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View Full Version : How would you fix the broken economy?



banquo's_bumble_puppy
2009-Mar-04, 04:23 PM
Would it be possible to somehow quaranteen parts of the economy that are bad from the good parts? I know they are trying to buy up bad debt and create a bad bank to put all of this debt....but what other things could work? Russia wasn't affected during the last depression because they had no ties to the capitilist system....

also what about buy American or buy Canadian???? Maybe limiting free trade would help (this was a bad idea during the last depression).... It is funny how history repeats itself or rather it is ironic how we don't learn the lessons of history repeating itself.....the same mistakes get made...."all of this has happened before and all of this will happen again".....

nauthiz
2009-Mar-04, 04:36 PM
Russia wasn't affected during the last depression because they had no ties to the capitilist system....

Was it because they weren't capitalist, or is it because during the Cold War the world's economy was broken into two chunks, and the relative lack of trade between the Eastern and Western economic spheres helped to insulate the Soviet Union from the situation?

korjik
2009-Mar-04, 04:50 PM
'In this present crisis, government is not the solution to our problem; government is the problem.' Ronald Reagan, Jan 20, 1981.

Sorry about the political quote, but I do think that as an economic sector, it is the one that needs to be quarantined.

weatherc
2009-Mar-04, 05:21 PM
Russia wasn't affected during the last depression because they had no ties to the capitilist system....

Actually, things were just so miserable there to begin with that no one noticed if there was a depression or not.

Delvo
2009-Mar-04, 05:35 PM
Quit trying to shuffle and hide the bad debt as if that could make it just disappear. That only spreads it to parties that weren't responsible. Let what was going to fall fall. If that's home mortgages, then that means letting people with stupid mortgages lose their houses or lose lots of money on them. It's better than spreading it around so THEIR stupidity harms ALL of us.

Click Ticker
2009-Mar-04, 05:48 PM
I think the rush to "get the credit flowing again" is sending the wrong message. Seems to me, free flowing credit built a house of cards that was unstable. I'd rather us deal with a challenging economy for a couple of years that emerges on far more stable footing then to see us rush to spend loads of money we simply don't have. All that will do is prolong the inevitable.

nauthiz
2009-Mar-04, 06:23 PM
I think the rush to "get the credit flowing again" is sending the wrong message. Seems to me, free flowing credit built a house of cards that was unstable. I'd rather us deal with a challenging economy for a couple of years that emerges on far more stable footing then to see us rush to spend loads of money we simply don't have. All that will do is prolong the inevitable.

I think the bigger worry is that the credit markets are also important for more legitimate parts of the economy. Student loans are a biggie. And a lot of companies rely on commercial paper to finance their payroll*, so a poor credit market can lead to more concrete problems like layoffs. That, and high rates just aren't fun - I don't normally carry a balance on my credit card, but I'd still be grumpy if the bank decided to double my interest rate.

*Not necessarily unlike how I might use plastic pay my utility bills if the checking account's running a bit low and I don't want to dip into my savings.

Gandalf223
2009-Mar-04, 06:28 PM
I'll try not to be too overtly political here (something I find difficult with problems where politicians are involved...)

First, reregulate the banks. The Glass-Steagall Act should be reinstated for a start. Banks should be banks. The credit default swaps that seem to be at the heart of the problem were illegal from the 1930's until the 1999 banking deregulation act. Maybe there was a good reason for that.

Second, and this is something I haven't heard any of TPTB discuss (there I go) eliminate energy futures trading. Futures trading is historically a game played by the very wealthy, a form of legalized gambling where the end consumer pays for both the wins and losses. It might be worth noting, that energy futures trading only began in the late 1970's, following the infamous OPEC oil embargo, when rich speculators discovered a way to get even richer without contributing anything of value to the world.

While the underlying problems in the economy go back to subprime mortgages and credit default swaps (much of which could not have happened without deregulation,) the trigger for the 2008 meltdown was energy prices. Most people, even those who had subprime mortgages they shouldn't have had, were managing OK until speculators drove the cost of energy through the roof and beyond. When Joe Welder had to choose between paying the mortgage or paying the gasoline bill so he could keep going to work, the mortgage lost.

