The Audacity of Doing Nothing
blogs.law.harvard.edu
blogs.law.harvard.edu
Please stop arguing against the Obama strategy. There’s nothing you can do to stop it and its failure (if it does fail) will make your point better than if you wrote a billion blog posts. Beyond that if he does succeed you could write a billion blog posts saying he was wrong and they aren’t going to convince people.
One way or the other it’s out of your hands.
More importantly...you have a bigger problem. Right now there are a lot of people out there arguing that libertarian principles got us into this mess. That is simply not the case and arguing against that is where you should be putting your effort. Because assuming President Obama does fail you’ll want people to be open to libertarian principles in the future.
Fiscal policy is like a game of chess right now and you should be looking three moves down and not at the very next encounter (which you already lost almost 3 months ago)
Sincerely,
Tom
You are right that there is practically little anyone can do and that politics is usually played several moves down the road. The recent election will be taken as a mandate for whatever is passed and that will be that. That said I still think that if someone believes they should speak their mind.
I don't say this because I'm a libertarian or especially in any given political camp. I just do not want to see political opinion or participation discouraged. I think the long term solution is more people aware and interested in policy and not less.
So I hope that the strongest opinions here, regardless of which side they take, are also being citizen-lobbied.
I think the best strategy for people who think they have a good understanding of the situation to follow Bryan Caplan's advice and state publicly how they will interpret different outcomes.
http://econlog.econlib.org//archives/2008/09/how_would_we_kn...
[1]: http://www.thisamericanlife.org/Radio_Episode.aspx?sched=128...
There are those now who are saying, "Laissez Faire Capitalism didn't fail because it wasn't /really/ Laissez Faire Capitalism." I'm answering, sorry, you had your chance. You can argue on blogs all you want. The experiment has failed miserably.
Europe is going to come out of this smelling ok, and with it, Third-way Socialism, where there's a balance between the market and the public interest.
And thanks to them or instead of them (Concertacion governments) Chile has been reducing its poverty levels; pretty much they are the only country in South America with a middle class.
This has nothing to do with anything but I think in a way it's awesome that a country has a president who is: 1) woman 2) single mother 3) declared agnostic/atheist
can you imagine not a president but just any politician in the US like that?
Think of Iceland for Marx and Engles' sake!
Greece, Ireland, the UK, etc.
I am not sure what you mean by third way socialism, perhaps you mean the welfare states of western Europe?
Those do work in a particular way that many people prefer. Many others prefer the more free market of the states. I know many west European immigrants that have come to the US to escape the welfare state, and I ain't talking bankers.
More like engineers, scientists and doctors, and believe me Europeans know the social state costs us some of our best.
As an east European immigrant I can tell you, that the communists switched their story AFTER to soviet collapse.
Libertarians like Milton Freedman on the other hand, have been saying the US is farm from true free markets for a LOOOONG time.
I know many people who have moved from the US into welfare countries in Europe. However, I also know many people who have moved out of Europe into the US.
Welfare systems get you good quality for the money, however if you've got the money to spend more (like your example, engineers, scientists and especially doctors) then you're going to want the best quality money pays for. I think the unfortunate situation is that most welfare countries don't have a system far reaching enough to provide everything people want.
I mean the French system is impressive when it comes to child care. I mean you can get daycare for $1 a day. However, from people I talk to there, their health care is rather lax compared to UK standards. However in the UK even the poor can get phenomenal health care, like triple-bypass surgeries, however god forbid you have a child and want to work!
Again what happens when you have a child with disabilities? Well you're royally fucked, you're treated like it's your own fault despite the government wanting you to have children.
I see the benefit of both systems, however personally I like the universal health care. It's rather ironic that I've never stepped foot inside a hospital (I lie, but it was never for me. Once visiting my mum at work - nurse - and the other visiting my dad after he had kidney stones removed) and I barely visited my doctor. In fact I don't even get sick often, I had the flu a few weeks ago, my wife was sleeping like 20 hours a day, I was wide awake the entire time and occasionally had to blow my nose.
