Women and Children First
Today is the Labor Day holiday in the USA, so to honor the more vulnerable parts of our society and economy I’m engaging in this fantasy rethinking of our current economic crisis. If only……
When the “unsinkable” ship Titanic hit an iceberg and sank on its maiden voyage in 1911, as any teenage girl will tell you, the rich people got nearly all the lifeboats (except for John Jacob Astor IV who ordered another drink, giving up his seat), dooming the lower-class passengers including, of course, poor Leonardo DiCaprio. Much the same thing seems to be happening in the case of the current economic crisis, where the people who are hurting the most seem to be getting the least. I’m beginning to believe the crisis could have been fixed quicker and cheaper simply by helping the women and children instead of the bankers.
This began as a mortgage crisis. Lenders dropped their standards on loans, giving them to people who shouldn’t have qualified (yes, they applied for those loans so are also culpable), driving housing prices up in a bubble that eventually popped and here we are with eight percent of all mortgaged houses in foreclosure and home prices down 30-40 percent from two years ago. The technique our government used to deal with this was to prop-up the bankers, not the borrowers.
Why?
That’s a question I have been asking all over and the smart money answer generally comes down to: 1) that’s the way the system is set-up; 2) that’s the way we’ve always done it, and; 3) it would be too complex to deal with individuals — better to deal, instead, with a few dozen banks.
Why?
The system was widely perverted to deal with the current crisis; it wasn’t “business as usual” at all. Companies that weren’t (and still aren’t) bank holding companies were declared to be so and got money from the Fed and Treasury as a result. Same for insurance companies and brokerage firms and car companies that remained as they were but got money still from the Congress or through sleight-of-hand by Fed chairman Bernanke.
Doing things “the way we’ve always done it” is what got us into this mess.
And the miracle of information technology makes it just as easy to send money to people as it is to take it from them in the form of taxes. Saying that a bank has to be in the middle makes no sense at all. PayPal would gladly assume that function, if it is truly needed.
I’m beginning to realize we could have taken a completely different approach to the problem and simply treated the symptom, inserting what computer jocks call a “wait state” into the mortgage system so panic could subside, rational adjustments could be made, and life could be eased back to normal.
Remember that economies are cyclical and a lot of good financial planning is simply having enough reserves to survive until things get better. That could have been our major economic tactic in dealing with the crisis in 2008. Instead of pumping $700 billion to $1.3 trillion (nobody knows the real number) into economic stimulus and bail-outs, the U.S. government could have simply paid everyone’s mortgage — EVERYONE’S — for six months.
There are 51 million mortgages in America and the average mortgage payment in 2006 was $1686, so paying everyone’s mortgage for six months would have cost $516 billion — hundreds of billions less than the Bush/Paulson/Obama/Geithner/Bernanke plan, and quicker, too.
The money that people would otherwise have used to make their mortgage payments could have gone in part for other things, making it effectively a huge economic stimulus in its own right. With mortgages paid in full there would have been no foreclosures OR bank failures during that six month period. Yes, there would still have been problems with the banking system that needed correction, but there would have been six months to do the correcting.
Lehman Brothers would still be in business, Bear Stearns, too. Merrill Lynch would be independent. AIG would not have failed. Even Bernie Madoff would probably still be in business — at least for awhile.
So why didn’t we do it that way? Because it would have been putting women and children first.
I need a drink.
You realy are losing it these days.
I’m inclined to agree.This argument fails utterly to account for the fact that housing values were completely artificial, and would collapse again as soon as the individual mortgage payments collapsed.
Bob should stick more with technology.
Forgot netiquette.
Housing prices would fall as soon soon as the government mortgage payments stopped.
That’s what I meant to say.
Bob previously proposed a re-evaluation of home values and mortgages. I assume this new proposal is complimentary.
The bailout sure didn’t help me. To make my mortgage payments, I had to use a line of credit, money from family for which I am extremely grateful and put some other expenses on credit cards. I agree that a better bailout would have been to help those that are strugling to pay their mortages. Not sure if it should include silly mortages that shouldn exists in the first place though.
Perhaps it is time to borrow some progressive ideas from another transformational figure – Ceasar of the Julii – who of course eventually learned the fatal lesson that a good deed never goes unpunished.
