I wouldn't count on mortgage bailouts, people


?

.

Too Big to be Bailed Out

By Peter Schiff
Sep 7 2007

Now that home mortgage defaults are spreading like wildfire from coast to
coast, there is a growing sense of certainty that the government will
attempt to bail out homeowners and lenders. The ideas put forward last week
by President Bush may be the camel's nose pushing under the bottom of the
tent. However, just as some things are too big to fail, this problem is far
too big to fix.

First of all, one has to consider the moral hazards inherent in any bailout.
Immediate relief in the form of debt reductions and more favorable loan
terms will create a powerful incentive to default. Why would anyone stretch
to make a burdensome mortgage payment while others are being rewarded for
failing to make theirs?

Even without the incentives of a government bailout luring more people into
default, policy makers simply have no idea as to the scope of the problem.
Before this home mortgage correction runs its course, nearly every homeowner
in the country who had availed themselves of an adjustable rate mortgage or
a home equity loan will be in need of a bailout. Even a sizable percentage
of those with traditional fixed rate mortgages will find themselves in
danger. With millions, or perhaps tens of millions, of home owners on the
rocks, there is simply no way the government can structure a bailout without
bankrupting the country or destroying the currency.

Bailout or not, the economy will still be in a prolonged and severe
recession. Even if Federal aid prevents millions of foreclosures from
happening, all of the home equity accumulated during the bubble years will
be gone. Debt reduction and restructuring will not stop home prices from
falling, and will not make homes easier to sell. After all, those looking to
buy homes will no longer have access to the easy credit that made bubble
prices possible in the first place. Home prices are a function of what
future buyers can afford - not what past buyers paid. If new buyers are
required to make 20% down payments, fully document their income, and fully
amortize a fixed rate mortgage, they will not be able to pay nearly as much
as what current owners paid during the bubble.

On the low end, any comprehensive government bailout would easily surpass
the $1 trillion mark. Where will the Federal government get the money,
particularly during a severe recession? My guess is raising taxes will be
out of the question. If people are having trouble making their mortgage
payments now, significant tax increases will only make it that much more
difficult. Borrowing the money also seems like a difficult task, as our
minimal domestic savings means we will have to do so from abroad. Given that
the budget deficit will likely be exploding as a result of the recession,
foreigners are not likely to foot the bill. If they do, it will require
significantly higher interest rates, which will only compound the mortgage
rate problems for current and potential homebuyers.

Unfortunately, the only realistic way to "pay" for such a massive bailout
would be for the Fed to monetize it. If that were to happen, the value of
the dollar would plunge, and consumer prices would go through the roof. Now
that the dollar Index has finally broken below the key 80 support level, an
event that I have been forecasting would eventually occur for years, a run
on the greenback may already be in motion. Ultimately, long-term interest
rates will soar as a result, and we will experience unprecedented
stagflation and a substantial decline in our collective standard of living.
This week's surge in the price of gold, which traded above $700 per ounce
for the first time since May of 2006, reveals that some investors are
finally beginning to figure this out.

Ironically, in a recession induced by the burst housing bubble, housing
itself will not be among our most pressing problems. One of the few
"benefits" of the housing bubble is that we now have a lot of houses, many
of them vacant. Therefore, few former American mortgage holders will go
homeless. However, the real problems for Americans, whether they own or
rent their homes, will be maintenance costs (heating oil, electricity, etc.)
and keeping their kitchens stocked with food. One thing is for sure:
homeowners will certainly not be buying new furniture for their living
rooms, big screen TV's for their media rooms, granite counter tops for their
kitchens, or new cars for their garages.

The costs associated with the housing bubble will be huge. However, the
price tag for a government bailout designed to prevent it from deflating
will be much higher. Even those who get "bailed out" will ultimately be in
worse shape as a result. Let's hope that cooler heads prevail and that the
rest of the camel never makes it into the tent. However, just in case they
don't, make sure to get rid of any remaining dollar denominated assets
before it's too late.


http://www.kitco.com/ind/Schiff/sep072007.html
 
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V

Video61

Too Big to be Bailed Out

By Peter Schiff
Sep 7 2007

Now that home mortgage defaults are spreading like wildfire from coast to
coast, there is a growing sense of certainty that the government will
attempt to bail out homeowners and lenders. The ideas put forward last week
by President Bush may be the camel's nose pushing under the bottom of the
tent. However, just as some things are too big to fail, this problem is far
too big to fix.

First of all, one has to consider the moral hazards inherent in any bailout.
Immediate relief in the form of debt reductions and more favorable loan
terms will create a powerful incentive to default. Why would anyone stretch
to make a burdensome mortgage payment while others are being rewarded for
failing to make theirs?

Even without the incentives of a government bailout luring more people into
default, policy makers simply have no idea as to the scope of the problem.
Before this home mortgage correction runs its course, nearly every homeowner
in the country who had availed themselves of an adjustable rate mortgage or
a home equity loan will be in need of a bailout. Even a sizable percentage
of those with traditional fixed rate mortgages will find themselves in
danger. With millions, or perhaps tens of millions, of home owners on the
rocks, there is simply no way the government can structure a bailout without
bankrupting the country or destroying the currency.

