The housing market faces its next crisis as May rent and mortgages come due
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1) What do you do about bonds? A very large proportion of all debt is packaged into bonds, and reducing their yield will have a substantial effect on many pensions
2) Who is going to pay the wages of the people paid to administer these loans? Are they going to accept a deferral of their wages?
I am not trying to dismiss your idea; I had many similar ones early on, but I couldn't figure out how to square the circle.
US Treasury pays bondholders some, but not all, of the interest income due. Shared haircut between bondholders and the taxpayers. This is a catastrophic loss with a nation state providing what amounts to insurance, and incredibly cheaper not only economically, but from the struggle and hardship many would face from foreclosure and relocation.
> 2) Who is going to pay the wages of the people paid to administer these loans? Are they going to accept a deferral of their wages?
PPP loans (forgiven when used for payroll) for mortgage servicers. Those folks are still going to be needed to account for bondholder payments, with the Treasury picking up the tab instead of homeowners.
Life isn't fair. Renters have landlords with mortgages also, and renters are just as challenged as homeowners currently (30+ million unemployed, 1/5th of the US working population). Broad policy decisions have some moral hazard to be deprioritized.
The goal isn't fairness, it is to return to economical equilibrium as rapidly as possible.
I am not saying I have an answer, I just think there are deep problems with these ideas.
I'm not saying you're wrong, by any means, but that you have to be comfortable with your solution being unfair and suboptimal. It is not the best course of action, but the least worst course of action.
[1] https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reor...
[2] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...
I'd noted it was higher so that would follow, yes. I left out the precise number because I saw some variation in the across sources and couldn't be bothered to dig into the details as it didn't make a difference anyway.
Also, majority rule is probably not the relevant metric here (even if renters + owners were mutually exclusive sets). We have a long history of not going strictly with the majority.
> That sounds like a more market-oriented solution to me.
Market-oriented solutions in times like these tend to (continue to) optimize for profit and fail to consider the humans involved. No thank you.
It looks like this is the ‘new normal’ though. Pushing people to take on debt as it’s almost interest-free and you might even get help from the government paying it back, all to double up on past mistakes and sustain the current asset valuations.
We're probably going to have to just give most-to-all renters a few months of free rent here pretty soon anyway.
At least bailing out mortgage-holders has zero real world cost. Bailing out renters costs actual real money (since it doesn't just defer a loan, but actually prints new money to cover it).
Based on Japan, this does not appear to be the case (Bank of Japan holdings are ~110% of GDP). We can print until we can't, and from economic indicators, we have a ways to go before inflation (hyper or otherwise) is going to be cause for concern (education and healthcare aren't inflating because of currency devaluation, but because of regulatory capture).
1. Reliable rebuttal data sources to government inflation statistics.
2. Proof that it isn't sustainable besides conjecture (as I mentioned, Japan is economically stable and a first world country with an enormous amount of debt that will never get paid back, while parts of Europe have negative interest rates and still have a relatively high standard of living).
Yes, if you’re not first world (Venezuela, Zimbabwe) this doesn’t work. But the US dollar is a reserve currency and US treasuries are the safest asset in the world. When you need to spend good will in currency value form, you spend it.
The problem is, if we want stuff (food and cars and electricity and software), someone has to make the stuff. We can print money until the cows come home, but that still fails if there aren't any cows.
Japan has managed to keep producing enough to run the actual economy, and has shuffled paper around to keep the books from breaking. The US can do that, too, for a while. But the economy that produces stuff has to come back before too long, or we're going to have actual shortages in a way that printing more money cannot solve.
The bonds are going to fail somehow; the question is in the allocation of that failure, not whether they fail. (Partial failure, not total failure.)
Ideally we'd have debt-holders negotiating solutions with their counter-parties, but that seems difficult with securitized loans.
Paying attention to the economic effects of a policy as it ripples through the financial system isn't taking a position on who should be protected or prioritized between (eg) capital and labor. Economic outcomes for labor are downstream of the financial system too, which is why the effects of the 2008 GFC didn't play out as simply "the richest people get slightly poorer". Someone 100% interested in outcomes for the poor and middle-class (employment, income, etc) still needs to understand the "math" of how proposed policy will play out in the real world.
You may think you're on the side of the rights of labor/the masses against the rich, but you're actually just standing up for ignorance and blind superstition over reality, an approach which hurts rich and poor alike. (Unless, of course, your only goal is to get high on your own misinformed outrage, in which case, congrats)
By all means let's not duck into any blind alleys. But decisions need to be made in a relatively short timeframe, and a lot of investigation itself is typically waved off as "can't replicate, wont fix", simply because it's perceived as difficult.
Would people who originally wrote the constitution consider it unconstitutional for federal government to do it? Almost surely, yes: they wrote an explicit list of things the federal government can do, and if something was not on the list, it was understood that the federal government cannot do it.