Caesar [in 45 BCE when his Dictactorship had been extended by 10 years] enacted at great speed a number of important and well-judged reforms. To many people’s surprise he acted evenhandedly and favored neither radical nor conservative causes, making decisions on the merits of a case. His first priority concerned the social problems of Rome and Italy. An exact census of the city’s population was conducted; the free distribution of corn (Rome’s equivalent of social security or unemployment payments) was limited; many of the urban proleteriat were settled in citizen “colonies” overseas; special privileges were given to the fathers of large families in an attempt to increase the birth rate and so eventually replace the heavy casualties of war. In order to discourage the replacement of jobs for citizens by slave labor in the countryside, at least one third of the of the cattlemen on Italy’s large ranches had to be freeborn.
Anthony Everitt, Cicero, pp.236-237
Pay everyone’s mortgage for six months? Maybe that would have stopped the economic crisis. Or maybe after six months and half a trillion dollars, we would have an economic crisis with mortgage delinquencies, bank failures and AIG going belly up.
Seems to me that the real estate market in this country would still be out of whack and there had to be some blood letting for it to straighten itself out. Thank god I didn’t have that variable rate home equity line maxed out. Those that did, probably need a lesson to not borrow every penny creditors are willing to grant. And wet behind the ears Wall Street analysts needed a first hand lesson in business cycles and their capacity to prove their short sighted statistical models wrong.
yushio: I can’t help it but question your historical sources… I can’t imagine Caesar limiting the distribution of corn, as it wasn’t available in Europe until after 1492.
“Corn” is a term from antiquity for grain, or food. Our modern word cornucopia, “plenty of food,” shows its this pre-Columbian use.
sorry – lose either the final “its” or “this.” Maybe I’m better at Latin than English.
In Europe ‘Corn’ means wheat not maize (sweetcorn)
In Europe “corn” is locally understood to denote the leading crop of a region; usually wheat in England, oats in Scotland and Ireland, while korn means “rye” in parts of Germany. In Iceland “morgunkorn” (morning-corn) is the generic term for breakfast cereal, be it made from wheat, oats, rice or maize.
Actually the “corn” in cornucopia refers to the root word for “horn” as in “unicorn” or “horn of plenty”, which is another name for cornucopia. Perhaps “corn” is used to refer to grain and ears of corn because they are vague horn-shaped.
Corn means “small piece of food” so corned beef is beef that’s cut into small pieces processed and pressed back together. Maize became corn because the kernels are small pieces that are removed from the cob.
Sorry, but you are flat wrong about corned beef. It is not a cutup repressed processed product. Corned Beef is made from the brisket. For corned beef the “corn” refers to the kernel sized pieces of salt used to preserve the meet. In this case “corned” refered to a specific process of preserving meat by salt curing.
Correct me if I’m wrong, wasn’t the bailout a *loan* that’s to be paid back? While what you’re suggesting an outright giveaway?
There’s a big difference between loaning a trillion and giving it away…
From my perspective as a non-homeowner, I would have been livid. The federal government already massively subsidizes homeowners and home lenders through the mortgage interest tax credit. The notion that I would have to pay to support any more of that idiocy than necessary would have offended me.
I was willing to pay to solve the systemic problem, which was the risk of cascading bank failure. But I was and am entirely unwilling to pay to support all the yutzes who were buying, selling, building, and funding over-inflated real estate.
Mortgage interest isn’t a tax credit. It’s a deduction. Big difference.
I understand where you’re coming from but I feel it would have done no good. America is specialized in ‘consuming’. The people would have eaten through they free money in a few days. The people and government need to learn to stop spending other people’s money. Unfortunately now they’ll learn the hard way. Besides the ‘Next Big Thing From Your Wallstreet Buddies’ is just around the corner: check jsmineset All you have to do is die… http://jsmineset.com/2009/09/06/what-next-wall-st-wants-to-securitize-death/
the critical point I was making is the replenishing of the depleted reserves of the working class – those that are responsible for the creation of true – as opposed to paper – wealth, is absolutely critical to long term economic, social and cultural recovery. That is the seminal concept underlying Bob’s excellent prescription.