Bailout or not, the economy will still be in a prolonged and severe
recession. Even if Federal aid prevents millions of foreclosures from
happening, all of the home equity accumulated during the bubble years will
be gone. Debt reduction and restructuring will not stop home prices from
falling, and will not make homes easier to sell. After all, those looking to
buy homes will no longer have access to the easy credit that made bubble
prices possible in the first place. Home prices are a function of what
future buyers can afford - not what past buyers paid. If new buyers are
required to make 20% down payments, fully document their income, and fully
amortize a fixed rate mortgage, they will not be able to pay nearly as much
as what current owners paid during the bubble.

On the low end, any comprehensive government bailout would easily surpass
the $1 trillion mark. Where will the Federal government get the money,
particularly during a severe recession? My guess is raising taxes will be
out of the question. If people are having trouble making their mortgage
payments now, significant tax increases will only make it that much more
difficult. Borrowing the money also seems like a difficult task, as our
minimal domestic savings means we will have to do so from abroad. Given that
the budget deficit will likely be exploding as a result of the recession,
foreigners are not likely to foot the bill. If they do, it will require
significantly higher interest rates, which will only compound the mortgage
rate problems for current and potential homebuyers.

Unfortunately, the only realistic way to "pay" for such a massive bailout
would be for the Fed to monetize it. If that were to happen, the value of
the dollar would plunge, and consumer prices would go through the roof. Now
that the dollar Index has finally broken below the key 80 support level, an
event that I have been forecasting would eventually occur for years, a run
on the greenback may already be in motion. Ultimately, long-term interest
rates will soar as a result, and we will experience unprecedented
stagflation and a substantial decline in our collective standard of living.
This week's surge in the price of gold, which traded above $700 per ounce
for the first time since May of 2006, reveals that some investors are
finally beginning to figure this out.

Ironically, in a recession induced by the burst housing bubble, housing
itself will not be among our most pressing problems. One of the few
"benefits" of the housing bubble is that we now have a lot of houses, many
of them vacant. Therefore, few former American mortgage holders will go
homeless. However, the real problems for Americans, whether they own or
rent their homes, will be maintenance costs (heating oil, electricity, etc.)
and keeping their kitchens stocked with food. One thing is for sure:
homeowners will certainly not be buying new furniture for their living
rooms, big screen TV's for their media rooms, granite counter tops for their
kitchens, or new cars for their garages.

The costs associated with the housing bubble will be huge. However, the
price tag for a government bailout designed to prevent it from deflating
will be much higher. Even those who get "bailed out" will ultimately be in
worse shape as a result. Let's hope that cooler heads prevail and that the
rest of the camel never makes it into the tent. However, just in case they
don't, make sure to get rid of any remaining dollar denominated assets
before it's too late.

http://www.kitco.com/ind/Schiff/sep072007.html
good article, with lots of truth's. however he touched on something
that he says we should not do. he himself just contradicted himself
with the lots of empty homes, so homelessness should not increase.
we need a clever maneuver that will protect the little guys to some
degree, but leave the perps simmering in their own stew.
it need not be a bailout per say that rewards stupidity, and as
razorface says, no slap in the face to the people who were smart
enough to stay out of this, but a way to keep as many working as
possible, and in some sort of residence so that they can pay their
bills, and build up some equity.
fdr pulled in talent from all over america to solve problems like
this. its called leadership. something that lacks in conservative
economics which is to busy raping and pillaging.
 
E

Econotron

. said:
So, should we count on a bail-out, or not? The author seems to imply that
the most likely solution is devaluing the currency, which is also can be
considered a bail-out. Not surprisingly he's also got something to sell.
Although nothing can be counted out, I do not believe that devaluing
solution is feasible, and the recent dip in USD has served an ample warning
not to try. Of course, the currency devaluation, which is a theft, has been
happening for years, but gradually. For it to have any effect on the current
foreclosures crisis, it must be sudden and significant, which will cause a
financial calamity of unprecedented proportions. Bernanke will probably
lower interest rate one or two times to let his Wall Street buddies time to
get out, and that will be it. He will not be able to pull the trick of his
predecessor Greenscum, who had far greater leeway with gold below $300. So,
what is the answer? The only solution I can see is the extension of debt to
50, 75, or even 100 years. I have predicted 50-year mortgages some time ago,
and it's already happening. Such extension will put a proper perspective on
the ridiculous present notion of "ownership", home or otherwise, but it is
about time to dismantle the "American Dream" anyway. It may also turn around
mass psyche towards the greater financial responsibility, personal and
government, increase savings, and channel the economy into more productive
endeavors. The new "American Dream" will become a freedom from debt.
I believe that the country is for some rough times, with the worst still
several years ahead, and will need a strong leadership. Fortunately we have
a man (or may be more than one), who can understand the challenge and rise
to it. I won't tell who he is, since this post is not a political
endorsement (the only thing I can reveal is that they are all men), but hope
that people will make the right choice.
e.
 