However, I'd bet $50,000 that if I ever moved to the US the day I arrived I'd be diagnosed with a prostate tumor the size of a grapefruit, or some incurable disease or something. I mean I didn't even need braces as a kid, I'm either going to die the healthiest person on the planet or my luck's going to turn so bad so fast I'll be hit by a fragment of a meteorite or something equally absurd.
I won't even attempt to defend the US health care system.
Suffice it to say, a much longer topic is the set of laws and regulations that maximize freedom, prosperity AND a high minimum of social services for everyone.
The doctors in Austria take more time with you, they listen to you better, they come up with more novel solutions, and they seem to know more about other medical fields.
And here's why this is true:
a) free medical education. Yes, FREE. That means people who want to be doctors, can; the only requirement is that they can hold their own academically. That also means that when they complete their education, they are not saddled under $300k+ of debt, and thus are not having to hustle and scrimp for money.
b) a culture of service. Yes, really. Austria has a huge number of social workers -- nice ones, too -- and unlike in the US, there's a very solid mixture of men vs women. People can actually earn a decent living (thanks to socialism) helping other people.
c) a very different situation with insurance (everybody has it) and lawsuits (uncommon).
All of this combines to having a huge number of women doctors, and a huge number of doctors who are in it for passion and not for money, and doctors who are not afraid to just give you an atypical solution or who have to worry all the time whether the patient's insurance will pay for it.
And amazingly, it's cheaper than in the US sometimes, even if you pay out of pocket. I saw a top-rated dentist, got a 360 degree x-ray, he himself poked around in my mouth and proscribed an antibiotic -- and with the exchange rate, that whole thing cost me $180 US. Ha!
It's simply awesome.
The question is not: "was this a failure of the market?" Rather, the question is: "would intervention reduce, or increase the number of failures?" There has been no credible case made for the profound wisdom and benevolence of government bureaucrats and politicians.
The communists are right about one thing: the lessons of history are not self-evident. We need to use our brains to interpret events, and their causes. That said: unlike communism, which has a history of nothing but failure and poverty, free market societies have a long track record of creating wealth and prosperity for all.
Example: Quite literally two people can farm a few thousand acres of corn with modern equipment. One drives the harvester and one drives the truck.
Ironically Stalin actually caused the evolution of Chinese communism which survived it. The reason the Chinese did so well is that Stalin slaughtered most of them, which resulted in them taking in capitalists. This resulted in them understanding how economies work, and not hoping an artificially constructed economy would work. Combined into this is the political unity and a use of very powerful propaganda techniques to strengthen nationality. It's been shown that strong nationality increases a persons support of the government. I mean look at the German Resistance, they had such difficulty getting support in Germany because it was impossible to go against Hitler without going against Germany. Largely the CPC has done the same, you can't oppose them without opposing China.
The real question in the success of communism will be, "Will communism survive when China's nationalism subsides?"
Edit: Can people please stop down-voting something you disagree with, this isn't reddit. I'm merely reiterating something that's been agreed on by modern-historians for a long time. There's multiple systems of communism and the Stalinist and Chinese forms are very different.
There are those now who are saying, "American Socialism didn't fail because it wasn't /really/ Socialism." I'm answering, sorry, you had your chance. You can argue on blogs all you want. The experiment has failed miserably.
Point being, simply asserting a preferred definition is not a compelling argument. Whatever it was that was going on, it hasn't been working. Making one or another particular economic philosophy the bogeyman isn't going to help, however good it makes people feel to be able to say, "I told you so."
It's interesting to contrast the utter repudiation of National Socialism after its defeat in 1945 compared to the ongoing romance with Communism after its collapse in 1989...
E.g. On a university campus today, it's acceptable to call oneself a socialist, but utterly unacceptable to call oneself a National Socialist (a Nazi). Considering the horrors of both, the difference in their treatment in American academia today is somewhat surprising.
The horrors of both?
The Netherlands, Switzerland, Finland, Austria, Germany, etc., are all horror-ible places to live?
