#8 Eggplant #10 Brock
I am not an economist, beyond two semesters of Macro and Micro, and I do not play one on TV. I admit though that my BS detectors have been going off continuously on this subject for quite a while.
When we had a previous banking crisis, we developed a temporary agency, the Resolution Trust Corp., that took over bad debts and banks and sorted them out.
It strikes me that instead of repeatedly throwing unlimited sums of money at financial institutions with no accountability, and not changing the rules that got them into trouble; we could do something similar.
The government is responsible for the mortgages it insured. First, change the rules so that future loans are issued on a sound basis, and balance sheets make sense. Second, if the homeowner defaults, the house belongs to the government. Some leeway to enable to homeowner a chance to get caught up or refinance on a sound basis may be allowed, but if it does not work, the house belongs to the government who will sell it at the best price it can get. Third, of course, the bank gets paid according to the Federal insurance. This has got to be cheaper in the long run. Yes, as the insurer, the Feds will take it in the shorts, which means we will take it in the shorts; but we will be taking a lot less in the shorts this way.
Within a few years, just as with the RTC, the government will be out of the direct real estate business, and housing prices will reflect a supply and demand market.
This, of course, would work; but it would mean that the government would have to live up to its responsibilities, and some homeowners who should not have bought houses are going to lose them. For that reason, the Democrats will not allow it.
If the mortgages are being paid off, I would assume that the sub-prime derivatives that dragged down the financial houses would regain some value, and in conjunction with the payments on the mortgages being made; some stability will return to the financial markets.
As far as the Auto companies are concerned; the equity value of GM is less than Bed, Bath, and Beyond. It would be cheaper to buy the whole company and re-sell it after reorganization similar to bankruptcy. That, of course, means that UAW workers would not be as overpaid as they are now, and would have to have work rules that made some sense. Since the bailouts are campaign payoffs, it won’t happen, but it strikes me that it makes sense. In a world where unemployment is becoming the norm, it is better to have a job at $30 an hour than be laid off at $78 an hour.
Now I am sure that I have spouted something in here that makes no sense in the world of high finance; and if so I would welcome an explanation of where I went wrong. But it strikes me that first, the main obstacle to fixing our economy, at least back to the point where Senator Schumer started runs on banks, is political. Certain “special” groups are being benefited at the expense of the commons, and it is an opportunity for Washington in general and Hussein Pasha in particular to expand their intrusion and control over our lives. Second, even if my outline is wrong, so is the “print and spend” program to recreate and maintain the bubble that got us into this.
Note please the reset point I noted for the fix. We had other problems before that in addition to what we have now, that were being ignored too. What we are doing now just makes them worse too.
Subotai Bahadur