?

.

Econotron said:
The only solution I can see is the extension of debt to 50, 75, or even
100 years.
I remember when new car loans were 36 months. Now USED car dealers are
offering 96 months. Hell, by the time you make the last payment, the car's
long since become worthless.
I have predicted 50-year mortgages some time ago, and it's already
happening.
I hear in Japan "multi-generational" mortgages of 90 years are the norm.
The new "American Dream" will become a freedom from debt.
I wonder how long it'll be before we'll be able to click on a YouTube link
and watch a bill collector being worked over with an axe handle.
 
M

MF

Econotron said:
. said:
So, should we count on a bail-out, or not? The author seems to imply that
the most likely solution is devaluing the currency, which is also can be
considered a bail-out. Not surprisingly he's also got something to sell.
Although nothing can be counted out, I do not believe that devaluing
solution is feasible, and the recent dip in USD has served an ample
warning not to try. Of course, the currency devaluation, which is a theft,
has been happening for years, but gradually. For it to have any effect on
the current foreclosures crisis, it must be sudden and significant, which
will cause a financial calamity of unprecedented proportions. Bernanke
will probably lower interest rate one or two times to let his Wall Street
buddies time to get out, and that will be it. He will not be able to pull
the trick of his predecessor Greenscum, who had far greater leeway with
gold below $300. So, what is the answer? The only solution I can see is
the extension of debt to 50, 75, or even 100 years. I have predicted
50-year mortgages some time ago, and it's already happening. Such
extension will put a proper perspective on the ridiculous present notion
of "ownership", home or otherwise, but it is about time to dismantle the
"American Dream" anyway. It may also turn around mass psyche towards the
greater financial responsibility, personal and government, increase
savings, and channel the economy into more productive endeavors. The new
"American Dream" will become a freedom from debt.
I believe that the country is for some rough times, with the worst still
several years ahead, and will need a strong leadership. Fortunately we
have a man (or may be more than one), who can understand the challenge and
rise to it. I won't tell who he is, since this post is not a political
endorsement (the only thing I can reveal is that they are all men), but
hope that people will make the right choice.
e.
Saw a famous (but forget who) money guy on Charlie Rose's show right after
Bernanke was appointed. He said, "He was brought in to preside over the
orderly decline of the dollar." I remember that, it's word for word. And
the dollar is down about 21% against the Canadian dollar over the last few
years. That's a pretty big drop. What they think they are doing is beyond
me, but I think the net effect will be the rough times you mentioned. That
will come in a hurry for the people who lose their houses before anything is
done - if anything significant for those people is in fact done.

Mike
 
V

Video61

. said:
Too Big to be Bailed Out
So, should we count on a bail-out, or not? The author seems to imply that
the most likely solution is devaluing the currency, which is also can be
considered a bail-out. Not surprisingly he's also got something to sell.
Although nothing can be counted out, I do not believe that devaluing
solution is feasible, and the recent dip in USD has served an ample
warning not to try. Of course, the currency devaluation, which is a theft,
has been happening for years, but gradually. For it to have any effect on
the current foreclosures crisis, it must be sudden and significant, which
will cause a financial calamity of unprecedented proportions. Bernanke
will probably lower interest rate one or two times to let his Wall Street
buddies time to get out, and that will be it. He will not be able to pull
the trick of his predecessor Greenscum, who had far greater leeway with
gold below $300. So, what is the answer? The only solution I can see is
the extension of debt to 50, 75, or even 100 years. I have predicted
50-year mortgages some time ago, and it's already happening. Such
extension will put a proper perspective on the ridiculous present notion
of "ownership", home or otherwise, but it is about time to dismantle the
"American Dream" anyway. It may also turn around mass psyche towards the
greater financial responsibility, personal and government, increase
savings, and channel the economy into more productive endeavors. The new
"American Dream" will become a freedom from debt.
I believe that the country is for some rough times, with the worst still
several years ahead, and will need a strong leadership. Fortunately we
have a man (or may be more than one), who can understand the challenge and
rise to it. I won't tell who he is, since this post is not a political
endorsement (the only thing I can reveal is that they are all men), but
hope that people will make the right choice.
e.
Saw a famous (but forget who) money guy on Charlie Rose's show right after
Bernanke was appointed. He said, "He was brought in to preside over the
orderly decline of the dollar." I remember that, it's word for word. And
the dollar is down about 21% against the Canadian dollar over the last few
years. That's a pretty big drop. What they think they are doing is beyond
me, but I think the net effect will be the rough times you mentioned. That
will come in a hurry for the people who lose their houses before anything is
done - if anything significant for those people is in fact done.

Mike
yes, this thing could spiral out of control pretty quick. lowing
interest rates will just bail out the perps(the wealthy)and leave the
dollar in even a more precarious position than its in right now.
nothing will probably get done with the leave it alone crowd(unless
its them, then out comes the checkbook like in 1987, 1998, and 2001),
we little guys must be rugged individuals, pull ourselves up by our
bootstraps, be self responsible, and self reliant.
the people that got us into this mess give out that fine advise,
whilst begging for a bailout.
 
