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The point isn't just blame. The question is why aren't the usual recessionary measures not working this time?
In 2001, the government did the same thing. People got stimulus tax refund checks, the Fed slashed interest rates, flooded the system with cash, etc. and the economy recovered fairly quickly.
This time, the Fed cash isn't doing anything because the banks aren't turning around and lending it out like they used to. Why? Because with these record numbers of defaults they're terrified that they won't be paid back. And who can blame them?
Even if you have premium credit, chances you're paying much higher interest rates because they can't trust anyone to pay them back.
Maybe it's because the government is bailing out the wrong people?
Household debt needs to be reduced or eliminated... only way really out of this cycle of pumping more into banks.
By pumping money into banks... the central banks are essentially thinning out household incomes while debt remains the same (people are paying more (increased rates) for the same debt service). Eventually, if they really want to stabilize the world economy... they'll have to address the problem. The household mortgage debt is artificially high. There really wasn't that much value in the first place.
The costs to address this debt should fall on the banks/firms (by selling their assets, or giving up ownership). They grew off of false expansion in the first place. The tax payers shouldn't be the primary source of funding.
the government was part of the problem on both ends. they demanded that almost anybody be eligible for the american dream whether they were qualified or not. that little plan snowballed into everybody becoming a homeowner and then tapping into their home equity and pulling out half of its nonexistent value. now the government has enraged taxpayers by demanding that taxpayers fix a situation that they broke, and pay inflated unrealistic prices to do it!
the government was part of the problem on both ends. they demanded that almost anybody be eligible for the american dream whether they were qualified or not. that little plan snowballed into everybody becoming a homeowner and then tapping into their home equity and pulling out half of its nonexistent value. now the government has enraged taxpayers by demanding that taxpayers fix a situation that they broke, and pay inflated unrealistic prices to do it!
Hello floridasandy,
People are getting rich off this. This is not broken but working as designed.
maybe it's because the government is bailing out the wrong people?
Household debt needs to be reduced or eliminated... Only way really out of this cycle of pumping more into banks.
By pumping money into banks... The central banks are essentially thinning out household incomes while debt remains the same (people are paying more (increased rates) for the same debt service). Eventually, if they really want to stabilize the world economy... They'll have to address the problem. The household mortgage debt is artificially high. There really wasn't that much value in the first place.
The costs to address this debt should fall on the banks/firms (by selling their assets, or giving up ownership). They grew off of false expansion in the first place. The tax payers shouldn't be the primary source of funding.
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Quote:
Originally Posted by Stephan_K
People have ALWAYS been trying to keep up with the Joneses. Banks used to have some pretty tough lending practices. It was the banks that decided to loosen up and give the people what they ALWAYS wanted. And that will never change. People will always be trying to get as much as they can with what they got, it's those that give it to them under false pretenses that made this bad situation, not the people wanting it.
I'm not buying that for one minute. To not point a finger at the "poor homeowner" is turning your back to a big part of the problem. I have no sympathy for those who bit off more than they could chew. And 9 times out of 10, they KNEW they couldn't afford it.
I agree with people "wanting." Hell, I want a yacht, but I can't afford one. Does that mean if the bank would lend me money to buy one, that I should?
Our friend Larry White at Division of Labor puts it succinctly:
On greed, let me repeat: If unusually many airplanes crash during a given week, do you blame gravity? No. Greed, like gravity, is a constant. It can’t explain why the number of crashes is higher than usual. And let me add: This isn’t a morality play. What we’re seeing are the consequences of monetary-policy distortions of interest rates and regulatory distortions of incentives, amplified in some degree by private imprudence, not the consequences of blackheartedness.
And what all of this points out is that laying the finger of blame on "the free market" is utterly in error, but it's an error that's going to get made continually over the months and years to come. If there's one thing those of us on this side of the battle of ideas can do as this all unfolds, it's to do whatever we can to remind people that the interventionist economy that caused the problems and led to privatized profits and socialized losses (and the "solutions" that will further socialize losses) are NOT "the free market." Asking why anyone would think bigger government will solve these problems when it was the major cause is another public service we can provide.
I'm not buying that for one minute. To not point a finger at the "poor homeowner" is turning your back to a big part of the problem. I have no sympathy for those who bit off more than they could chew. And 9 times out of 10, they KNEW they couldn't afford it.
I agree with people "wanting." Hell, I want a yacht, but I can't afford one. Does that mean if the bank would lend me money to buy one, that I should?
I guess you put it better than I did... I'm not saying the homeowner is not at fault. Ya most all of them knowingly bit off more than they could chew. The banks allowed it to happen though whereas years prior they didn't. If banks are going to give money away the way they were, what did they expect was going to happen eventually... Now they want to cry for help. Bull**** !
I'm sure if you take anybody out there and tell them that they can have this new toy they always wanted but couldn't afford and show them how they can have it with a "small" change to their current monthly payments, 9 out of 10 would jump on it. The banking system preyed upon normal people and their dreams of wanting... while manipulating everything.
And yes I agree that all these people SHOULD HAVE KNOWN THEIR LIMITS. There is no excuse for not knowing them... And I too don't feel sorry for them either.
This economy isn't going to turn until the banks start loosening up with the cash that the Fed is giving them. The problem is: you've got a vicious cycle.
Joe Blow overborrowed using his house as a cash register ... Joe Blow walks away from the house along with millions of other Americans.
The Fed gives the banks tons of cash to help but the banks are afraid to lend it out because they aren't getting paid back as it is.
Joe Blow's employer can't borrow money to expand or, even, meet payroll ... much less do anything else. Consequently Joe Blow loses his job.
We've had tightening cycles before but nothing quite like this ... at least since the great depression. It's basically a nightmare.
This economy isn't going to turn until the banks start loosening up with the cash that the Fed is giving them. The problem is: you've got a vicious cycle.
Joe Blow overborrowed using his house as a cash register ... Joe Blow walks away from the house along with millions of other Americans.
The Fed gives the banks tons of cash to help but the banks are afraid to lend it out because they aren't getting paid back as it is.
Joe Blow's employer can't borrow money to expand or, even, meet payroll ... much less do anything else. Consequently Joe Blow loses his job.
We've had tightening cycles before but nothing quite like this ... at least since the great depression. It's basically a nightmare.
The banks aren't just holding the cash "given" to them by the government/central banks... they're using it to shore up their balance sheets and to keep solvency.
For every dollar that defaults from home owners... the banks are liable for up to 10 more dollars to cover it (fractional reserve system - and money multiplier - 1/.1 or 10% reserve requirement). Hence why their "credit" is so tight. FEAR of loaning out money is a minor problem as all they do have to do is increase the interest rate spreads on loans. The problem is that they don't have any money to lend since they have to maintain solvency. Each default costs them 10X the amount in liabilities.
Credit is destroyed just as fast as it is created in the fractional reserve system.
Therefore, like I said, the quickest and most effective way to solve the default problem is to target households. If households are able to reduce their debt load in line with "market" value... the likelihood of default would be greatly reduced.
As long as the central banks and Fed can't figure this out, they'll have to continue pumping tax dollars into these banks. Hopefully, eventually, I'm pretty sure the Federal governments and central banks would figure this out.
-chuck22b
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