots.
Noni
Noni,
You’re too screwed up to understand the point I was making.
I didn’t know the Fed raised the Fed funds rate. At least that is what Maxine Waters told Ben Bernanke (he seemed as schocked as I did). And it seems Maxine read a story about how mortgage rates are likely to go up when the Fed stops buying Freddie/Fannie MBS (when you take away demand equal to half of supply this tends to happen), but conflates this trigger with the increase in the Fed funds rate driving up mortgage rates. And she seems to think econmist’s predictions that foreclosures will increase in the next few months has something to do with the mythical increase in the fed funds rates (as opposed to say the absolute failure of HAMP, which will only manage to allow a few deadbeat homeowners to live rent free for a few extra months).
Explain.
***The government is not competent to manage down to this level so they should not try***
If guys like you were running it — and regretably they were — that would certainly be the case. … We would be probably well and truly doomed. Fortunately, not everyone is as inept at running stuff as the Bush administration. You might want to compare the economic results achieved by say China with those achieved by right wingers in the US or — even more clearly — with the results of Bush’s attempt to reorganize Iraq’s economy along lines they and you would approve of. It’s hard not to conclude that a bit of govenment management (and taking a bunch of failed managers out of circulation) might improve things.
I don’t think it is really necessary to shoot the bankers which I expect the Chinese might do. Jail and banishment from financial sector might be enough
***. They should not try to micro manage healthcare either.***
The fact that governments elsewhere provide universal health care and do so more cheaply through government management makes no impression whatsoever? Y’know kid, there are times that you just have to shut up and go where the evidence takes you. Here the evidence is overwhelming. For whatever reason, unregulated free markets simply are not effective at providing health care.
======================
***You’re too screwed up to understand the point I was making.*** [to Noni]
Cantab — has the possibility that you don’t know much, select your evidence, and can’t think clearly even when you have facts to hand ever crossed your mind? Because I have to tell you that it is impressed on the frontal lobes of many of us here. Behaving like an adolescent jerk doesn’t help your cause much either.
***mythical increase in the fed funds rates***
Not mythical. The key here is that there are two different things with similar sounding names — the Federal Funds Rate and the Federal Discount Rate. The Fed did kick the funds rate up a notch to 0.75% about a week ago. But the discount rate remains at 0 to 0.25%. I don’t remotely understand this, but the consensus among people who sound like they might is that the Funds Rate hike is purely symbolic and has no impact on anyone’s cost of borrowing.
======
“Another way banks can borrow funds to keep up their required reserves is by taking a loan from the Federal Reserve itself at the discount window. These loans are subject to audit by the Fed, and the discount rate is usually higher than the federal funds rate. Confusion between these two kinds of loans often leads to confusion between the federal funds rate and the discount rate.” http://en.wikipedia.org/wiki/Federal_funds_rate
======
Feel free to pursue this and explain exactly what went down if you can figure it out. My assumption that there’s nothing to see here and we should move along could be really wrong.
VT:
As a township planner in an area bordering two city type of communities 30 and 50 minutes away, we are mostly rural with 16,000 people. We would be considered a bedroom community as people commute to those areas and other areas for work. The highways are packed in the morning 7-9AM and 5-7PM.
The highways are necessary to get to work because we have no other way to get into the cities, no trains or buses. Both forms of transportation could alleviate the traffic congestion somewhat. We are planning a Transit Oriented Development. Briefly, it is a walkable community that people can park their car at home and not leave (other than work) and still hopefully obtain the necessities of life by walking. In the “olden” days, we would walk to the store towing a shopping cart behind us to carry groceries. It was a way of life as the car was usually gone with dad to work.
The costs of living in suburbia and having two cars has really increased and both of these factors have hurt the middle class as necessities in order to live in rural areas. The mass transit hooking these communities together, I believe will become more important as costs go up and income remains stagnant or decreases.
“The government is not competent to manage down to this level so they should not try”
The government is actually counterproductive when it micromanages. For example in my area there are old red wood septic tanks still being used. Most of them are leaking, and in the anaerobic enviornment of the tank waste products are not rendered harmless. They need to be broken down in the oxygen rich enviornment of the leach fields. Problem is that the Government has created conditions that make it prohibitively expensive or illegal to replace these septics. They will not allow grey water and black water to be treated seperately. These laws which are supposidly designed to adress septic systems are in fact used to limit population growth in areas outside municiple sewage service, so they are purposefully onerous. The end result is that many systems in my neighborhood are failing and leaking raw sewage into our shared aquifer, but some of my neighbor, becuase of new enviornmental laws, can not or will not replacing them, so I have to drink contaminated water, because of a ridgid don’t give a damn, over paid bureacracy. In most cases the Government is a problem rather then a solution. People who argue otherwise, usually root at the public trough or hope too.
