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Ways We Can Fix This Giant Mess
Real economic growth is created by value-added production. You cannot create real economic growth by trading pieces of paper. We have to relearn that lesson over and over again. We can't live off imported goods and export nothing. That's like living off I.O.U.s.
Joseph Stiglitz
Columbia University Professor, Former Chief Economist of the World Bank and Former Economic Adviser to President Bill Clinton
There are two issues at the heart of the problem. First, the millions of households that are likely to have mortgages beyond their ability to pay, and secondly, the fact that both America and Americans have been living beyond their means for many years.
The two are related: Americans borrowed against inflated home prices to sustain their consumption binge. This enormously expensive war in Iraq has played a role, too—a war that was supposed to cost $50 billion is costing that amount upfront every three months. The national debt, from the Afghanistan and Iraq wars alone, will be nearly $1 trillion higher than it would otherwise have been by the end of the Bush administration. It is this mountain of debt that is undermining others' confidence in America, and rightly so.
The Fed has at least finally grasped that something needs to be done (though they've waited much too long). As more houses go into foreclosure, house prices will fall and more houses will be "underwater." There needs to be an immediate write-down of mortgages—perhaps encouraged through a homeowners' Chapter 11, which would allow them to discharge a part of their debt and still stay in their houses. Many homeowners will still need some assistance—we subsidize upper-income homeowners through large tax deductions. Changing this into a cashable tax credit would help many poorer Americans as well as helping the financial system.
Of course, there is something peculiar about what has been going on. While the administration has been vetoing any suggestion of a bailout for poor homeowners who have been taken advantage of by predatory lenders, there has been a bailout for investment banks. The Fed has lent money to facilitate JPMorgan's takeover of Bear Stearns, and has evidently underwritten the risk. It has accepted risky mortgages as collateral—again putting taxpayers' money at risk. These bailouts for those responsible for the mess have been done in a totally nontransparent way. We really don't know much about the values assigned to the collateral, and what the risks are. It seems fairer to help poorer American households, rather than putting taxpayers' money at risk, without even charging appropriate insurance premiums for bearing this risk.
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Member Comments
Posted By: getzel @ 04/11/2008 10:58:30 PM
Comment: War ends We win: when we pass a law that makes the minimum price of gasoline at the pumps: $1.75/gallon; billion dollar/million barrel per day ethanol stills will not be built without protection from OPEC monopoly pricing rusting out our new stills.
The ethanol investors do not build ethanol distilleries because monopoly OPEC would lower the price to rust out their billion dollar million barrel a day ethanol still. Brazil is energy independent: ethanol; All their cars come built running on ethanol; Archer Daniel Midland made millions on $1.00 gallon ethanol in the 1990s; that trumps any canard/invalid objection to ethanol. Use Cellulose ethanol, not corn ethanol.
This will balance the trade deficit, create full employment, bring down the price of fuel, break the monopoly on the pricing of fuel, balance the USA government budget, create less pollution, make the USA energy independent, and end the war because we will stop funding the bad guys everyday at the gas pumps..
Intelligence analyst: Getzel
Sharia people are at war with The West because Arabs, Persians, & Sharia people believe Islam can not survive against a free market, free speech, republic with: womens rights & no honor killing: murdering women is legal in Sharia.
Arab, if only Israel: is only an excuse, propaganda, for Islamic terror; as we see that wherever the Mohammedans bump against another culture the Mohammedans say the same thing they say about Israel. In India: same thing, in Kosovo: same thing, In Israel: same thing. In Darfur: same thing. In Thailand: same thing, the Philippines: same thing. Wherever the Moslems are contiguous with another people: The Moslems say the same thing they say about Israel: If only: Sharia and no freedom of speech to criticize Islam
Posted By: sivere @ 04/06/2008 3:46:49 PM
Comment: The fed and the investmnent banks created this mess, now thety are patetd on the back for keeping it from outright exploding. Ok, the Fed has done a decent job in recent weeks to save us from doom, BUT THEY ALSO CREATED THE MONSTER to start with.
The Fed encouraged derivatves, which now sit at $516 trillion dollars, dwarfing the world's GDP. When they needed more paper to feed the derivatives monster, they created the subprime crisis. They screamed for paper, and paper, and mortgage lenders gave loans to anyone who cuold sign. This fed the bubble for a while, but then collapsed.
Please see siv0.com. We need to TakeBackTheFed.com.
Posted By: loanmod @ 03/30/2008 4:02:22 PM
Comment: The banks should be outsourcing their loss mitigation efforts to companies that specialize in reaching out to homeowners, like MIZNA ( loanmod.com ) and NACA (naca.org) . These companies can save banks hundreds of millions of dollars by guiding/counseling homeowners, and processing loan modificaitons.