Would government mandated principal reductions on underwater home loans bring us out of this Lesser Depression?
- Yes! Housing debt is the problem. (53%, 92 Votes)
- No. Unemployment must be solved first. (47%, 81 Votes)
Total Voters: 173
Housing debt is the root cause of this continued Lesser Depression, according to Harvard economist Kenneth Rogoff. Thus, solving the seemingly intractable issue of widespread housing debt among American consumers will be of paramount importance to getting the economy back on track.
Traditionally, economists serving on the Federal Reserve (the Fed) Board of Governors keep their noses out of governing policy and stick to their monetary manipulations. However, initiated by the Fed Chairman himself at the annual conference in Jackson Hole this August, economists everywhere are diverging from their typical speak-no-evil approach to government fiscal policy. [For more information on the Jackson Hole Federal Reserve conference, see the August 2011 first tuesday article, The Fed points the finger.]
Since Jackson Hole, representatives of the Fed have openly voiced their fears that monetary policy may be reaching its limits of effectiveness and the only option left for stabilizing the economy is for Congress to take action on the fiscal front. And what is to be done? Allow underwater homeowners “to earn accelerated principal reduction over time,” according to the president of the influential New York Fed.
first tuesday take: Agreed and agreed. Monetary policy has driven interest rates to the zero lower bound and consumer spending remains stalled, a phenomenon some refer to as a period of secular stagnation. Money cannot get cheaper, and yet creditworthy buyers do not seem much interested in borrowing or investing.
The Fed has eased and twisted interest rates, kept inflation near or just above target and has now rightly resorted to brow beating the law-makers into taking action. [For more on the Fed’s recent monetary policy interventions, see the October 2011 first tuesday article, The Fed’s retro “twist” seeks modern dancing partners.]
What has been suggested by the Fed (and by first tuesday for years) is neither stimulus nor austerity. It is, quite simply, a debt jubilee. It is no great mystery that monetary policy no longer carries the weight it used to and it is clear why: the Fed can make money essentially free, but consumers have no access since it is presently channeled through a banking system that requires creditworthiness on behalf of the consumer.
The average consumer is no longer creditworthy. He has either defaulted on his debts or his debt-to-income ratio is cripplingly high (we now have a culture of debtors with no jobs). Thus, easy money rots like lettuce on the lenders’ shelf, preserved only by the zero interest rates of today. [For more information regarding cramdowns, see the November 2011 first tuesday article, Surprise: Frannie says no thank you to cramdowns.]
As this economy currently operates, it contains too many structural contradictions to work itself out of this Lesser Depression. In order for the economy to recover, consumers must start spending. Consumers cannot spend on a sufficient scale for recovery unless they have access to credit. Consumers cannot get credit because they have too much debt. The prevailing contradiction: where debt is the bane of the economy, credit is the cure?
Of course, this opens a whole can of worms that we will leave up to those at Occupy Wall Street (OWS) to figure out. For now, let’s cram down principal loan balances across the board on underwater homes to at least 94% of their currently appraised value and reset the payments. That will greatly help get this consumer economy going again.
re: “Time to accelerate the housing recovery” from the New York Times
To those who say pay your bills….how much longer do you want to pay the bills for the banks. You realize with each foreclosure the taxpayer pays the bank thru the FDIC for any losses…….so why not give home owners the reductions to their loans so the homeowner will begin to pay their own bills. Otherwise we the taxpayer will continue to pay the banks who will hoard the money and continue to foreclosure because there is no incentive to work with the homeowner when the taxpayers have an open wallet. Reducing the homeowners debt will not only get them paying again but it will also keep neighbors from further value loss.
President Obama: I am just a out of work Person, But I have and Idea to help you with the unemployment, have fannie and Freddie with HUD. Throw their agents, Have the Banks or lenders Take the foreclosures the ones that need repair, make them liveable, meet the same specs that HUD or FHA would require to insure a loan on the property, and if there are ones that are beyond repair clear the lot so you have a good building Lot ready for Permits, A permit ready lot is wreath more. Instead of having Values dropping, have the Value in the area of the other home hurting and the people that own them. Repair the homes using only contractors that have A gross in contracts is less than 300,000.00 a year. Limit them to five homes a year, wreath repairing or removal, Have the bank give Contractor a Low interest rate construction loan.
I don’t know what the Numbers is, but if there is 2M divided by 5 = 400,000 contractors, If each of them Hire 5 employees = 2M Laborers Carpenters, painters, Plumbers, electricians and more
We need to get the little people going, not the rich and middle and large Companies. Getting these people back to work will help the rich get richer.
Yes some of them are not wreath fixing or repairing those are the one that go to the court house steps.