***which will only manage to allow a few deadbeat homeowners to live rent free for a few extra months***
Actually, they are going to do that anyway as banks for the most part have demonstrated a great reluctance to foreclose. The problem is that if the property is foreclosed, the bank has to sell it and quite likely write off part of the loan. As long as they let the property sit unforeclosed, they carry the loan at its full paper value even though a realistic value might be a fraction of the loan value. In addition, bankers apparently prefer that houses are occupied by “owners” even though the inhabitants have quit making payments. At least the lawn gets mowed; pieces that fall of may get duct taped back on; and the plumbing and wiring aren’t being ripped out. (It’s really more complex than that).
The basic problem is that virtually everyone in America who wants and can afford a house “owns” one. And thanks to the demented behavior of our bankers, a lot of people who can not afford a house also “own” one. What HAMP is proving is that mostly you can’t make people who can’t afford a house healthy by juggling details of their loan.
Y’know what? Sooner or later the banks really are going to have to admit that they lost a bunch of money. And they are probably going to have to absorb losses beyond the downpayment themselves. If they didn’t get a downpayment, well, whose fault is that?
And yes, mortgage rates are going to increase someday — probably someday soon. IMO, that will mostly affect homeowners who can actually afford a house who move. They will have to manage larger payments on their new home. But many of those folks already face a huge problem in selling their old house (… sell? to whom?) and extricating themselves from their “investment” with enough cash to make a downpayment in their new home town.
Mobility is going to be a problem for non-renters.
VtCodger,
Actually, it’s the other way around. The Fed Funds Rate is for all practical purposes at zero and the Discount Rate was increased from 0.25% to 0.75%. For a really good discussion see Prof. James Hamilton’s blog posting on the rate increase and what it means…as well as what he thinks it doesn’t mean.
http://www.econbrowser.com/archives/2010/02/the_feds_discou.html
“…the consensus among people who sound like they might is that the Funds Rate hike is purely symbolic and has no impact on anyone’s cost of borrowing.”
If you replace the words “Funds Rate” with “Discount Rate” then I would agree.
And for what it’s worth, I suspect that you actually intended to say that but had a case of brainlock and you were thinking Discount Rate but typed Funds Rate. I know the feeling.
***so I have to drink contaminated water, because of a ridgid don’t give a damn, over paid bureacracy***
Given any thought to doing something about it other than whining? If you don’t like the code, get it changed. Betcha a six-pack that there is a mechanism to do that. Ah yes … but that’s so much work? Government seems to work a lot better if people make an effort to make it work.
(I would submit that most rural areas would be best off with a public meeting form of governance. And it does work pretty well in Northern New England. Unfortunately, it surely won’t scale well to populous areas.)
If you think government doesn’t work, try anarchy
And no sooner do I mention brainlock than I have a case of it myself. Meant to say an increase of 0.25% to 0.75%, not an increase from 0.25% to 0.75%.
The country did survive 12% mortgage rates in 1980. I paid 9.5 in 1978 as well. It does mean more renting, but IMHO thats a good thing. Given the proclivity of americans to move the 10% real estate industry property turnover fee (Real Estate Commission, Title Insurance, Lawyers Fees, various checks on taxes flood situation etc, and the various fees on mortgages such as appraisal, credit check, etc) mean that one will have to hold propery 5-7 years at a minimum in the future to just break even.
Vtcodger: 2slugs did the debunking for me. I should have linked to the insanity of Maxine Waters… http://www.youtube.com/watch?v=jORdN7v0ej0
Anyone who understands what the discount window is used for would fully understand that this interest rate has no material impact on banks mortgage origination process.
As for…
“Y’know what? Sooner or later the banks really are going to have to admit that they lost a bunch of money.”
You obvisously do not understand basic accounting principles. The banks were forced to start writing off loans as they went delinquent. The reason few foreclosures occurred in December and January is because our socialist government that indirectly runs the mortgage industry told the big players not too foreclose on proprerties, or else _____________. The blank is the equivalent of what they told BoA would happen to them if they didn’t buy Merrill Lynch. It probably involved pointing a gun at someone’s head.
By the way, here is a gem:
http://www.youtube.com/watch?v=iW5qKYfqALE
Of course the issue is how much of shopping etc can be done on the way home from work? When I was working in the big city that was how I did my grocery shopping. Now perhaps most people can’t pre plan, but if you drive any distance in an urban area, chances are you pass a grocery store. Of course one of the other issues is that today due to fear children are not allowed to walk to school because the bogie man might get them. I say teach self defense in the first grade, a little of this will ensure that attackers will regret the day they attacked unless with a gun, and that tends to get urban police more interested. But in the specific case what about park and ride, move to centers in the township and mass transit from there?