Thus it is hard to disagree with Bob that oiling the economic wheels by helping those in greatest need – and, as Keynes noted, with a high marginal propensity to spend and consume – is a wise policy decision.
I don’t live in the US – and I have not had a mortgage or any personal debt for the last 15 years – it is part of the genetic code of Italians probably since Caesar.
As for Roman diets it is easy to find commentary as follows:
For the majority of persons dining in Ancient Rome, meals were centered around corn (grain), oil and wine, and, for the wealthy, different types of exotic foods. Cereals were the staple food, originally in the form of husked wheat (far) being made into porridge (puls), but later naked wheat (frumentum) was made into bread. Bread was the single most often eaten food in Ancient Rome, and was sometimes sweetened with honey or cheese and eaten along with sausage, domestic fowl, game, eggs, cheese, fish, or shellfish.
http://library.thinkquest.org/26602/diet.htm
Unfortunately what you describe would have only put off the inevitable for six months and then everything that did happen would have happened anyway. If you don’t want the bust then don’t have the boom, once the powers that be decided to ignore asset bubbles the die was cast. I think instead you should probably ask why the US doesn’t have a greater safety net for those unemployed.
According to Wikipedia you’re wrong about the Titanic, women and children mostly did better than the men:
“Of a total of 2,223 people aboard the Titanic only 706 survived the disaster and 1,517 perished.[44] The majority of deaths were caused by hypothermia in the 28 °F (−2 °C) water.[45] Men and members of the lower classes were less likely to survive. Of male passengers in second class, 92 percent perished. Third class passengers fared very badly.
6 of the 7 children in first class and all of the children in second class survived, whereas only 34 percent were saved in third class. 4 first class women died and 86 percent women survived in second class and less than half survived in third class. Overall, only 20 percent of the men survived, compared to nearly 75 percent of the women. First-class men were four times as likely to survive as second-class men, and twice as likely to survive as third class men.[46]”
As already said before, the bailouts were loans, and some banks are already repaying them with interest.
The stimulus plan was not a loan, but the point was to stimulate the economy with government spending (much of it for socially beneficial projects like infrastructure upkeep) at a time when everyone was hoarding money out of fear. Putting that money into mortgages wouldn’t work unless the beneficiaries decided to spend their windfalls, which they wouldn’t unless they didn’t need them in the first place..
Horrible idea. As others state it would just delay the inevitable. True it would buy time, but without some other mechanism to let the steam out of the bubble putting it off for 6 months would just piss away a half a trillion bucks with little to show for it.
Anything thing that props up or distorts market forces subverts the efficiency and productivity of our economy. That’s true whether it’s banks, borrowers or badly run car companies.
@Bob:
Remember that economies are cyclical and a lot of good financial planning is simply having enough reserves to survive until things get better.
This is the same error made by the folks (starting with Paulson, et al) who have attempted the fix. What none will say: the mess was caused by the structural change in income distribution started by Reagan, and perpetuated by the Bushes, and even a bit (but less so, sort of) by Clinton.
This is NOT a cyclical problem. The Right Wingnuts have permanently made 99% of Americans poorer than they were before Reagan. That is a fact. What propped up the economy, and allowed the Right Wingnuts to pull off the scam (“don’t vote for the Socialists, they’ll make your slut daughter have an abortion”), was the equity inflation. That was done by Greenspan (who sank interest rates) and the Wall Street types who “innovated” toxic mortgages.
Between the off-shoring of high skill jobs, the cratering of housing, the destruction of manufacturing, and the death of health care; where is the engine to pull the economy to an “up cycle”? There isn’t one. If you look at where job growth is: health care (which the Right Winguts are working to curtail, “we can’t afford to keep Grandma alive – but it’s Obama’s fault”), state and local government. Jobs being created are low skill, low pay. Deflation is occurring. Real unemployment is at least 15%.
Where is the engine to pull the economy to an up cycle? Until you can answer that question, with more than Right Wingnut platitudes, the economy tanks. Well, we could draft all them Good Ole God Fearing Christian Boys and send them over to the Middle East on another Crusade. That’s not a joke. It has been established that the Christian Right has infiltrated the armed forces. Serve them right.
Written by a true left-wing nut.
Prove me wrong. Real facts, not Palinisms. Fair enough?