Then give them to realtors that have 3 or less employees and less than 4 Lic. agents to list and sell the properties Some Properties may need to be rented till Investors can be found to perches these properties, so Property Manage will be need, for the Bank or Agencies and stop letting the banks and agencies slide these properties to friend. Banks are to do banking and Lending NOT Real Estate. You have Government agencies that Pasted a Law that requires all loan and Mortgage agents that fill out a 1003 Form App for a loan to test, to Qualify for a lic. And pass security Review for NMLS governing agencies, in addition to the State Exam and pay each of them Lic. Fees’ and bonding to get a Lic. Then only a large Realtor get the listings or the banks sell them this is not spreading the wealth.
There is probable a lot more to it but this would help 2M people with out using much tax money if any. Infrastructure is great, but it’s a small spectrum of the work force and on average they are large Contractor the get the work because of Insurance and Bid and Performance are like 6 to 8% for they small contractor and maybe around 3% for a large one.
These are thing that may need some adjustment but I think would help you and America NOW
Hear are a few more
And the UP TIC rule should be put back in.
And import Tax should be put on all import till our export are equal to the imports for all countries, till are imports are Equal to are exports. This will help build our manufacturing and put quality and jobs and better pay back to America and Pride and quick selling America down the drain for the cheep quick buck, lets get self-sufficient yes I shop at wal-mart, home depo, Lowes because they are cheep and but the quality is cheep and I’m ashamed but I have been out of work for 3yr and a tank of diesel cost 105.00 to look for work and I look for work every week and I thank you for our country’s help with unemployment, with out it I would be I the street but I’m 63 I have been a Mech, Mech, millwright, plumber, Ironworker, contractor, Real Estate Agent, a loan officer, a Cowboy, a Rancher, a father, day trader, but my savings are about gone.
I will stop now before you think I’m a NUT I just want to help Thank you T G
Life happens people. It’s time for all you whinners, and that incluces First Tuesday, to get off your entitlement lifestyles. YOU… the homeowner borrowed the money. If you got a stated income loan then you the homeowner LIED about your income to get the loan. And now you cry babies want the rest of us to pay for your stupidity and your cramdown! BS! You borrowed the money. No one put a gun to your head and forced you to take the loan or by more house than you could afford. And many of your whinners purchase your home with NO $ Down, and then refinanced and took the equity out as your home went up in value.
The lenders need to start enforcing the defeciency judgement clauses and force you loosers to pay for the money the lender lost on you when they had to sell you house on a short sale.
If you had borrowed the money for your house from your parents or grand parents would you screw them out of the money you owe them?! Sadly I believe the answer is YES you would.
It’s time for all of you to GROW UP, Take Responsibility for your actions, get a set of Morals and Ethics, and ………..
BE FAIR, cram down the mortgage by spliting into 2 loans 1st we pay market value payment at 3%
2nd part is put in 2nd position Zero interest and payment for 30 years.
With all the funny money fed printed inflation will all the 2nd to be paid off/
Banks lose nothing…….
Takes debt off the homeowners back. otherwise expect RE slide for 10 more years.
HAPPY HOLIDAYS HAPPY SELLING,,,,,
OWS? please let’s agree that they have little real effect on anything…yet, at least. they have not communicated a coherent core ideology. i love a good protest but they are VERY FEW PEOPLE who have not found a voice. they are the unemployable kooks with nose rings, face tattoos, dreadlocks and every other marker of a person who is self absorbed and with a sense of self entitlement. they have a hard life ahead as they learn that it is important to be useful as a member of society.
with so many people NOT making a house payment…the real problem arises when they get the boot from their current residence and they are required to make a housing payment as rent to a landlord. i have run across MANY folks who have made no payments for 6-30 months and the retards have not saved the money they need even for a deposit on a rental. forcing the banks to take a haircut will not change the attitude of obliviousness held by many.
i have no hope for the republic
Even credit-worthy customers with high income-producing properties are being turned down for money-out refinance at institutions with which they have decades of flawless credit history. Lenders are terrified to lend money, preferring the safety of U.S. Treasuries. Classic risk avoidance.
Cram-downs contribute to the deleveraging panic that is driving down the price of real estate. The only way out of this liquidity trap is for the government, through its agencies or through its credit union system, to lend money directly to the small businesses and income property owners who have good credit and can’t borrow from the risk-averse banks. This will create jobs.
The government can also directly create jobs by funding sorely needed major public works projects across the country.
Print the money for these job-creating initiatives and you will see the economy bounce back amidst rampant inflation of money supply that will quickly return real estate prices to their 2006 levels.
How in the world can we get the Banks to keep their “wolf pack” lobbyists from fighting against “cramdowns” without you and I (taxpayers) allowing the government to use our tax money to pay the bank the amount they took as “cramdowns”?