In 1989, the companies came in and put an extreme back into balance.
In 2009, the government came in to put an extreme back into balance.
In fact, it has been the government that has been saving a complete collapse of Capitalism by bailing it out. I think no one knows if it will work, but they key indicator here is that Wall St. turned to the government for help.
And look at health care: Americans spend much more than other countries yet the indicators show much poorer performance than those other countries. Socialized medicine has been shown, in the hard numbers, to simply work better.
If it was really "American Socialism" that was failing, you wouldn't be seeing government stepping in everywhere. So, no, it's not about picking a definition; it's about trying (finally) to find a balance.
1. Somebody has an idea that might be good.
2. Do something stupid. Give it the same name as #1.
3. When #2 fails because it was stupid, say that #1 is now a failure.
4. Continue doing #2, because if you don't try any new ideas, the status quo is what you get.
To merely give in and not continue to speak out would be to assent to their policies.
I agree that we should not look to stop him now but looking three chess moves down the road still requires playing in the present. If we stop proclaiming the truth, we won't even be able to say "I told you so" because we wouldn't have.
However, I think that individual rants will not help much for these other goals anyway. We need a stronger, rational argument for why his plans won't work, and what we can do better.
In response to socialism, Mises did not merely try and say "See, it isn't working" because that kind of response is easily defused by statements such as "it wasn't pure enough". Instead, he wrote a rational argument from first principles about why it wouldn't work. Granted, not everyone has read his book or agrees with it, but it's better than just using evidence of previous failure. It's amazing how good humans are at rationalizing away flaws in their belief systems.
We should do the same thing with the current financial crises. Make clear statements about why it happened and what the best way to fix it is, and then try and get as many people to read them as possible.
As incorrect and irrelevant as academia often is, it has an amazing effect on future beliefs. If we can get the ideas out there, I'm sure that we can make a difference. Maybe not in time to stop the current president, but possibly in time to stop the next one.
Like "true" communism you will never see free market principles fully embodied, and nobody can seem to articulate real-world half steps that don't have severely unpleasant side effects.
If, however, you mean to say that Libertarian principles don't change with the times, I think I can address that. It's because Libertarian principles are just that: they're principles. They don't change per the circumstance, which is what makes Libertarianism such a robust ideology.
And as far as hearkening back to the 19th century, I'm curious as to what's so bad about that? The 19th century was a period of rapid growth for the US. A couple of ugly incidences excluded, things fiscal were generally Good.
If you really want to give Obama suggestions, and you really want them to be taken, you ought to make them feasible.
The way forward is via productive compromise and incremental progress -- and that's one of the ways in which libertarianism fails completely: when has any of you ever suggested a small step? Instead you snipe from the margins about the philosophical inequity of it all.
Further along the lines of not articulating a vision for the future:
- The vast majority of suggestions are negative -- what we must not do or change -- rather than positive.
- Libertarian policy is exclusively derived from absolute philosophical first principles with zero consideration as to empirical effectiveness, side effects, or how-do-we-get-there-from-here. It's nice for utopian fiction and useless for the rest of us.
p.s. I like how you brush aside so much of the ugliness of that era as "incidences." Assume I take you at your word that things "fiscal" were generally Good: how were things "liberty" then, hmmm? (A rhetorical question.)
(edit: paragraph breaks missing in a few places)
When someone says "These people manage $2 trillion", it seems like we should take it in the same light as "These people are among the most successful peddlers of perpetual motion machines in the world". Your reaction should be to trust them less, not more, about economic and financial matters.
No. While they may fail on average, they certainly don't all fail. There are some money managers who are truly brilliant and have consistently had great returns. Granted, these people are few and far between, but that doesn't negate the value of the entire field.
Using your logic, you could easily make the case that entrepreneurship is pseudoscience, since almost all entrepreneurs fail, therefore no one should invest with them or trust them.