HenrikOlsen
2009-Mar-04, 06:34 PM
Would it be possible to somehow quaranteen parts of the economy that are bad from the good parts? I know they are trying to buy up bad debt and create a bad bank to put all of this debt....but what other things could work? Russia wasn't affected during the last depression because they had no ties to the capitilist system....
Short term, have the government ready to buy falling banks when their stock price get's below internal value, at the current rate of printing that can eat several banks a day.
Shift the bad dept to a holding cell to let rot and reassign the medium to good to a couple of new bank constructions for later sale on the market.

Foreclose on the bad dept (perhaps wait a month for the weather to be survivable on the streets), it's no longer Χmas time, if it's debt in banks and it exceeds the external value, do a swap and repeat from the start.
This eliminates a lot of the dept since it'll be internal between two fully owned entities, so that goes poof together with an equivalent drop in money supply (M2 or M3 or something like that).

Medium term reintroduce the cap on the loans to holdings ratio for banks, or at least make it so there's no federal safety net for banks operating outside the limit, i.e. they won't be bought next time.

Put the bank stock on the market again.

Even longer term, track down every lobbyists who pushed for and every politicians who voted for removing the regulations that was there to prevent this mess and sue them for damages, make accountability something other than the utter joke it is now.


Russia just wasn't heavily invested in western banks, forget capitalist/communist, their banks wasn't economically intertwined with ours and that's why they didn't have to care.
These days they are, including the Chinese banks and there's heavy debt both ways, so these days they are affected.

publius
2009-Mar-04, 07:07 PM
Short term, .........

That's pretty close to what Karl Denninger has been saying. The main thing is 1) maintain a viable commerical banking sector, which is the life blood of the economy; this would involve using all the bailout funds to create new, clean slate banks, and letting the existing ones just die. The new banks would take over the deposits of the old ones. This is just what the FDIC does when it shuts down a failed bank. 2) Show the investing public you are going to stop the "bezzle" and put the bezzlers in jail.

Here's one of Denninger's rants on the banking bezzle:

http://market-ticker.org/archives/837-The-Underlying-Fraud-In-Banking.html

The banks have been lying, investors know it, and they ain't go invest anymore until they think the fraudsters are cleaned out, and the govt is going to try to stop any more fraud from taking place.


-Richard

banquo's_bumble_puppy
2009-Mar-04, 07:28 PM
lottery tickets

peteshimmon
2009-Mar-04, 07:34 PM
Thats not funny bbp!



:(

banquo's_bumble_puppy
2009-Mar-04, 07:47 PM
not meant to be.....watch them throw EVERYTHING at this to find the one thing (or combination) that will work.....

jrkeller
2009-Mar-04, 07:50 PM
Sometimes things have to die so that some better comes along. Maybe the answer is to let the economy tank and then fix the rebounding economy.

Nicolas
2009-Mar-04, 07:54 PM
One thing that I noticed about this crisis: with all the magazines etc writing about the crisis, they create a crisis. I won't buy a new car, because of the crisis. I won't renovate my house, because of the crisis. I won't go on a holiday, because of the crisis. If everyone acts like that, you will have a crisis indeed. I don't mean to say you should spend money you can't miss or don't have, but if you have the money, spend it like you should have done last year. The cost of life and your income aren't affected that much by the crisis, and if you loose your job, you're in a situation you can't hold for long anyway. So it doesn't really matter that much if you spend money you have now, but it keeps a large part of the economy going if you do.

jfribrg
2009-Mar-04, 08:14 PM
The problem with outlawing energy futures is that we are dealing with a global economic system. If we outlaw it in New York or Chicago, then the traders will simply use London or Tokyo or Bombay or some other place. Also, there is a legitimate use for futures trading. The trick is in allowing the 5% of legitimate trades while outlawing the 95% of speculation. If only futures could be made non-negotiable. If you buy a future contract for 1 million barrels of oil, then you can't sell the contract and must take delivery of the oil. Of course this is impossible to enforce and actually eliminates the reason for the futures contract.

