tag:blogger.com,1999:blog-5044318737317983833.post2695279020288311660..comments2023-06-08T04:15:43.908-05:00Comments on The Lost Albatross: The Recession and youEmilyhttp://www.blogger.com/profile/11393762115493350763noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-5044318737317983833.post-55932144041431677812008-10-03T14:17:00.000-05:002008-10-03T14:17:00.000-05:00Yikes, that's a pile of bad.Thanks again for your ...Yikes, that's a pile of bad.<BR/><BR/>Thanks again for your take on this. It's all been pretty overwhelming for us non-economists, and I don't pretend to understand it all that well.<BR/><BR/>I, too, would rather not see a full-scale bail out of people who bought houses well above their means. I guess I was/am just skeptical that bailing out the big corporations that cooked books and went in for shady loan practices is the way to go, either.<BR/><BR/>Clearly, however, something needed to be done, and the situation in California is a pretty clear example of why.<BR/><BR/>I just hope hope hope that, for once, we actually learn something from this debacle and put in place regulations and the like that would prevent it from happening again. I feel like we usually just panic, throw a band-aid on it, and then go right back to the shitty practices that got us into trouble in the first place.Emilyhttps://www.blogger.com/profile/11393762115493350763noreply@blogger.comtag:blogger.com,1999:blog-5044318737317983833.post-58725418361719105752008-10-03T14:11:00.000-05:002008-10-03T14:11:00.000-05:00And very quickly: Here's a very concrete example ...And very quickly: Here's a very concrete example of how quickly frozen credit markets can hit:<BR/><BR/>http://www.salon.com/tech/htww/2008/10/03/california_credit_crunch/index.html<BR/><BR/>California's government is on the verge of collapse.John Das Binkyhttps://www.blogger.com/profile/04997404099815938801noreply@blogger.comtag:blogger.com,1999:blog-5044318737317983833.post-87255708408603246252008-10-03T14:05:00.000-05:002008-10-03T14:05:00.000-05:00I agree, the pork bugs me. I don't know that it w...I agree, the pork bugs me. I don't know that it was necessary either, but at least some of the energy stuff is good.<BR/><BR/>I personally have a big issue with the idea of the government paying off the mortgages, on an ideological level.<BR/><BR/>The current plan calls for the government to buy the mortgages, taking the bad debt off the books of the banks who currently hold them. The government will hold the mortgages until the market corrects itself, at which point the investments should be worth close to market value, thereby negating much of the cost of the program. In other words, the government is buying $700b in assets that are really worth a lot more than that. When the market corrects itself and the assets gain value, they can be sold for a gain. That makes the assumption that the value will reset, which isn't a sure bet.<BR/><BR/>The other plan (paying off everyone's mortgages) simply says "All of you people who took on more credit than you could handle and stopped paying your mortgage, here's a freebie. Your house is now free. Enjoy!" As someone who has spent much of the last 10 years scrimping and saving to buy a house, this pisses me off to no end. It is the definition of a free ride. Even if the gov't then resets a mortgage based on a perceived fair value, I think this creates a dangerous precedent that has a lot of potential impacts. It's one thing to create the impression that the government will bail out businesses. Allowing the government to bail out individuals directly contributes to the idea of a welfare state. Even as a left-leaning guy, I don't like the idea of training a generation of lower income gamblers that the government will personally bail them out if they're in trouble.<BR/><BR/>The bailout plan isn't a free ride, since the the companies involved give up freedoms in exchange for the assets, and the government will likely get some of their money back.John Das Binkyhttps://www.blogger.com/profile/04997404099815938801noreply@blogger.comtag:blogger.com,1999:blog-5044318737317983833.post-48035785571053507932008-10-03T13:46:00.000-05:002008-10-03T13:46:00.000-05:00John - I hear you, and thanks for the perspective....John - I hear you, and thanks for the perspective. I still don't think this was the right bill (especially with all the added pork), but I'm curious what you think of the idea of having the government buy out the bad mortgages and the like instead. It may be a moot point now, but do you think that might have been a better way of freeing up banks' credit giving abilities?Emilyhttps://www.blogger.com/profile/11393762115493350763noreply@blogger.comtag:blogger.com,1999:blog-5044318737317983833.post-4486301724259438362008-10-03T13:42:00.000-05:002008-10-03T13:42:00.000-05:00Just a brief perspective: I worked for four years...Just a brief perspective: I worked for four years in the Treasury department of a (former) investment bank, and wrote a lot of the systems that track the credit indicators that are going crazy now. I've got a pretty strong understanding of the mechanics that are freezing the system now.<BR/><BR/>And while Six String Scientist is right that this isn't going to crush out economy in a matter of hours, a week or two might do it. Time is seriously of the essence.<BR/><BR/>I'd commented somewhere earlier that the quickie passage attempt of the initial draft of bill reminded me of the Patriot Act, which was the kind of bill that didn't need a quick passage. This isn't that kind of bill. (And truth be told, I'm not sure the Treasury technically needs a bill to do what they want, but that's a different topic.)<BR/><BR/>Without the kind of cash infusion we're talking about here, virtually any business that operates on credit will be at a high risk of failure in a few weeks. And nearly all large businesses run on short term credit.<BR/><BR/>In an obvious though trivial example, Ford is taking an additional hit now because a lot of their prospective buyers can't get a loan approved, even at super high rates, because of the current credit freeze.<BR/><BR/>The nature of the modern business environment is such that without credit, it seizes. This problem has nothing to do with the stock market, it's all about liquidity and the short term debt market.<BR/><BR/>The simple truth right now is that America is going to pay a lot of money to fix this problem. Fixing it up front is going to cost significantly less than fixing it six months from now.John Das Binkyhttps://www.blogger.com/profile/04997404099815938801noreply@blogger.comtag:blogger.com,1999:blog-5044318737317983833.post-67280584635256794932008-10-03T00:24:00.000-05:002008-10-03T00:24:00.000-05:00I dig. We recovered from the dot com crash withou...I dig. We recovered from the dot com crash without anything like this. While the circumstances and widespread outcomes surrounding this are a bit different and we do need some sort of action, it disturbs me that while being reported we weren't in a recession and that the economy is strong, this plan is being worked up under our current administration behind closed doors. While I'm glad that some oversight was granted in comparison to the original plan, I'm dismayed that there wasn't more discussion on other options. We need some help sure, but after dropping over 700 points, the next day the Dow recovered close to 500 points the next day. Not exactly the "oh shit if we don't pass this right now we'll all fail at everything forever" that was being preached from capitol hill. I don't follow all the angles as closely as some, but common sense should tell people that this isn't going to crush our country in a matter of hours, and serious thought should be put into how we deal with it.Six String Scientisthttps://www.blogger.com/profile/04774970420383210579noreply@blogger.com