Not being able to prove something empirically doesn't mean that it's automatically invalid, or that we should dismiss it as being unworthy of . People don't start companies because they can prove that they'll be successful, and people don't invest in companies because they can prove that they're going to succeed. They invest because they believe the odds of success are sufficiently high to justify the risk.
In the same way, I don't think we've rediscovered that money management is pseudoscience just because most money managers fail to beat the market. That market is itself made up of people who are trying to beat each other, and statistically, most will fail and disappear. That doesn't mean that the market is a failure or that it's "pseudoscience".
The trouble is, you can come up with a pretty good approximation of a portfolio that reflects the "wisdom" of the broad market on your own. Pick one or a few diversified index funds, follow some guidelines to split up your portfolio between fixed income and equities (maybe add some real estate or commodities if you want to get fancy), and you're done. You might get some suggestions on the particulars of which index fund, or exact allocation percentages, from a money manager but that's not really adding much value. Maybe just a one time consultation.
But what if you want to beat the market? Is there someone you can go to and be confident he or she has a good chance to succeed?
Well, if such a person exists, you probably will not be able to identify him or her, except maybe if you know as much about money management as they do. Bernie Madoff is the perfect example here. The people who invested with him were not able to distinguish his pyramid scheme scam from a good investing scheme until it was too late. Some of his investors were supposedly pretty sophisticated in financial matters, too.
So, you can get the average market return on your own, and you probably can't tell a good money manager from a bad one. That eliminates most of the reasons for employing a money manager, even if good ones exist.
It seems like the same can be said for venture investing. How do you know which entrepreneurs will be successful? You don't, so you go off of their past performance, the market environment, the strength of their idea and their team, etc, etc. But you also go one step further and try to spread the risk across a portfolio of investments. Perhaps you should do the same with money managers? Pick the 10-20 at the top of the field and let them all manage a piece of your portfolio? Obvious problems here as well.
On a related note, does this mean that venture funding is fundamentally flawed? That venture funds would be better off just putting their money in index funds? I have a hard time seeing that.
And yes, venture funding is fundamentally flawed and the average VC firm underperforms the market. LPs as a whole would be better off with index funds.
However, unlike with equities, you can get an edge in VC investing because results tend to perpetuate themselves. Remember, equities of non-public companies aren't priced by the market, so they aren't as efficient, and it's the efficiency of the market that makes beating it untenable. Also there's a tremendous deal of collusion in private equity that doesn't exist in public due to regulation. It's actually a mystery to me how they get away with much of what they do.
The two types of investing aren't really comparable due to that. You could simply invest every year in the top few VC firms from the previous year and outperform the market for a long time that way. You cannot do this with hedge funds or mutual funds, or if you could, you and I would both not support the notion of just sticking it in ETFs.
In money management, x is never very large. It's so small that you can't reliably say that anyone is better than anyone else, in fact the overall distribution of money managers isn't much different from what it would be if it were all chimpanzees selecting stocks with darts. In basketball or chess, x gets to pretty near 100.
Entrepreneurship isn't even a pseudoscience, by the way, in the same sense that raising a family isn't. Apples, oranges. ('Economics' would qualify.)
I don't think that the YC approach to investment carries the same amount of risk as someone going to crunchbase and investing in random companies they find there. Surely there's some value to studying what has worked in the past and trying to apply it to future endeavors.
As for the rest, well, yes, it is apples and oranges. What hypotheses does entrepreneurship make about way the world works? Is the purpose of doing so to explain or enlighten? Even religion is more scientific in its goal.
It's like calling pottery or engineering or writing a (pseudo-)science. (Ceramic chemistry, physics, or linguistics would all count.... see?)
Who, for example?
The difference is that there will be consequences to their actions; they and the majority of the country will suffer. With that precedent, would it be likely that it would happen again?
From my impression, the main goal tends not to be whether they can come out of this with a much better system instead its how the they can reduce the amount of damage that will be done.
I don't think these people should care about destroying legacies (a company shouldn't be sacred just because it's old, that's pointless sentimentalism), but it seems that they would care about losing a serious amount of money, so the obvious conclusion is that they see themselves losing more in the bailout (the article says as much).