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?

.

MF said:
Saw a famous (but forget who) money guy on Charlie Rose's show right after
Bernanke was appointed. He said, "He was brought in to preside over the
orderly decline of the dollar." I remember that, it's word for word.
And the dollar is down about 21% against the Canadian dollar over the last
few years. That's a pretty big drop. What they think they are doing is
beyond me, but I think the net effect will be the rough times you
mentioned. That will come in a hurry for the people who lose their
houses before anything is done - if anything significant for those people
is in fact done.

Mike
My advice: DON'T BUY A HOUSE


40 YEARS OF DEBT

Garry Marr, Financial Post
Published: Saturday, September 08, 2007

Do not pay until 2047. It has a nice ring to it for Canadians seduced into
home ownership but unable to afford the price tag that comes with buying
property. No money for a down payment? Little cash to make monthly payments?
No worries. The Canadian real estate industry has come up with the perfect
product -- the 40-year amortization.

Instead of planning to pay off their mortgage in 25 years, Canadians are now
turning to products that give them at least an extra decade to pay their
debt -- subject to massive interest payments over the course of a loan.

Benjamin Tal, a senior economist with CIBC World Markets, says the change in
the way Canadians pay off their mortgage is the most significant innovation
to hit the industry in almost three decades.

Mortgages with 40-year amortizations are shaking up the market. Some say
they are the only way to afford today's home prices. Ron Cirotto, of
www.amortization.com, calls that "bullshit." "There are a lot of people
buying a house who shouldn't be buying the house they're buying."

"This has happened in just the past 16 months," says Mr. Tal, who doesn't
believe the changes are necessarily bad for consumers or the housing sector.

In addition to lengthening the amortization period, the Canadian market has
also been recently introduced to interest-only loans and zero-equity
mortgages. Consumers can effectively borrow 103% of the value of their home
because borrowers tack the cost of mortgage insurance on to the total loan
value.

Mr. Tal, who is the process of compiling a report on how the new products
have changed the market, says interest-only and zero-equity loans are
probably less than 1% of new business. It's the long-term amortization that
has caught everybody's fancy.

What he finds amazing about the shift towards paying off your mortgage way
ahead in the future is that it has occurred almost overnight, even though
this is not the first time banks have tried to attract consumers with longer
amortization periods.

"They were available in the early '80s and nobody was interested. The
attitude toward debt is totally different now," says Mr. Tal, who adds his
study will show a "significant" amount of new money is geared toward that
2047 mortgage-burning party.

Those extra 15 years of mortgage debt will cost Canadians. The Canadian Real
Estate Association says the average sale price of a home was $311,495 in
July. If you bought that house with 0% down and a 25-year amortization, the
total interest would end up being $277,993 over 25 years, based on monthly
payments and an interest rate of 5.85%, a typical discounted rate today.
Extend the amortization period 40 years under the same terms and you end up
paying $488,116 in interest --more than the price of the house.

Paying that much interest is just throwing money away, says Ron Cirotto, who
runs the Web site www.amortization.com. He has spent years trying to
convince Canadians to pay down their mortgages and can't wrap his mind
around the new amortizations.

He laughs at the suggestion the 40-year amortization is giving Canadians
more flexibility when it comes to making lower monthly payments. "I'm not
sure you can call it an advantage to pay interest for another 15 years,"
says Mr. Cirotto. "To me it's bullshit. The best way to save money is not to
have any mortgage."

He has an answer for the people who say the only way they can buy a house is
with a 40-year amortization: Don't buy a house! "There a lot of people
buying a house who shouldn't be buying the house they're buying. They need
to buy a smaller house. People turn down their nose at smaller houses. They
need to lower their expectations."

Much of what is happening in Canada has been lender-driven, agree many in
the industry. The preferential loans terms are a by-product of increased
competition from mortgage insurers and financial institutions.

In Canada, anybody with less than a 20% down payment on a home (the federal
government reduced the requirement from 25% earlier this year) must get
mortgage insurance if they are borrowing from a financial institution
covered under the Bank Act. For years, the billion-dollar mortgage insurance
market has been controlled by Crown corporation Canada Mortgage and Housing
Corp. and Genworth Financial Canada, but this year the federal government
allowed AIG United Guaranty Mortgage Insurance Company Canada to enter the
market. Two other companies have applications to join the field.

Brian Bell, vice-president of corporate development with AIG, says there is
little doubt his company's move into the marketplace shook things up. "We
hadn't seen a lot of product innovation in a long time. This [past year] was
a point of time where there was a lot of opportunity to bring new products
to the marketplace," says Mr. Bell, who estimates half of the new mortgages
his company insures have amortizations of 35 or 40 years.

He says in today's market, where housing prices are up 10.6% in the first
seven months of the year compared with 2006, consumers have little choice
but to stretch out their mortgages. "The 40-year amortization is the only
way to get people qualified."