The comments about planning fly in the face of the trend of the last 70 years of development. I could see the difference in the neighborhood where my grandparents lived (built in the 1920s) there were stores within walking distance. Now of course one can expand the radius by 5 to 6x by looking a bicycles and tricycles. It is supprising how many groceries one can get in a set of panniers. Just build the bike paths and you expand the size of the community to 2 to 3 miles. (10 mins on a bike)(Assuming it is flat land).
Lyle:
Mixed Village Use soning and Transit Oriented Developments are not new; but, we are one of the first to be putting it in place in the state. A light rail is coming through our area and will have a stop 2 miles away. A bus will be coming down the highway also. The bus “may” alleviate the need to drive to the train station . . . hopefully. In any case, both alternate forms of transportation will minimize the need to drive somewhat.
We also have park and rides.
cursed:
Not sure where you live but when I read this:
“These laws which are supposidly designed to adress septic systems are in fact used to limit population growth in areas outside municiple sewage service, so they are purposefully onerous.”
It sounds more like a citizenry attempting to stop growth at all costs.
noni
can’t help being contrary
was talking to a friend this morning about an expensive treatment his wife is undergoing for sleep apnea. he, and i, think she could cure her problem with more exercise and less weight. whether we are right about that or not, i’d have to say that “universal health care” that means that everyone gets all the treatments some doctor can think of trying means that all of us spend all of our lives working to make doctors rich.
now i’m not saying this is not a viable economic model, but i would say that “universal health care” is a concept that needs more careful examinatioin.
as far as mass transportation goes… well, same deal: we could all use more exercise. i feel that if you can’t walk there it’s not worth going. sure don’t want to see a streetcar on every block so people can commute fifty miles to work every day. maybe investing in the future means thinking about where we really want to go. and not just getting all excited about the latest futurist fad that comes down the pike.
Codger
my guess is that lots of people could afford those homes if the prices reflected the cost of building them and not the cost of speculating on money.
Dear Mr. Contrary,
What expensive treatment for sleep apnea? All you need is a CPAP machine and a sense of humour. Other treatments (including weight loss and exercise) are either more invasive or less effective or both. Maybe mention to your friend…
And, as much as I admire your beautiful curmudgeonliness, “ if you can’t walk there it’s not worth going” is not an option for most people.
To tie these two themes together — I myself use a CPAP machine (cue laugh-track) which has lasted me about 5 years so far. It was supplied by Manitoba Health, and filters and new masks are also supplied, a very cheap management of a common problem. But they don’t mail out supplies, and the site where you pick up supplies is a 78 minute one way bus trip from my place. Google Maps tells me its a 3 hour walk one way, and a 22 minute drive. Guess what people choose to do, if they can? The same for where I used to work — an 18 minute drive, a 60 or 70 minute bus ride with two transfers. And my town has good mass transit.
It is not a choice of walking or driving. To walk to this medical place would take all day, and the roads and sidewalks around there are token or absent.
Yes, proud pioneers would go under their own power, but they might not be healthier at the end of it. Like a friend on social assistance who had received a scholarship, and biked 12 miles each way to university a few years ago. He never finished that masters degree because he was hit by a doctor in a Volvo. Twice. True story.
Economic recovery comes from the spirit of individuals either trying to make money or save their jobs. Waiting for government is a delusion and distraction since they don’t have the answer. The best way out of any economic downturn is to losen reguation and keep taxes low and let the guys give us an extra coffee or create a new product that nobody knew they wanted. The liberals want to build a bridge or dam or some other meaningless gesture. They’re clueless and we’re unlucky to have democrats in charge at this crucial time since they are going to delay the economic recovery.
VtCodger
Cantab — has the possibility that you don’t know much, select your evidence, and can’t think clearly even when you have facts to hand ever crossed your mind?
No, because I know as fact that the negative things you want to believe are not true.
***You obvisously do not understand basic accounting principles.***
Your civility hasn’t improved any. Unfortunately neither has your knowledge or your essentially nonexistent research and analytic skills.
***The banks were forced to start writing off loans as they went delinquent.***
On what planet? Banks do not — as you seem to believe — operate under mark-to-market rules. How could they? They are going to get each property appraised every time a “homeowner” misses a payment? Remember that in almost all cases the “value” of the property on the banks books is more than adequate to secure the outstanding loan balance so the only perceived risk is that some future interest might be lost and a few other modest costs might accrue if the house is foreclosed, resold and the loan is paid off early.
Or do you think there are accounting rules that say the value of delinquent loans must be reduced in some defined fashion? Maybe there should be, but there don’t seem to be.