Referring to a ‘Palinisms’ proves ronc’s point without him even responding… work on that
So true. Reality has a well known liberal bias.
Bob – the banks got loans and you suggest it would have been better use of the money to have given it to all mortgage holders as a non-repayable gift??? As it currently stands, some banks big and small have actually paid the TARP money back with interest. I am not suggesting that we are going to get it all back, but I am making the point that it was a loan and we have and will get somewhere between some and most of it back (closer to some than most, I assume).
A severely upside-down mortgage or a mortgage with the adjustable rate having made the loan unpayable by the consumer wouldn’t have much benefit from 6 free monthly payments. It would still tank and just put off the inevitable.
This would have worked.
Sure, it’s liberal… but I’m a liberal, and I work too. We’re on time with our mortgage, but paying it for us for six months would have caused us to plow $10,000 back into the economy.
Our mortgage is $1,000 a month. Our $6,000 in “free” payments would have gone directly into savings and investments. We don’ t need to spend any more money. I’m not enough of an economist to know f this plan would have worked better, but it certainly would have had the effect of spreading the wealth a lot more than what really happened.
Bankers and other financial “experts” in general have recently shown an incredible lack of long-term planning, and possibly a lack of knowledge in addition to succumbing to unbridled avarice. There are exceptions, of course, to my rather general proclamation. But throwing more money at them should not have been the solution. We already know they’re not capable of doing anything but wasting it.
That is the problem with corporations, no one is held personally accountable, so no one personally cares about pushing people into bankruptcy, every ceo only cares about making another buck for the company. I’d love to see every ceo being held somewhat personally accountable so when the company gets a $100 million fine (He’d probably still get his bonus if he made say $300 million profit to balance it out), the ceo would go to jail for say 3 months. Or perhaps jail is a bit harsh, but at least community service or something that really personally affects him.
And yet corporations argue that they have a right of free speech? If a corporation is a “legal person” that has a right of free speech, I would also expect that they would be subject to a death penalty (liquidation by a bankruptcy court, assets to the creditors and the government) or jail (prohibited from operating for x amount of time or all operating profits for a period absorbed by the government) in the event that employees or officers of the corporation committed a capital crime in the interests of the corporation. And any loophole for plausible deniability should be closed, so no excuses for “rogue employees”. Individual criminals frequently get jailed essentially for being stupid, so corporations should be subject to similar penalties.
And don’t feed me sob stories about all the jobs that could be lost. Corporations that behave themselves will not suffer these penalties. Shareholders will be much more motivated to scrutinize the behavior of corporate officers and boards for risky actions (which is a desirable outcome in itself), and otherwise successful corporations that get shut down will be replaced in the market.
The board of a corporation is liable for the corporations actions. And board members and officers have gone to jail and paid fines.
Great idea Bob!
Your drink’s on me.
John R.
Minor correction: Titanic sank in 1912.
But what about moral hazard?
One of the biggest objections to this kind of scheme has always been that you reward those who took out large mortgages, the larger and more irresponsible the greater the reward, and the virtuous citizens who only bought houses within their means well.. they get to pay for it all.
Of course with TARP etc. the moreal hazard has just been moved from real people to corporations…
> Of course with TARP etc. the moreal hazard has just been moved from real
> people to corporations…
No, as a taxpayer who didn’t need bailing out, the more real hazard has stayed with me, where it always was.
With TARP the *reward* was moved from real people to corporations, not the hazard.
In economics speak “moral hazard” means the “reward”. But I take your point.
Umm, actually economists use it (and cos I’m feeling lazy I’ll lift this from Wikipedia) it’s the concept that people insulated from risk will behave differently to how they would otherwise. Why this came to be termed (confusingly I think) “moral hazard” I have no idea.
So If you think the government will bail you out if you can’t afford your mortgage then you’ll probably take out a huge one. That’s moral hazard. If you think the only dowside to taking huge risky trading position on behalf of your investment bank employer, is that you’ll have to find another job where as the up side is a 40% share of millions of dollars of profit, then again that’s moral hazard. Unfortunately getting through the GFC, keeping the economy ticking over without introducing moral hazard somwewhere seems well nigh impossible.
Women and Children don’t contribute nearly enough to election campaigns.
