It seems like bailout or no, the dollar is screwed and the recession doesn't go away. Why should the American tax payer be asked to borrow even more money to throw after bad paper?
Why not go from the bottom up and skip the bad paper? It is funny money — it has no value, obviously — so why should we prop it up. The U.S. could spend $700 billion to help ease the people's pain if the country slips into a depression, instead of bailing out Wall Street.
And most electric companies are guaranteed a profit because they are a state-sanctioned monopoly.
but then that would never have worked, as it's a form of socialism. Any idiot can face a crisis - it's day to day living that wears you out.
Something close to that was Barney Frank's proposal to allow people to reduce their mortages to 85% of the current market value, The government pays the banks that 85%, the banks write off the rest, and the first x of any eventual gain on a later sale of the home goes to the government. Given foreclosure and resale costs, the banks effectively get more than what they'd get by foreclosing. The homeowners don't lose their home, and in the long term the government shouldn't lose that much money since it's holding mortgages at, on average about two thirds of the nominal peak price, with the right to capture much of the eventual upside. But the upfront costs would have been much more than ten billion. A very watered down version of this plan eventually passed, but it was done in a way that very few would qualify for paticipation.
My payments go from $1084.19 to $1411.18 per month.
Let's foreclose on the house, put it into the hands of a "Custodian" and charge a reasonable "Capital Rental" to the "Occupier-formerly-known-as-Owner", and then index-link the rental.
At an initial "Capital Rental" of 4% the finance cost is $667 per month: at 3% $500.00 and so on.
Anything the Occupier pays in excess of the "Capital rental" due buys him Units, and if he wishes, he can always pay the Rental with Units if he doesn't want to, or can't, pay in cash.
The outcome is Units of a "quasi REIT" asset class which the owner of the distressed debt can sell off to long term investors.
The lower the Capital Rental is, the more affordable it is, and the more likely it will be paid.
I reckon a 2 to 3% (index-linked) return could be quite achievable for Units in a "Pool" of over a million homes....
Safe as Houses..... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
The second possibility leads to inflation, but it saves the institutions and allows the system to continue to function.
The first possibility would have knock-on effects as one company's bankruptcy immediately impairs assets on everyone else's balance sheet. You could conceivably end up with everyone filing for bankruptcy protection. That would also be a solution: if A owes money to B who owes money to C who owes money to A it can all be netted out to zero but the required disclosures will only take place if A, B, and C are all in bankruptcy court. But it everyone is bankrupt there will be no credit creation and, again, the economy will grind to a halt.
Another way to get the required "circular claims" disclosures to be made is for the government to pull a Roosevelt:
On March 5, 1933, the day after Roosevelt's inauguration, he called a special session of Congress which instituted a mandatory four-day bank holiday. This act provided for the reopening of banks after federal inspectors had declared them to be financially secure.
The credit institutions have a wealth of information about the financial system (and those mortgages). You want to at least save the institutional memory in those banks.
This can be achieved by letting them all go bankrupt and then buying up the pieces. But the government would have to have a "public holding company" or something like that to be able to own companies. This is not the case.
Except that the Dodd plan creates that authority, while keeping within the market narrative and thus being palatable.
One more point: this bailout plan has been designed for the Financials, but other corporations will want in on it. When the SEC decided to ban short selling of Financial stocks, some industrial companies successfully lobbied to be included in the short ban. Who is to say that General Motors won't ask the Treasury to buy some Shitpile™ from it? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
I ahve the feeling that nationalization would have a slightly higher chance to succeed... but a Dood program with a robert Reich approach investment during the transition has similar or higher.
IN any case, I am not still completely sure it woudl work..
So, Is Euroep , China and Japan ready for derivative meltdown? and for a huge contraction in US demand?
These are the two questions we should be worried here. I know about Spain.. no big deal about the ocntraction demand, but given that we are in the same bubble process than the US, a credit default will eb really bad for Spain..
the US falls, Spain goes with it.. at least we make some kind of deal with the Chinese and convince them that we are in better shape than the US and can send ther saving around here :)
A pleasure I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude
i get at least two calls a day from banks and funds around the world asking about windpower. Some of them are probably reeling from the caps on short-selling, as well as investor bailing. But they still want to put whatever funds remain into something productive.
Am i missing something here? "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
E.g., if Goldman Sachs defaults on its debt and the recovery rate is 5%, does your phone stop ringing? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
When Gore ratchets up the renewable energy = fix the economy argument, trying to emulate Germany, we should at least manage to keep working. Somebody will finance that growth.
Some bankers have told me that the flight from toxic capital to windpower is partly responsible for high valuations of the public companies. "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
And neither will your wind turbines stop spinning, but how many new loans for the purchase of new freight trains were made during the Depression? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
Good luck selling wind turbines when the unemployment rate sky-rockets - unless someone persuades governments to indulge in a huge investment programme in the face of US$40 oil.
As long as we do these things within our economy and don't require imported goods we should be readily able to finance it. It is primarily a question of vision and political will. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
We are being asked to reduce our activity, right now. Many other banks have been absent from the market from months already. In the long run, we're all dead. John Maynard Keynes
A bank still standing, thanks to its relationship with the current SecTreas, is exploring new markets for wind as we speak. "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
At that point, you might as well have the Fed lend money to the Treasury to give people credit.
If a credit system is central to the material provisioning of society, then we shall have a credit system. It may not look like the one we've had so far... A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
The US is in the middle of a transtion in the economic model, from construction sector and services related plus debt, to one based on doing stuff to export, local services sector (where there is competition) with a low dollar and, hopefully, a more efficient Health-care system with exapanding jobs if Obama gets to enact his plan.
this change in job distribution structure needs time, and money to build the factories that never existed and the company structure for the services to slowly get market share from japanese and europeans int he local market thanks to the lower dollar.. so you need a bunch of money to start-up those companies.
Otherwise, it will not be a problem to let the banks go falling one after the other...with only the government as lender... but you precisely need the credit to make the transition.
So, it is clear that th other option is the full nationalziation of the US bank system... so either the Dodd bailout or nationalization. Otherwise I think the Us is in bigger than bigger trouble.