The important question is: do we believe them (they are pretty good with money, after all), or do we try it another way? I personally think we should try it another way, but (from my current relatively comfortable observation post) that's probably more out of curiosity than any reasoned belief.
Both approaches involved regular people "bending over", either through a bad economy or through taxes/inflation.
(I'm trying to avoid a free market vs government debate and provide a contrarian perspective to the article.)
Arguing for an action that will bankrupt you because you think you'll rise out of the ashes like a Phoenix? Seems pretty close to me.
But you're right, that was a bit lame of me to reach for.
A martyr complex is simply a psychological need to suffer for a cause. If I'm wrong about that, let me know why, seriously.
I wasn't arguing that the bailout means no bending over; I would hope that there was still plenty of that, just for the right people. I'd prefer it be the executive who ran his company into the ground and is now scared shitless of living on 500k a year, rather than my neighbor with 2 kids who lost his job b/c of said executive's incompetence.
But maybe you're right, maybe everyone's going to end up with it. We'll see.
Falling housing prices are not an example of losing money. They are an example of losing potential money, since there is no actual loss until sold. That's simplified--interesting things happen with valuation, property taxes, exotic mortgages, etc.
Edit: removed redundant paragraph.
As someone who dodged the housing deflation (not because I'm a genius, but because I got strangely lucky) by getting out before the value went south and moving to a rental at an attractive price as new lots started to idle in my area, I am sympathetic to what you're suggesting, though.
Housing prices were not artificially inflated. They may have been inflated, but there's nothing artificial about the fact that the demand side of the equation was willing to pay the high rates. Everyone agrees the housing prices were inflated, but I'd suggest it was a feedback loop involving government policy, a need for financial institutions to create value w/o necessarily creating wealth for competitive reasons and a desire on the part of investors to turn a profit on a sky-rocketing asset without a full understanding of the reasoning and the risk involved. I might be missing some factors. But I do generally dislike everyone who calls in to C-SPAN in the morning suggesting that only one thing they already happened to dislike for some specific reason was the culprit.
Well, considering that during the time that housing prices increased there was a large mortgage interest deduction, an implicit bailout of Fannie/Freddie, a huge capital gains tax loophole on selected home sales, as well as a variety of programs designed to allow people who wouldn't normally have been able to afford a house to buy one, I'd beg to differ.
The above are all demand stimulating laws. For some reason people believe that paying interest to a bank (instead of rent to a landlord) is the American dream, and significant government revenue was allocated to creating home ownership.
Why wouldn't any smart speculator double down on the idea that by betting on home prices increasing he's got the government on his side and stands to make a mint?
Now, those speculators (and in this group I include anyone who bought a house expecting it to increase faster than twice the rate of inflation) are being bailed out by the policymakers who made their gambles possible!
And I'm not defending the sequence of inanities that led up to this whole debacle. Voted you up, too, because I think the conversation about renting versus interest is a good one. I sold my house about half a year before the collapse and have a sweet rental at the moment.
I suspect that you're having a go at the investors in this comment. Your suggestion that they 'capture' the money 'out of the .. system' is flawed, because wealth is not a zero-sum game. Creating wealth doesn't mean that you're taking it off someone else. Certainly that's the case in the dynamics of investment.
However, your comment could be read as a pithy attack on powerful governments who took us into this mess and are using the chaos created to further their reach into it, and if that's what you meant - touche!
I don't think I've seen a more mundanely written and ill-supported essay on financial crisis at top of HN before.
Suppose you start a small company to sell earthquake insurance to people in California. You make a lot of money, more and more as the years go by with no earthquake. When the earthquake comes, you can't pay the policy holders. Should the government bail you out? Is it just too bad for the policy holders? Or did you commit fraud?
I don't like regulation but fraudulent activity should be illegal. You certainly can't get away with this with earthquake insurance because the insurance industry is "regulated". The financial industry needs the same kind of regulation. Right now there are huge holes.