Of course, in early 20th century this has all been thrown through the window by the Progressive era Supreme Court, and contrary to intent of the framers of the constitution, it became clear that nothing restrains federal government other than what a group of nine says, and even that is not always true.
If you want to go all originalist, the point was to prohibit private bills benefiting a specific person, which is almost the opposite of what's proposed here.
Of course, that's the theory. In practice, the federal government can do literally anything it wants as long as it uses magic incantations of "General Welfare" and "Commerce Clause", and as long as the nine guys in SCOTUS accept that, regardless of what the authors of constitution meant for federal government to be able to do.
How is this different from Blaisdell, where the court found that Minnesota could extend the time needed to redeem a mortgage from foreclosure, on account of the Great Depression?
Under Kansas Power & Light, there's a three part test:
- extent of the impairment of the contract
- a significant and legitimate purpose behind the regulation, such as the remedying of a broad and general social or economic problem
- reasonable and appropriate for its intended purpose.
Point #2 is a slam dunk, and I think you could make the case, under #1, that the mortgage holder will still get paid slightly later, the time value of that money is very low (the yield on a 3 month T-Bill is a comically low 0.09%), and there are programs to tide over anyone who might be in a bind.
The Court in Blaisdell basically recognized that passing any law can potentially interfere with a contract and refused to let the state's emergency authority be trumped by the contracts clause. In that case, the law in question extended the time a person has to "redeem" their mortgage but also required the person to pay rent to the bank in the interim, which seemed important as they cited other similar laws that were ruled "repugnant to the constitution" which lacked a similar provision. They also highlight the difference between modifying a contract and modifying your remedies, which applies now to California (and other states) because we've suspended processing of evictions. CA didn't modify anyone's rental agreement to extend the eviction process, they just refuse to give landlords a remedy.
Kansas Power & Light was a lot more straight-forward but it basically brushed away the Contracts Clause forevermore. That case was about a natural gas contract that had been governed by Federal regulation but then the fed said "we don't want to deal with this any more, let the states regulate the price of gas" and the court ruled that Kansas hadn't interfered with the contract because the contract assumed regulation and it didn't matter much who was doing that regulation. I actually thought the court's reasoning here was pretty weak, but I support the outcome. They basically read the Contracts Clause out of the Constitution unless the state itself is party to the contract or has passed something openly nefarious, which should have been done via an amendment to the Constitution, but I have some extreme views around that.
After reading these two cases and considering whether a state government could pause mortgages/rent for a month in light of the contracts clause, I think that mattkrause's opinion is correct, that they could get away with it as long as the banks are made whole in some way.
Cheaper than processing a default. Banks don't want to foreclose; unloading the real estate is a huge money-loser.
Anyone who bought at these prices is already underwater. The thing to look at is housing as a multiple of median income. If it looks insane, it is insane.
People want _house_ values to go up, but _home_ prices to go down. And those are two different things.
If it's your home, who cares how other people value it. Lesser price is better.
If it's a house that you don't consider home, then you only want to sell it for what you can.
Personally I think home-owners > house-flippers and that laws should reflect that.
It's unfortunate that this appreciation has progressed to the point where nearly all of a family's wealth is tied up in their home, as it is not a risk-free asset to hold.
Unfortunately, since -- as you point out -- a home is nearly always a family's largest expense and often also largest store of value, people distort what it means to them financially and expect their home to appreciate in value well above and beyond inflation.
When you take out a mortgage to buy a home, you shouldn't have any preconceived notions about whether or not you'll be "underwater" at some point in the future. And really, it does not matter one bit if you're underwater. Unless something has also happened to your income stream, you just keep paying it, as you should. The borrowed money doesn't somehow magically become less money just because conditions have changed and your home's market value has dropped. The downside is, of course, that you may not be able to sell the house and move away until you've paid off more of your mortgage. But that's a risk you take when you sign that paperwork up front.
The home-as-investment thing is fairly uncommon in the world and seems to mainly be a US thing. I wish it would die, as it should. It only serves to distort the market, and fuels ever-increasing home prices, which makes it continually harder for the average family to own their own home, further increasing institutional ownership.
Credit reporting is going to hurt a lot of people too, and that will also decrease consumer spending because people will have less access to credit.
So business owners and workers in those industries aren't going to catch up.
the only solution is to replace lost income with a maximum cap of how much is restored. As in, take the reported income filings or individuals across a set period prior to the nationwide lockdown and use that to determine aid to go to those people. No wholesale just because you are breathing you get money. No bonus on top of it for children. Hence the number will likely need to be larger than $1200 for one month and taxes at all levels need to be forgiven for the air. I am betting on nearly $2000 per income earner up to their income or that cap.
however you will have to accept you will have people who will waste this money as well, you can easily find numerous cases where people treated the last stimulus as a bonus
Obviously there are many practical issues with this, namely that it would require way more and detailed data on purchases than anyone has and would be completely politically infeasible.
And the fact that a lot of people don't have any money right now, and haven't made money since March, and don't know when they will be able to make money again.