He doesn't believe the new loan terms will mean Canadians buying now can
expect to be finally paid off in 2047. "The average Canadian pays very
quickly," says Mr. Bell. He notes most Canadians pay a mortgage with a
25-year amortization in 12 to 14 years by increasing their payments once
their incomes rise. He figures the mortgage with a 40-year amortization will
probably be paid off in 20 years.

While people in "tight spots" are using the new products, Don Lawby, chief
executive of Century 21 Canada, says the Canadian market bears no
resemblance to the United States and its subprime scenario.

For instance, says Mr. Lawby, who also owns a mortgage company, few
consumers have loans with balloon payments. These types of mortgages require
almost no payments over the first couple of years, but a one-time balloon
payment later on.

For people taking that type of mortgage, the hope is that prices will rise
and they will cash out on their home -- and pay down any debt -- before any
balloon payment is due. Instead, housing prices in the U.S. are falling and
consumers unable to make the huge interest payments are defaulting on their
loans. Because those loans were so risky to begin with, they were only sold
in the U.S. subprime market, which has since imploded.

That's significantly different than the products available in Canada," says
Mr. Lawby. He adds even zero-equity loans with 40-year amortizations are
hard to come by.

Yet, the biggest difference between the two markets is that Canadian
borrowers usually plan to live in the home they buy. It's not just an
investment property.

"We've never seen, in my 33 years in this industry, what's taking place in
the U.S. I've never seen lending practices like they've had the past three
years. Much of it was second and third investment property," says Mr. Lawby.
"We've lent money to people with 5% down, but we've been doing that since
the 1970s. We've gone through periods where house prices dropped in 1989 to
1993. There were foreclosures but it wasn't dramatic."



MORTGAGES BY THE NUMBERS

$311,495

The average sale price of a home in July, according to the Canadian Real
Estate Association.

$277,993

The interest on a $311,495 house with 0% down and a 25-year amortization,
based on an interest rate of 5.85%.

$488,116

Extend the amortization period 40 years under the same terms and the
interest paid is more than the price of the house.



http://www.canada.com/nationalpost/financialpost/story.html?id=fb6de935-a2a0-4486-acb7-2b30e9067121
 
T

The Trucker

Too Big to be Bailed Out

By Peter Schiff
Sep 7 2007

Now that home mortgage defaults are spreading like wildfire from coast to
coast, there is a growing sense of certainty that the government will
attempt to bail out homeowners and lenders. The ideas put forward last week
by President Bush may be the camel's nose pushing under the bottom of the
tent. However, just as some things are too big to fail, this problem is far
too big to fix.

First of all, one has to consider the moral hazards inherent in any bailout.
Immediate relief in the form of debt reductions and more favorable loan
terms will create a powerful incentive to default. Why would anyone stretch
to make a burdensome mortgage payment while others are being rewarded for
failing to make theirs?

Even without the incentives of a government bailout luring more people into
default, policy makers simply have no idea as to the scope of the problem.
Before this home mortgage correction runs its course, nearly every homeowner
in the country who had availed themselves of an adjustable rate mortgage or
a home equity loan will be in need of a bailout. Even a sizable percentage
of those with traditional fixed rate mortgages will find themselves in
danger. With millions, or perhaps tens of millions, of home owners on the
rocks, there is simply no way the government can structure a bailout without
bankrupting the country or destroying the currency.
This, I think, is an oversimplification and an overstatement. A strong
dose of wage inflation is not going to "destroy the currency". IT will
lessen the real return to lenders and land owners but it is not going to
cause a destruction of the dollar. Gasoline will be $5 - $10 a gallon,
but that is probably exactly what is needed. I don't like who gets the
extra money but we should have thought about the consequences of our tax
cutting and middle east stupidity before we put Republicans in charge of
the nation.
Bailout or not, the economy will still be in a prolonged and severe
recession.
If we attempt to rescue the dollar then that will be a fact. The thing
about it is that wage inflation hurts people who have money. It does not
hurt people who don't have any money. It simply makes it to where wage
earners can pay the mortgage. Anyone who bit on a no down payment ARM or
such is not harmed by walking away from it. Bailing out the larcenous
pigs that made the loans is not a proper solution.
Even if Federal aid prevents millions of foreclosures from
happening, all of the home equity accumulated during the bubble years will
be gone.
So what? If they bought the home to live in and to retire in then they
have not been harmed. We need higher wages and then people would not have
to refinance their homes to get along.
Debt reduction and restructuring will not stop home prices from
falling, and will not make homes easier to sell.
Just bailing out the lenders and the borrowers is not going to fix the
underlying problem. That is certain. But rational actions require goals.
Before you react and do something stupid you should think about where you
want to be. "Which way do I go", Alice asked The Cat? "Where do you
want to be", The Cat inquired. "I don't know", said Alice. And The Cat
replied, quite correctly, "Then it doesn't matter which way you go".
After all, those looking to
buy homes will no longer have access to the easy credit that made bubble
prices possible in the first place. Home prices are a function of what
future buyers can afford - not what past buyers paid.
LAND prices are a function of speculation. Home prices are a function of
building costs and interest rates.

http://GreaterVoice.org/essays/lvt.php
If new buyers are
required to make 20% down payments, fully document their income, and fully
amortize a fixed rate mortgage, they will not be able to pay nearly as much
as what current owners paid during the bubble.
And the price of homes will decline. The objective is to take that from
the non productive drag on the economy as opposed to taking it from
production.
On the low end, any comprehensive government bailout would easily surpass
the $1 trillion mark. Where will the Federal government get the money,
particularly during a severe recession?
Money is totally elastic. It can be printed at will. The value of the
money will suffer, but it will not become "worthless". And it matters WHO
gets the new money.
My guess is raising taxes will be
out of the question. If people are having trouble making their mortgage
payments now, significant tax increases will only make it that much more
difficult.
Half truth!!!