I was always very dubious of the insurance and banking industries messing each other up. Back in the 90's, I felt that if the insurance industry made a mess of their own industry (remember the insurance crises in the 80's?) then why should they be allowed to mess up the banking industry. On the other hand, the thrift crisis in the 80's showed that banks couldn't figure things out either. Putting them together promised to be a disaster. I didn't realize how big of a disaster it would turn out to be.

I think that we are at the point where big industries are blackmailing the economy by demanding bailouts. With the government just itching to give money away, what corporate executive wouldn't claim dire circumstances? I do feel that companies that receive bailouts should be placed on a very severe austerity program until they pay the government back. No dividends, no bonuses, no wage increases, no entertainment expenses, no hiring, no charitable contributions, no political contributions, etc, without first obtaining permission from Big Brother. That will hopefully ensure that the loans get repaid as soon as possible.

Going forward, I think one simple rule could help avoid a repeat: If a company getting so big that it cannot be allowed to fail, then the government should force it to split up. In industries where economies of scale would make splitting up difficult, then regulation of some sort is necessary.

The problem with all this is that the regulator is frequently in bed financially with the regulatee. I don't think that piling regulations on top of regulations would do anything in the long run but we see the impact of deregulating everything. Hopefully when we are through all of this, the memories will linger and we won't have anything like it in the next 50 years or so. After that, it will be my kids' headache, not mine.

mugaliens
2009-Mar-04, 08:20 PM
What makes you think the economy is broken?

When the leaves fall from the trees, does that mean the tree is broken?

When someone is sad, because they're mourning the loss of a loved one, are they broken?

When a wave recedes from the shore, is the ocean broken?

When you frown, is your face broken? Did evolution result in us having more frown muscles than smile muscles? Is evolution broken?

:)

nauthiz
2009-Mar-04, 08:37 PM
Short term, have the government ready to buy falling banks when their stock price get's below internal value, at the current rate of printing that can eat several banks a day.
I thought it was rather interesting to see that even Alan Greenspan is talking about nationalizing the banks.

RalofTyr
2009-Mar-04, 08:44 PM
The economy isn't broken, it's just over inflated.

Once the economy shifts back to a non-credit orientated economy, in which people spend with money they actually have and or can actually pay back, everything will be fine.

Once the wealthy, the people that create jobs, see that they're not going to lose their millions, then they will start hiring again.

nauthiz
2009-Mar-04, 09:26 PM
The FBI arresting somebody might be a good and inexpensive way to boost consumer confidence. Right now it seems like a lot of pessimism comes from folks perceiving (quite understandably) that, as taxpayers, they're being kept on the hook for other people's screw-ups. Seeing pictures of a banking executive or two in an orange jumpsuit on the front page of the newspaper would help to make them feel better about that.

I realize that's not a straightforward thing to do because there's no law against being a pathologically greedy @#$#%, but there are laws against lying in the process of being a pathologically greedy @#$#%. With how many people are involved and the sketchiness of the whole situation, I can't imagine it would be all that difficult to find somebody who has committed fraud. Maybe there's some paper trail indicating that somebody at Bank of America or Merrill Lynch deliberately misrepresented the fiscal health of the latter company in order to help get the acquisition approved.

Click Ticker
2009-Mar-04, 09:50 PM
....... no wage increases.....

Hey, hey, hey... Let's not talk crazy over here. I've got kids to feed and my cost of living isn't standing still for anybody. :(

I'm just a pawn in the game.

لطفيّ
2009-Mar-04, 09:58 PM
Even longer term, track down every lobbyists who pushed for and every politicians who voted for removing the regulations that was there to prevent this mess and sue them for damages, make accountability something other than the utter joke it is now.

Who will due the suing? The people who elected those politicians?

لطفيّ
2009-Mar-04, 10:04 PM
The problem with outlawing energy futures is that we are dealing with a global economic system. If we outlaw it in New York or Chicago, then the traders will simply use London or Tokyo or Bombay or some other place. Also, there is a legitimate use for futures trading. The trick is in allowing the 5% of legitimate trades while outlawing the 95% of speculation.