Poor people are the richest ones. At the end they pay for everything.
Hope you already heard this saying Bob.
Nothing can save this country from next year’s real economic crash. Another bad Christmas and millions more out of work early next year will really put a strain on the tax base. Then the government can promise to spend more money that it doesn’t have paying back IOU’s to campaign promises that the dependent poor voters have come to expect and setting more campaign hopes to the said same poor/unemployed voter base. Eventually China will wash its hands of the mess and just take a write down instead of hoping to float the market to keep value in its current bond investment. More banks will finally come clear with their CDS…blah blah, you can’t pay for anyone’s anything when your financial problems are systemic. This economic mess will either domino into a plea to a world governmental body (aka the UN) to save national sovereignties (like states are currently doing to the federal government), or gradually (if not quickly) lead to the dissolution of the United States into smaller nations, as the fall of Rome led to the formation of the various independent sovereigns throughout Eurasia.
Anyway…I’m a renter. Does your calculation include non-mortgage holders? The poor renters wouldn’t stand for irresponisble mortgage holders getting a free ride while they get the shaft…
Nevertheless Bob, I do like the way you think. Thanks for throwing your idea out there. Like buying everyone a Prius instead of the war to sink Middle East oil. That was an interesting idea too.
Josh
Bob, this administration cares not all for the middle class other than as a source of votes. Clearly, the president on down believes that reinflating the speculation bubble was the most important thing. And they’ve succeeded: The financial institutions, thanks to government handouts, is back speculating but not lending significantly. And they make themselves appear profitable by simply ignoring all the toxic debt on their books.
Of course, lending will stay punk because this is a consumer economy. The homeowners — a big part of the consumer spending — took a huge hit with the collapse of the housing bubble and then tightening of credit and nothing has been done about it, even simple things like making it easy to compel the mortgagors to accept refinancings ad reschedulings of mortgages. Clearly, they prefer foreclosures and empty houses than receiving lower monthly payments.
But help from this administration to the middle class? Fugedaboutit. Like Obamacare: We’ll be compelled to purchase health insurance so the carriers can have more premiums and more opportunities to deny coverage.
We vote or don’t vote, and the pols don’t terribly care and either way we lose. Just like a banana republic….
Hope Krugman comments on your plan. Seems like it couldn’t work – too simple.
But, it’s worthy of a few words on his blog, nevertheless.
What about the auto companies?
The banks didn’t have to change their habits – but GM and Chrysler had to go through bankruptcy with big brother. I’m not sure what that cost – $100 billion? And we will NEVER get paid back!
Using your same argument (and I agree with you) and applying it to the auto companies, why didn’t we just BUY ALL THE CARS? IOW the government could have purchased GM and Chrysler’s entire production for a year. Number 1 – it would have kept jobs. Number 2 – we would have gotten SOMETHING for our money!
A factory can build 100,000 cars a year and with an average cost of $20k, that means $2 billion. I’m sure Uncle Sam would have gotten a good volume discount . . .
The government could have insisted that GM and Chrysler go through the same changes as they did – but they would have had income (cash flow) to allow them to do it. This would have been better than the “Cash for Clunkers” that sent oodles of cash to Japan . . . With GM and Chrysler out of the market for a year, the other auto companies would have had ALL of the (meager) sales to help THEM out.
What to do with all of those vehicles? How about making them part of our foreign aid program? Hey Iraq, do you want 100,000 Dodge pickups – or NOTHING? I’m sure they would be happy to get them. It also cuts down on corruption – today a government official can divert millions to his Swiss bank account. With all those vehicles, he could of course appropriate some. After having one in every color and every friend and family member get one, how much did he “take” in corruption? Well, 100,000 vehicles = $2 billion (+ shipping) and he probably could lay his hands on a thousand. That’s much less than he could have put in his bank account . . .
Maybe it would be easier to get soldiers to stay and be loyal if they got a vehicle. In Afghanistan we could get more trainees – if they would be receiving vehicles. I hope you see my point here.
I like the idea, and it’s not class warfare. Wall $treet sits at the top of the financial food chain, and would get theirs, but by funneling the money through mortgage payments first, it would have a beneficial effect for the homeowners and everyone between there and Wall $treet. Not only are the wingers a long time out of Sunday/Sabbath school, but a long time away from economics 101.