A tax shift does not INCREASE taxes and that is what is needed. A
revenue neutral tax shift from FICA to taxes on unearned
income would see a definite improvement in the plight of almost ALL home
owners.
Borrowing the money also seems like a difficult task, as our
minimal domestic savings means we will have to do so from abroad.
LIE. The creator of fiat money has no reason to EVER borrow. Ask
yourself what would have happened if the Chinese were offered NOTHING
other than American goods or more dollars for their dollars. They can
buy our stuff or stuff mattresses with the money.
Given that
the budget deficit will likely be exploding as a result of the recession,
foreigners are not likely to foot the bill. If they do, it will require
significantly higher interest rates, which will only compound the mortgage
rate problems for current and potential homebuyers.

Unfortunately, the only realistic way to "pay" for such a massive bailout
would be for the Fed to monetize it.
It matters HOW it is done and the Fed can't actually do it. Fiscal policy
must be used. It requires tax shifts and perhaps tax hikes on those
portions of the economy that are NOT PRODUCTIVE.
If that were to happen, the value of
the dollar would plunge, and consumer prices would go through the roof. Now
that the dollar Index has finally broken below the key 80 support level, an
event that I have been forecasting would eventually occur for years, a run
on the greenback may already be in motion. Ultimately, long-term interest
rates will soar as a result, and we will experience unprecedented
stagflation and a substantial decline in our collective standard of living.
This week's surge in the price of gold, which traded above $700 per ounce
for the first time since May of 2006, reveals that some investors are
finally beginning to figure this out.
All of this is factual. No argument from me. The value of the dollar
must be cut substantially and that is the way out of this mess. But the
Fed is giving the dollars to the thieves that created the problem as
opposed to offering any real relief for the productive people of the
society. It matters WHO gets the created money.
Ironically, in a recession induced by the burst housing bubble, housing
itself will not be among our most pressing problems. One of the few
"benefits" of the housing bubble is that we now have a lot of houses,
many of them vacant. Therefore, few former American mortgage holders
will go homeless. However, the real problems for Americans, whether
they own or rent their homes, will be maintenance costs (heating oil,
electricity, etc.) and keeping their kitchens stocked with food. One
thing is for sure: homeowners will certainly not be buying new furniture
for their living rooms, big screen TV's for their media rooms, granite
counter tops for their kitchens, or new cars for their garages.
Yup. But hopefully they won't be living in a cardboard box under a bridge
either.
The costs associated with the housing bubble will be huge. However, the
price tag for a government bailout designed to prevent it from deflating
will be much higher.
I see no reason to "keep it from deflating". It needs to "deflate" at
least in relative terms like as related to wages.
Even those who get "bailed out" will ultimately be
in worse shape as a result.
Hard to say, but the current mechanism is badly flawed.
Let's hope that cooler heads prevail and
that the rest of the camel never makes it into the tent. However, just
in case they don't, make sure to get rid of any remaining dollar
denominated assets before it's too late.


http://www.kitco.com/ind/Schiff/sep072007.html
Buy them Krugerrands!!! The best alternative is to get rid of
borrow and spend and control the Fed Republicans.

--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org
 
T

The Trucker

. said:
So, should we count on a bail-out, or not? The author seems to imply that
the most likely solution is devaluing the currency, which is also can be
considered a bail-out. Not surprisingly he's also got something to sell.
Although nothing can be counted out, I do not believe that devaluing
solution is feasible, and the recent dip in USD has served an ample warning
not to try. Of course, the currency devaluation, which is a theft, has been
happening for years, but gradually. For it to have any effect on the current
foreclosures crisis, it must be sudden and significant, which will cause a
financial calamity of unprecedented proportions. Bernanke will probably
lower interest rate one or two times to let his Wall Street buddies time to
get out, and that will be it. He will not be able to pull the trick of his
predecessor Greenscum, who had far greater leeway with gold below $300. So,
what is the answer? The only solution I can see is the extension of debt to
50, 75, or even 100 years. I have predicted 50-year mortgages some time ago,
and it's already happening. Such extension will put a proper perspective on
the ridiculous present notion of "ownership", home or otherwise, but it is
about time to dismantle the "American Dream" anyway. It may also turn around
mass psyche towards the greater financial responsibility, personal and
government, increase savings, and channel the economy into more productive
endeavors. The new "American Dream" will become a freedom from debt.
I believe that the country is for some rough times, with the worst still
several years ahead, and will need a strong leadership. Fortunately we have
a man (or may be more than one), who can understand the challenge and rise
to it. I won't tell who he is, since this post is not a political
endorsement (the only thing I can reveal is that they are all men), but hope
that people will make the right choice.
e.
My country is not designed to need an FDR or a Ron Paul to straighten
things out. But I must confess that in this case it must be done. I will
tell you flat out that business as usual is not going to work but that we
need to look past the current crises and ask ourselves what we want
America to be. America was not to be a land where an elected King (FDR or
George Bush) were to have such power over the internal affairs and the
economy of the nation. That job was to be left to the Congress and most
especially our House of Representatives. SO no matter which way the
election for (P)resident might go we must find ways to increase the power
of the real people of the nation in controlling the runaway ship of state
and to limit executive authority.