But if speculation is outlawed, who will the public blame for the fact that they can't buy unlimited quantities of energy at whatever arbitrary price they think it ought to be available at?

mugaliens
2009-Mar-04, 10:04 PM
The best "fixes" for the economy do not attempt to move it in any desired direction, but rather, act as moderators to slow changes and dampen pertubations. Think of them as "smoothing functions."

EricM407
2009-Mar-05, 11:44 AM
Quit trying to shuffle and hide the bad debt as if that could make it just disappear. That only spreads it to parties that weren't responsible. Let what was going to fall fall. If that's home mortgages, then that means letting people with stupid mortgages lose their houses or lose lots of money on them. It's better than spreading it around so THEIR stupidity harms ALL of us.

Thinking that 25%-50% of the houses in your neighborhood in foreclosure won't harm you is kind of short-sighted, isn't it? I think a lot of people with perfectly sound mortgages will find themselves in the stupid kind of mortgages when that happens.

Click Ticker
2009-Mar-05, 02:05 PM
Thinking that 25%-50% of the houses in your neighborhood in foreclosure won't harm you is kind of short-sighted, isn't it? I think a lot of people with perfectly sound mortgages will find themselves in the stupid kind of mortgages when that happens.

The only way it would harm people with perfectly sound mortgages is in terms of property value.

If you put at least 20% down, are locked into a fixed rate, and a have a monthly payment that's around 25% of your take home pay (or less) - you should be fine. In addition, people should have roughly 6 - 12 months expenses in an emergency fund. Provided you don't find yourself in a situation that forces you to relocate - you should be able to weather most challenges.

A fixed rate mortgage won't magically turn into a variable if your neighbors house is foreclosed on.

Delvo
2009-Mar-05, 04:23 PM
A loss of property value can be seen as a form of harm even if you remain able to make the payments, particularly if you end up trying to sell. But that's still a case of getting the consequences of your own actions, because YOU are the person who bought an overpriced house in an overpriced neighborhood in the first place, thus setting YOURself up for the decline in prices.

This is one of the reasons why I didn't buy a couple of years ago when I considered it. To try to avoid letting the obvious, simple, direct, straightforward, predictable consequences of other people's buying decisions happen to them when they bring it on themselves is to reward those buyers for their greedy irresponsibility and punish people like me who knew better and acted with responsibility and restraint.

publius
2009-Mar-05, 05:25 PM
This can be summed very curtly: America, quit thinking of your houses as "investments" and ATM machines. It is not a speculative investment, it is your shelter, a roof over your head.


-Richard

nauthiz
2009-Mar-05, 05:31 PM
A loss of property value can be seen as a form of harm even if you remain able to make the payments, particularly if you end up trying to sell.

I might be inclined to think of a loss of property value as a benefit if I didn't expect to be selling. Lower property value -> lower property taxes.

nauthiz
2009-Mar-05, 05:39 PM
This can be summed very curtly: America, quit thinking of your houses as "investments" and ATM machines. It is not a speculative investment, it is your shelter, a roof over your head.

You can think of it as an investment, but if you do you would have to consider maintenance expenses, taxes, and so forth as brokerage fees. I don't often notice sources who talk about houses as investments doing that. I suspect that if that is taken into account then houses would turn out to be an investment whose average rate of return is close to or less than zero.

I certainly have a hard time believing it's something that's likely to beat the S&P 500, or even a decent certificate of deposit.

Click Ticker
2009-Mar-05, 05:47 PM
I might be inclined to think of a loss of property value as a benefit if I didn't expect to be selling. Lower property value -> lower property taxes.

Here in Michigan, they cap the amount that your taxable value can increase in a given year by the increase in the consumer price index. This has been great in market when the CPI goes up by 3% and your value goes up by 10%. However, the gap between taxable value and assessed value got pretty significant for folks that were in their homes for ten years or so. Now, what they are facing is an increase in the CPI, and a decrease in the value of their home. Surprise! Your house is worth 10% less, but your taxes are being increased 4%!

Fortunately we haven't been in our place long enough to have a gap, but I could see being pretty annoyed. That being said, nobody was sending thank you notes to the assessor when their taxes were being kept low by the CPI rule.