Bob, your moral compass is even more skewed than your technology perspective.
How is it moral to base the size of a handout on the size of the outstanding mortgage? What about the millions who have paid off their mortgage or who deliberately reduced the size of their loan? What bailout do they get? Is not Bob agreeing that the more irresponsible or risky the borrower the more of a bailout she receives? How is that any less perverse than bailing out risky and irresponsible lenders like CitiGroup?
And how is it moral to keep someone in a house he or she cannot afford? When someone takes property without paying for it we call that theft. How is it not theft to allow someone to take ownership of a house without paying for it?
I’m with Dan. Bob has gone off the deep end. Is there nothing in the world of technology to talk about anymore? I used to enjoy your predictions about where Apple, MSFT, Google, etc. were headed. Now we read about your liberal ideas that are so out of touch with reality and most of America. You lost me at, “Lenders dropped their standards on loans…” Not true. The Feds forced banks to make loans at lower credit standards so everyone could own a home. Barney Frank is guilty. Bankers are bankers for a reason. They know when to lend money and when to say no. Drop the standards and now you’re treading on thin ice. Sure enough, the ice broke and here we are. Did you miss that, Bob?
I think you need a refresher course in Austrian Economics if you want to espouse on money and banking.
We want the old Bob back!
>> The Feds forced banks to make loans at lower credit standards so everyone could own a home.
Prove that. Cite specific regulations, publication date in the Federal Register. Sounds like the canard about CRA. CRA didn’t cause the crisis. The bad loans came, overwhelmingly, from mortgage companies (check the NY Times archive, or this: http://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm) which have never been subject to CRA. Which, by the way, has been on the books since the 1977 and went just fine without issue.
There’s only one answer: let house prices go down. Why is that such a hard idea to accept? There are millions of Americans who don’t have houses because they can’t afford them. These are people who have acted responsibly, not borrowing money they couldn’t afford to pay back. For th emost part, they’re poorer than most people who do have houses. Now is the time when their hard work and financial responsibility should be paying off in the form of lower house prices. Why is everyone so dead-set on punishing people who don’t have houses?
Why do we hate poor people?
Alas, a voice of sanity! Why should the government do anything? Spending/creating more money they don’t have does nothing but assure that over the long term the value of the dollar will be going down. How does this help anyone?
Why is that such a hard idea to accept? Because Bob bought too much house, and all of his financial writings are geared toward what would help him. He’s deep underwater despite living in Charlotte, and that fact informs/distorts all his thoughts on the subject.
I admit I had the exact same question you did. Your solution is certainly more easily argued from a moral perspective than the bank bailout. The way the whole thing stinks, maybe having a drink is the best and only rational response.
Cheers!
Bob,
How about something even simpler. Cut all taxes to 0 for six months to a year. This includes income, FICA, Medicaid, cap gains and corporate. This helps out everyone and allows individuals to decide what to do with their money: save, pay down debt or spend.
The biggest issue with this is congress. It will be very hard to return tax rates to their current levels after this break.
WRONG: this does bupkiss for those without a job. But all the million-a-year types will sure appreciate the extra $150K they will have to plow into further investments in off shoring!
Not that I particularly like Bob’s idea either: I foolishly bought a crappy house 11 years ago, which has since been paid off. I would like to have moved into a better second house in the early 2000s, but I did not want to bid against idiots getting 0 down, 0% ARMs.
I’m not sure if this makes me libertarian or liberal, and I don’t much care. That’s just my take on the crazy loans.
I real stimulus program would be simple: hire people for temporary government jobs until the economy improves. No “welfare” for either corporations or the poor, just some work. Good old useful grunt work: nothing glamorous, just stuff that needs to be done. And since we don’t export all that much, relative to our imports, how about a little trade war? (free trade isn’t free)
Pretty much the sentiment we all saw, looking at States from outside.
Bob. When was the last time any Federal government did something right? For the largest number of people? Seriously. Do an article on that.
@ Dan Marois
Well said. But Bob won’t be able to write an article on that because it has never happened. SS is bankrupt. Medicare/Medicaid is bankrupt. FDIC is about to go under. Fannie Mae/Freddie Mac are massive failures. USPS is losing billions with a union that will not allow them to reduce staff or fail. The list goes on.