--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org
 
H

Howard Goldstein

: Saw a famous (but forget who) money guy on Charlie Rose's show right after
: Bernanke was appointed. He said, "He was brought in to preside over the
: orderly decline of the dollar." I remember that, it's word for word. And
: the dollar is down about 21% against the Canadian dollar over the last few
: years. That's a pretty big drop. What they think they are doing is beyond
: me, but I think the net effect will be the rough times you mentioned. That
: will come in a hurry for the people who lose their houses before anything is
: done - if anything significant for those people is in fact done.
:

And on Thu (Fri?) the dollar sinks to record lows against the euro,
right on schedule, maybe discounting the inevitability that the
passive road of inflation will be the means to deal with the massive
amount of US public and private sector debt.
 
F

Foobar

Too Big to be Bailed Out

By Peter Schiff
Sep 7 2007

Now that homemortgagedefaults are spreading like wildfire from coast to
coast, there is a growing sense of certainty that the government will
attempt to bail out homeowners and lenders. The ideas put forward last week
by President Bush may be the camel's nose pushing under the bottom of the
tent. However, just as some things are too big to fail, this problem is far
too big to fix.

First of all, one has to consider the moral hazards inherent in any bailout.
Immediate relief in the form of debt reductions and more favorable loan
terms will create a powerful incentive to default. Why would anyone stretch
to make a burdensomemortgagepayment while others are being rewarded for
failing to make theirs?

Even without the incentives of a government bailout luring more people into
default, policy makers simply have no idea as to the scope of the problem.
Before this homemortgagecorrection runs its course, nearly every homeowner
in the country who had availed themselves of an adjustable ratemortgageor
a homeequityloan will be in need of a bailout. Even a sizable percentage
of those with traditional fixed rate mortgages will find themselves in
danger. With millions, or perhaps tens of millions, of home owners on the
rocks, there is simply no way the government can structure a bailout without
bankrupting the country or destroying the currency.

Bailout or not, the economy will still be in a prolonged and severe
recession. Even if Federal aid prevents millions of foreclosures from
happening, all of the homeequityaccumulated during the bubble years will
be gone. Debt reduction and restructuring will not stop home prices from
falling, and will not make homes easier to sell. After all, those looking to
buy homes will no longer have access to the easy credit that made bubble
prices possible in the first place. Home prices are a function of what
future buyers can afford - not what past buyers paid. If new buyers are
required to make 20% down payments, fully document their income, and fully
amortize a fixed ratemortgage, they will not be able to pay nearly as much
as what current owners paid during the bubble.

On the low end, any comprehensive government bailout would easily surpass
the $1 trillion mark. Where will the Federal government get the money,
particularly during a severe recession? My guess is raising taxes will be
out of the question. If people are having trouble making theirmortgage
payments now, significant tax increases will only make it that much more
difficult. Borrowing the money also seems like a difficult task, as our
minimal domestic savings means we will have to do so from abroad. Given that
the budget deficit will likely be exploding as a result of the recession,
foreigners are not likely to foot the bill. If they do, it will require
significantly higher interest rates, which will only compound themortgage
rate problems for current and potential homebuyers.

Unfortunately, the only realistic way to "pay" for such a massive bailout
would be for the Fed to monetize it. If that were to happen, the value of
the dollar would plunge, and consumer prices would go through the roof. Now
that the dollar Index has finally broken below the key 80 support level, an
event that I have been forecasting would eventually occur for years, a run
on the greenback may already be in motion. Ultimately, long-term interest
rates will soar as a result, and we will experience unprecedented
stagflation and a substantial decline in our collective standard of living.
This week's surge in the price of gold, which traded above $700 per ounce
for the first time since May of 2006, reveals that some investors are
finally beginning to figure this out.

Ironically, in a recession induced by the burst housing bubble, housing
itself will not be among our most pressing problems. One of the few
"benefits" of the housing bubble is that we now have a lot of houses, many
of them vacant. Therefore, few former Americanmortgageholders will go
homeless. However, the real problems for Americans, whether they own or
rent their homes, will be maintenance costs (heating oil, electricity, etc.)
and keeping their kitchens stocked with food. One thing is for sure:
homeowners will certainly not be buying new furniture for their living
rooms, big screen TV's for their media rooms, granite counter tops for their
kitchens, or new cars for their garages.