Regarding the investment discussion - I recall having a discussiong on JREF within the last year where I was pretty strongly disagreed with that actually owning your home free and clear could be a pretty good idea. Wonder how that thread is doing now?

nauthiz
2009-Mar-05, 06:26 PM
Regarding the investment discussion - I recall having a discussiong on JREF within the last year where I was pretty strongly disagreed with that actually owning your home free and clear could be a pretty good idea. Wonder how that thread is doing now?

I don't think it's necessarily a bad idea. I think it's important to be realistic and take into account that a house probably won't stack up all that well if you compare it to other kinds of investment. But if you compare it to the other options for putting a roof over your head, well, renting is a large drain on your finances no matter what way you cut it.

Delvo
2009-Mar-06, 03:10 AM
if you compare it to the other options for putting a roof over your head, well, renting is a large drain on your finances no matter what way you cut it.Buying versus renting is an argument I've had at another forum a couple of years ago, too, and I wonder how that conversation would have progressed if it were to happen now instead of back then. Those who say buying is better are usually missing a few important considerations which make that rule... not exactly false, but at least highly conditional and thus frequently inapplicable:

1. House sale prices have gone up quite steeply in recent years, while rental prices have gone up considerably more slowly or not at all. So standard comparisons, which have been in place since more than a few years ago, became invalid within the last few years.

1a. With the total price increase comes a down-payment-size increase, which makes for a much more severe immediate burden (or barrier) for the buyer, right now, not off in the future. The only way out of even a fraction of the gargantuan standard down payment, other than rental, is tricky borrowing, which is just a setup for trouble and a major contributor to the current mess.

1b. The main benefit of ownership that's supposed to offset the large early expenses is the fact that you eventually finish paying and then don't pay anymore. But that benefit has not been increasing along with the above increase in costs and burden. In fact, in some ways, it's been shrinking in recent years, due to the smaller likelihood of staying in that home for that long and having enough years of life left afterward to offset the greater early expenses, and also due the radically higher property taxes (which must be kept up with forever like rent) that come with the steeply increasing house value.

2. The comparison depends on the rented property and the bought/owned property being equivalent. However, the rental properties that I and many other renters would be considering have no counterpart in the realm of buying & selling. They're significantly smaller. So that comparison can't really be made. The size difference cancels out whatever disadvantage the rental property might have when compared to an equivalent bought/owned house, because that equivalent house you'd want to compare it to just doesn't exist.

nauthiz
2009-Mar-06, 02:57 PM
The comparison depends on the rented property and the bought/owned property being equivalent. However, the rental properties that I and many other renters would be considering have no counterpart in the realm of buying & selling. They're significantly smaller.

Heh, I forget what the rest of the world is like. Here in Chicago, the equivalent purchase property is a condo. Most the condominiums in town started their life as apartments when the building was originally built, so they're not necessarily any different in terms of layout and size. But man oh man does the monthly payment end up being a lot higher. It's not uncommon for the portion of that monthly payment that you'll never see again (assessments, interest, etc.) to be more than the rent would be for that apartment which, as I mentioned above, is larger. And probably in a better location, too - it seems like most the condo developments in town are right on busy streets. And, of course, you end up having to deal with the condo association for everything, which means your plumbing is never going to get fixed because the people who live upstairs "don't see what the big deal is" - that is, they don't want to pay for it, and unlike a landlord they're under no legal obligation to help make sure there's no raw sewage backing up into your house.

Houses do exist, but, of course, one that would simply be considered minimally adequate for a family of four by the rest of the world's standards finds its price pushed up into the "If you have to ask, you can't afford it." range.

Gruesome
2009-Mar-06, 02:59 PM
'In this present crisis, government is not the solution to our problem; government is the problem.' Ronald Reagan, Jan 20, 1981.


I think a John Connor quote sums it up just as well...."Skynet is the virus!!!"

mike alexander
2009-Mar-06, 03:35 PM
Eh. I have a house because I enjoy the ability to take a sledge and knock out a wall to reshape things a bit if I feel like it. Never thought of one as an investment.