Government does nothing right because they have no *incentive* to do anything efficiently. There exist only have two things they need to provide: protect the citizenry (military/militia) and uphold the law (judiciary). Everything else should be up to the States.
Minor historical nit: The Titanic sank in 1912, not 1911. Somewhat apropos to your topic, it sank on what is now tax day, April 15.
What’s the best way to convert some of my USDs into gold… not to take possession but to buy some and have it safely and honestly held in my name? I am SKEERED my fiat is an increasingly worthless IOU. We should convert G.W’s. image to B. O’s…… Not that my fiat would be rescued, but at least the latest fink would be pictured on it. Perhaps a pensive or concerned look, instead of an ivroy toothed smirk.
I realize you will probably never read this, but I felt compelled to write anyway. I’m a longtime reader and fan, but your recent posts on economic issues have been so misguided I just can’t read it anymore. So this is kind of goodbye.
In particular, this suggestion is absurd. The fundamental issue that caused this crisis is that housing was significantly overpriced. The only resolution to that is for prices to come back to rational levels. Paying mortgages for 6 months doesn’t solve the fundamental problem and, as many people have already written, would have only delayed the inevitable with more money wasted. Having read you for so long I know that you’re intelligent and insightful, and it stuns me that you’d think your solution solves anything.
What bothers me most though is that you equate mortgage holders to the women and children. They’re not. I’m a longtime renter who has been unable to (responsibly) buy a house. There are many of us, who did nothing irresponsible to contribute to the crisis and yet have been affected by the effects of the downturn. If you really want to help the “women and children”, and as long as you’re discussing solutions that wouldn’t really address the problem, think about us, the ones on the bottom who don’t even have houses and did nothing wrong, not the mortgage holders who were either wealthy enough to afford a house or irresponsible enough to get a house they couldn’t afford. Your solution is just another level of elitism and that you wrap it up in caring for the bottom makes me ill. Enough to say goodbye.
What you suggest would have only encouraged further bad behavior from the Banks. Not sustainable. The right thing to do is sue them for irresponsible practice that was no better than loan sharking (in reverse). Check out this video of how local towns are starting to take the correct action for women and children. http://www.pbs.org/now/shows/506/index.html
newsflash: the 1 in 4 children who live in poverty don’t have mortgages, bob. way to innovate.
I like your idea Bob. It is simple, quick and effective .
You will thankfully never make it as a bureaucrat — you think outside the box.
krp
To all those who laughed at how crazy Bob’s weird idea was, I have news. It’s a really good idea. In fact, it’s not just a good idea, it worked.
Something very, very similar was implemented in Australia. It wasn’t a case of paying everyone’s mortgage, but if you filed a tax return in 2008 and didn’t earn more than AUD100,000, then you received a stimulus payment of around AUD900 earlier this year to help pay down debt. (Or do whatever else you wanted to do with it.)
This works out substantially less expensive than what Bob was suggesting.
And it worked fine, and was plenty enough to make the difference. Australia is now officially the only developed economy which avoided any kind of recession. We’re now talking about lifting interest rates again in the near future.
As a remote relative of the man who was at the wheel when the Titanic hit the iceberg (you could look it up, as Casey said) I like the analogy. The cause of the disaster was misplaced greed, or a variant thereof — the director of the White Star Line (who was onboard and survived, damn him!) wanted his glittering new liner to set a transatlantic speed record, so he directed the captain to proceed at full speed, at night, through waters known to be full of drifting icebergs. The captain supinely yielded to the man who paid his salary even though he (the captain) was indisputably in charge by the law of the sea, and responsible for everyone’s safety.
There were, as Bob notes, some radically simpler and cheaper ways to prop up the economy (albeit fraught with administrative complexity). The course chosen was traditional, after a fashion, and some of the bailout money is already being returned to the Fed, with interest. As in past bailouts, the government will most likely make a little money off the deal. Overall, I’m glad to see Keynes back in the saddle.
You still don’t get it Bob. It isn’t rich people first because it’s always been that way, and nobody has any imagination. It’s that way because rich people run the country and make the rules. Politicians don’t make the rules. They are just the front men.