I believe that the normal practice when payments are missed is for banks is to add the missing payment(s) plus a fee or two to the end of the loan — unless and until they decide to foreclose. That may change (increase it would seem) the book value of the loan by a few dollars.
http://www.zeromillion.com/financial-services/key-an-eye-on-your-mortgage-payments-by-kevin-adelsberg.html
http://www.calculatedriskblog.com/2007/07/delinquencies-and-defaults-for.html
***The reason few foreclosures occurred in December and January is because our socialist government that indirectly runs the mortgage industry told the big players not too foreclose on proprerties, or else _____________.***
That’s close enough. At least partly due to HAMP(foreclosures put on hold while loan modification in process) , partly to state (not federal) moratoria on foreclosures. Here’s Calculated Risk on the subject http://www.calculatedriskblog.com/2008/12/more-on-delinquencies-and-foreclosures.html
Knowing several people who with even a 5% rate could continue to pay if restructured loan interest rates were possible for them, much less a look at principle, this would be true. The merry go round to obtain any change, usually involving new docs but previously submitted, makes for simple postponement by the bank on declaring a loss instead of looking to the loan.
Rdan,
Many want their loans restructured since they’re under water even though they can afford to pay their morgages on the overpriced homes they chose to buy. Now they want to pass their mistake onto society. My advise to them is to hold their poperty and pray for inflation.
run and cursed,
run has the right idea. This is a blatant attempt to avoid more population growth or higher densities. I saw this happen myself while living in Fairfax County VA (next to DC). There were sections of the county where the inhabitants living insured a low density envirnment with regulations like you described (think every house having its own leach field). It made it impossible to build in the area, kept home prices high, and commutes a little easier. The people in the area also prevented any new roads being built or expanded for the same reason. Going to your local government will not work – the locals will show up with lawyers or just plain out vote you. Must local rural gov. are pretty much controlled by the locals who like the way things are done….and don’t want change
As for mass transit. yes it can work in high density areas. Otherwise its basically crap – specifically light rail/subways. Yes Bus service is necessary but the rest is just a waste of time anywhere but in NYC/Tokyo type places. I worked for a grand total of 5 years in the DC metro area. I took the metro many times, but really the only time it was a BETTER solution was during absolutely bad snow weather. Why? Becuase I could drive home from work faster than taking the metro every time. In the morning it didn’t make a difference since I left before my famility was awake. But there was no way in he** I was going to trade the extra 30 minutes to take the metro home since that came right out of the time with my kids before they went to bed. In some cases that 30 minutes would be the difference between seeing them at all before bed. (I worked at teh Pentagon which had horrid hours). This is why people don’t take the metro. Their time is more valuable than any proposed savings. Heck a Prius didn’t even cost on on a ROI bases for my commute and their was no way the metro did since I still had that second car (out of walk/bike range of the metro stations and taking the bus would have added another 30-45 minutes to my commute).
Right niow I live ‘in’ the city. It takes me 20 minutes door to desk. By car. By bus it would take me well over an hour. I could almost bike/walk faster than the bus.
And, as mentioned above, most people don’t like going to the grocery store on a daily basis. This was very common when I was living in Germany. The Germans went to the market EVERY day, rain or shine, snow or sleet, becuase the couldn’t buy more than they could carry. Very time inefficient.
We have great public transportation right now. Its called a car. Highly flexible point to point transport with large frieght capacity.
I’ll beleive in mass transit when I see the people pushing it flying coach class on planes…
Islam will change
Rdan,
The problem with a lot of restructuring is, by law, the restructured loan would have to place a mark-to-market value on the home. Yes, the people living their could meet the 5% loan 30 year fixed repayment. But you can’t make that loan to them when the collateral on the loan is LESS than the loan amount. Simple example, Buyer gets a 0% down loan on a house in NoVA on 2006 for their $550,000 house (medium home price in Fairfax County in 2006). Now its 2010 and their house is now worth $450,000 with a outstanding balance on a loan at $520,000. Doesn’t matter if they can repay the $520K loan at 5%. Someone has to eat the $70,000 delta at closing. The buyer sure doesn’t want to (and probably can’t cover it) and neither does the owner (the bank). Now multiply by hundreds for the bank…
The solution for the buyer is to 1) stop paying and wait out the foreclosure process living rent-free in the meantime (especially in non-recourse states like California) 2) Cough up $70K, plus any new downpayment requirements !!! and redo the loan or 3) get the Feds to pass a cram-down in bankruptcy provision so they can force the banks to eat the loss.
For the banks they are hoping to solve their problems with a slow un-winding so the blood on the books doesn’t all happen at the same time. Also hope that inflation will take some of the hit off and maybe, just maybe the Feds will start the housing bubble back up somehow. So far its worked and Government cash has kept them afloat. But they are NOT doing mark-to-market on these houses….
You area is still in bubble pricing if the median home price is greater than 3 times the median income. Very simple. Lots and lots of people are still underwater and can expect to be for a LONG time….
Islam will change