Makes you wonder how much of that '2 trillion' came out of the system in an illicit way in the first place. After all, all that money missing must have gone somewhere.
The problem is how connected the financial system became to these bubble assets.
Especially in the case of the resale of the bad debt packages real money changed hands for future revenue based on a misrepresentation of the facts about these packages on the part of the seller.
That money should be recoverable.
But boy, if will be wonderful wasteful fireworks, 2 trillion manically disbursed.
If it's the latter (which is what I thought it was), these guys should look for better investments. The only way I see government using force here is by taxation and devaluing currency by printing more of it. But that's not what these guys are whining about.
He downplays the most important phrase in the whole essay: "investors are afraid of a prolonged depression". And damn well they should be. As should the rest of us - very afraid!
He (and the investors he refers to) toss off that prospect like, oh, yeah, boo hoo hoo - we should all just let the market play itself out, if a depression comes so be it, and we'll all be better off for it on the other side. But a) I doubt very highly that we'd come out of it on the other side anywhere near to as good as we are now, and b) they never give any thought to the actual social consequences of that kind of policy.
Let me tell you, if the government does nothing, lets foreclosures just run their course, and lets the banking system collapse it will destroy this country. Tens of millions of jobs will disappear, tens of millions of people will be homeless and/or in poverty. Crime will skyrocket. And the risks of the country descending into either anarchy, revolution, or embracing right-wing totalitarianism in a misguided effort to restore "safety" will be tremendous.
Duh. Use your head, people! God I'm so tired of jaded rich people dishing out their out-of-touch laissez faire B.S. It's primarily the fault of laissez faire government policies that we're in this situation in the first place!
It is like in school, when the kid who started loosing started changing the rules, everyone else didn't want to play any more.
It was their fancy methods of making money that stole the money for my retirement, my children's education, and home improvements. I wish they would take their 2 trillion dollars and fly to the moon.
These people are scum. Harvard is just a fancy school for thieves. You can dress up a pig, and its still a pig.
When these folks wanted to make money they changed the bankruptcy laws, freed up credit, and started charging 30-40 percent interest on credit card loans.
They freed up credit in the home loan markets and allowed speculators to drive up the price of homes 3-4 times their value. And then when the bust comes, they cry their eyes out because they are afraid to invest.
They are fear based because the days of thievery are at an end. It sickens me to see someone post this stuff as if they are our only answer to the future.
The real answer has several components:
1. Tie our money to a real standard. Gold.
2. Loan money to middle America from Banks ran by our country and limit interest earnings to 1 percent. This means housing, student loans, car loans with a cap of 1% payback for fiat money borrowed to pay for it.
3. Get rid of income tax. Sales tax only.
4. Eliminate sales of stocks which do not provide a minimum dividend payment monthly. You can't pay your dividends, you go bankrupt. Period.
5. No more funny money games with derivatives, credit swaps, bundling, blah bu blah. To hell with free wheeling economics. It does not work and it only helps the greedy bastards that continue to screw us middle Americans that only seek stability in our futures.
6. Money = Greed. Control how much any one entity is allowed to own based on productivity. Cap it based on ability to produce goods, services, or IP. No CEO should be paid more than 50 times the lowest level employee in the company. Think we would be talking about minimum wage if this were the law?
7. Force people to save by taking 1% of all sales tax paid every year and allocating it to a privatized social security account.
8. Eliminate Unemployment. If you can print money the way we do, then spend it on creating government jobs meant to help people. If money is not tied to a gold standard, then its really just perception anyway. Print it and give it directly to folks that will use it to live better than poverty levels.
9. Free Health Care for everyone. Pay doctors the same level you pay a money manager and the doctor shortage is gone in 6 years. HMO's? Private medicine? How do you justify this in the worlds richest country with 42 million men, women, and children, not able to afford it?
It is only a matter of time before we eliminate money entirely. 500 years? A thousand? One day nano tech and robotics are going to completely eliminate labor required to fulfill our basic necessities. Star Trek Communism will replace this greed driven economy.
Live long and prosper...