Downunder,
What you describe is exactly what the Bush administration did in early 2008. Stimulus checks of up to $1600 (AUD1800) were mailed to American families. Obviously this stimulus did nothing to forestall the mortgage meltdown. The reason being is so many American “homeowners” are so far underwater on their loans it would take a 6-figure stimulus check to rescue them.
There is no morality in keeping people in homes they cannot afford. Not only does doing so waste money (and pad the pockets of reckless lenders) but it keeps home prices artificially high and thus harm the financially prudent and less wealthy.
Remember that economies are cyclical and a lot of good financial planning is simply having enough reserves to survive until things get better.
This is so powerfully true. Unfortunately, it will get lost in the comment bickering. This sentence would make a great byline for all your future articles.
So what about Mobile Homes? I’ve bought 2, both of them outright. I’ve never had a mortgage payment.
Would your 6 months of mortgage payments be extended to lot rent payments for mobile home owners or would you screw 1/4 of the population of Florida (assuming that most of the 1/3 of Floridians who live in trailers have paid them off) and significant segments of other states.
Or would you just say the people who live in trailer parks don’t need a tax break.
The devil’s always in the details.
You honestly think that would have fixed things, Bob?
I’m as much a populist as anybody, and hate that the bailout had to happen. But I do think what it prevented was real, and that without it, we’d be in an even bigger mess. Paying everyone’s mortgage would ultimately only have delayed the effects–not solved them. I’m certainly not arguing that we’ve solved them now, of course. THe game needs to be changed fundamentally. But paying everyone’s mortgage would not have gotten us there.
You know that would have been to expensive. The best answer is give every one over 50 years old a millions dollars with the follow requirements.
1 Pay off your house. ( if you do not have one, buy one)
2 Buy a Chevy, Ford or Dodge
3 Retire
This would be great and would have only cost less than billion dollars. Ah, I believe current solutions must start in the trillions. This is to cheap and would have worked.
Bob
There are only 1,000 people over 50 in the US? ( $1 million * 1,000 = $1 billion). There are millions of people over 50 in the US, which means this idea would have cost trillions.
Bob, I love to read your columns, but in this case your logic is Pythonesque. You may as well have said, “If she weighs as much as a duck, she’s made out of wood, and therefore, a witch.”
H.L. Mencken said there is always a well-known solution to every human problem — neat, plausible, and wrong. So… were you just having fun to provoke a lot of reaction, or were you serious? Your readers are the ones who need a drink.
Why did the administration not do this or one of the hundreds of similar suggestions made at the time? Because, to quote our current White House Chief of Staff: “Rule one: Never allow a crisis to go to waste. They are opportunities to do big things.”
Whether you think that is good or despicable I suppose depends on your own agenda and political leanings.
This isn’t unlike the suggestion made by one Republican congressman that the federal government might have paid all payroll taxes for 3-6 months using borrowed billions. This would have effectively stimulated the economy by putting extra funds in the hands of taxpayers.
Of course, this suggestion was barely considered, for two obvious reasons. First, it would have put control of how the funds were spent on the people, not the government, Second, it would have favored the “rich” who actually pay taxes.
While I like your suggestion — if it had happened, I know what I would have done with the extra funds in my hands. I would have paid off more debts. Anyone who knows anything about macroeconomics would understand that paying off debts is inherently destabilizing, since it shrinks the money supply. Probably a wash though, since one thing that was threatening the banks and other financial institutions was the fact that they didn’t have surplus funds to weather the crisis. Paying off debts would help them, a bit, in that regard.
I miss the good old days when Bob used to discuss technology.
Me too. But it’s much harder. Technology deals with facts. It also provokes less response since few can argue with the facts.
and of course, less “hits” to your web site and less click revenue..
If you agree with the figure that 60+% of business in America are small businesses, why didn’t they get any stimulus money? After all, they make up the majority of the businesses in the country, employing the most people, but their gifts of Congressional largess have been pretty much non-existent.
My theory is that our Senators and Representatives don’t *know* any small businessmen.
It’s not a question of not knowing any small businesspersons; it’s a question of not receiving any large campaign contributions (bribes).
Bribe me a river… and I’ll be a giver… Oh Yaaah…