The costs associated with the housing bubble will be huge. However, the
price tag for a government bailout designed to prevent it from deflating
will be much higher. Even those who get "bailed out" will ultimately be in
worse shape as a result. Let's hope that cooler heads prevail and that the
rest of the camel never makes it into the tent. However, just in case they
don't, make sure to get rid of any remaining dollar denominated assets
before it's too late.

http://www.kitco.com/ind/Schiff/sep072007.html
Before this homemortgagecorrection runs its course, nearly every homeowner
in the country who had availed themselves of an adjustable ratemortgageor
a homeequityloan will be in need of a bailout.
Huh? How do you figure? My understaning of a bail-out would be to
make it easier to refinance ones home to a more traditional fixed
rate, but possibly at a longer term than had one simply acquired a
15-20-30 year fixed loan in the first place. One still needs to
qualify for a refinance and still has to pay the mortgage.
 
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F

Foobar

This, I think, is an oversimplification and an overstatement. A strong
dose of wage inflation is not going to "destroy the currency". IT will
lessen the real return to lenders and land owners but it is not going to
cause a destruction of the dollar. Gasoline will be $5 - $10 a gallon,
but that is probably exactly what is needed. I don't like who gets the
extra money but we should have thought about the consequences of our tax
cutting and middle east stupidity before we put Republicans in charge of
the nation.


If we attempt to rescue the dollar then that will be a fact. The thing
about it is that wage inflation hurts people who have money. It does not
hurt people who don't have any money. It simply makes it to where wage
earners can pay themortgage. Anyone who bit on a no down payment ARM or
such is not harmed by walking away from it. Bailing out the larcenous
pigs that made the loans is not a proper solution.


So what? If they bought the home to live in and to retire in then they
have not been harmed. We need higher wages and then people would not have
to refinance their homes to get along.


Just bailing out the lenders and the borrowers is not going to fix the
underlying problem. That is certain. But rational actions require goals.
Before you react and do something stupid you should think about where you
want to be. "Which way do I go", Alice asked The Cat? "Where do you
want to be", The Cat inquired. "I don't know", said Alice. And The Cat
replied, quite correctly, "Then it doesn't matter which way you go".


LAND prices are a function of speculation. Home prices are a function of
building costs and interest rates.

http://GreaterVoice.org/essays/lvt.php


And the price of homes will decline. The objective is to take that from
the non productive drag on the economy as opposed to taking it from
production.


Money is totally elastic. It can be printed at will. The value of the
money will suffer, but it will not become "worthless". And it matters WHO
gets the new money.


Half truth!!!

A tax shift does not INCREASE taxes and that is what is needed. A
revenue neutral tax shift from FICA to taxes on unearned
income would see a definite improvement in the plight of almost ALL home
owners.


LIE. The creator of fiat money has no reason to EVER borrow. Ask
yourself what would have happened if the Chinese were offered NOTHING
other than American goods or more dollars for their dollars. They can
buy our stuff or stuff mattresses with the money.



It matters HOW it is done and the Fed can't actually do it. Fiscal policy
must be used. It requires tax shifts and perhaps tax hikes on those
portions of the economy that are NOT PRODUCTIVE.


All of this is factual. No argument from me. The value of the dollar
must be cut substantially and that is the way out of this mess. But the
Fed is giving the dollars to the thieves that created the problem as
opposed to offering any real relief for the productive people of the
society. It matters WHO gets the created money.


Yup. But hopefully they won't be living in a cardboard box under a bridge
either.


I see no reason to "keep it from deflating". It needs to "deflate" at
least in relative terms like as related to wages.


Hard to say, but the current mechanism is badly flawed.



Buy them Krugerrands!!! The best alternative is to get rid of
borrow and spend and control the Fed Republicans.

--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jeffersonhttp://GreaterVoice.org- Hide quoted text -

- Show quoted text -
And the price of homes will decline. The objective is to take that from
the non productive drag on the economy as opposed to taking it from
production.
What does this mean?
 
M

MF

snip

I tend to agree with this, but it seems highly improbable. The high end
non-productive members of society have got the majority of the tax breaks in
recent years, and more are in the works. The "more" may be stopped, but it
will prove difficult to roll back what they have already got.

Mike
 
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T

The Trucker

What does this mean?
It means what it says. The Fed can do naught but give money. The Fed
can't take any money (only the tax man can). If you limit economic actions
to the Fed alone then the Fed must create money in equal amounts in the
individual accounts of all legal voters. But I don't think the fed knows
who the voters are. This will create the same amount of currency
devaluation as bailing out the lenders but it will also pump
the real economy and inflation will may result. When I look at this deal
I see a bunch of lenders that should lose their butts. Most of the people
that are having a problem with the sub prime stuff have nothing invested
anyway. And a good dose of demand side stimulus will do all the real
home buyers a lot of good.

In the longer and broader view we need a shift of taxation from
improvements to land:

http://GreaterVoice.org/essays/lvt.php

--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org
 

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