Further, Phil was talking to people with $2 TRILLION to invest? Um, maybe, but that's 15 percent of US GDP. Pretty rare air there, and the idea that all these people (and perhaps Phil, too) weren't simply talking their book is nonsense.
I'm concerned that housing values will be stabilized at an above market rate with the help of my tax dollars making it more difficult for me to one day purchase a house of my own.
Way to go on comparing apples and oranges. Bankruptcy does lead to modified contracts but the process of these modifications has been known for decades. It is well known and bankruptcy law has been relatively stable. If Obama et al. decided to change bankruptcy law every month in ill-defined ways then you will see the same cry for the same well-justified reason: the government induced uncertainty is far more harmful as compared to the benefits.
"There's really no good reason for homes to be an exception and it's one of the more direct ways to keep people in homes."
Pure bullshit. There is an excellent reason to have special rules regarding housing when it comes to bankruptcy and mortgages. Namely, if lenders are assured that their claim to the property will not be removed during a bankruptcy, the loan is a lower risk loan and will therefore result in lower interest payments. Historically, this has been correct. The current housing glut is partly due to the over-exuberance of bankers (for which they should be allowed to go bankrupt) and partly due to government action like Fannie Mae and Freddy Mac which subsidized housing for years, excessively loose monetary policy which reduced the price of debt in general (and since housing is already is nice market for debt due to bankruptcy law, this hit housing very hard), community-reinvestment act and friends, etc...
"Frankly, this is probably better for all of us considering the massive overallocation of resources to housing investment and the current existence of too much housing stock."
So houses are overvalued. Yeah, but the problem lies with the other congressional regulation which indeed needs to go down the drain but now we are dreaming.
"Either we help people stay in them and they cover a percent of the mortgage or we kick them out and sell the house to... oh wait. Yeah. I'm more scared of the knockon effects of allowing a massive devaluation in housing than the potential knockon effects of judges modifying mortgages in bankruptcy just like they modify all other obligations in bankruptcy."
Um... either way, the value of houses decline. Just that one way, home owners are still stuck under what is possibly crushing debt and we have just established a precedent that Irresponsible debt = GOOD and by implication Responsibility and financial planning = BAD and in a society which already has too much debt, do you really want to do that? In contrast, with the other path, we allow the banks to do what they do best: deal with mortgages.
"Further, Phil was talking to people with $2 TRILLION to invest? Um, maybe, but that's 15 percent of US GDP. Pretty rare air there, and the idea that all these people (and perhaps Phil, too) weren't simply talking their book is nonsense."
Um... the US economy has ~$150 trillion of capital (by some reliable counts. This is a difficult variable to determine). GDP is how much that increases. You do realize that $2 Trillion is nowhere close to what these people will earn. Furthermore, the second part is ad hominem (which is not complete unjustified as these people rely heavily on their reputation in the article). Still their basic point that investors are scared shitless of an overly active (and in this case, confused) government. This has actually been demonstrated in the past. In particular, it is very interesting to look at investor confidence surveys during ~1938 (when FDR was Mr. Anti-Business) and ~1942-3 (when FDR was Mr. Win-The-War). Investment and gdp numbers also closely follow.
Lastly, this is not the first time that I have heard this sentiment.
Look here: http://www.smartmoney.com/investing/stocks/government-interv... . Whats really interesting about this article is that it was written in September 2008. The article predicts that as long as government keeps meddling in the markets, prices will remain low and uncertain. Lo-and-behold, a forward looking prediction that came to be true. Admittedly, this could be coincidence but then again this is the most plausible thing that I have seen in the last 6 months of this entire affair.
And yes, lenders blah blah bah lower risk blah. How's that working out for them? The fact is (and nobody is disputing this) homes are overpriced. Home prices will fall. How far and how fast is a matter of direct interest to most people in the nation, particularly other homeowners. Measures we can create to prevent overshooting on the downside are probably worthwhile. If we can get people to cover a large portion of their mortgage debt, the nation as a whole is probably better off -- fewer bank defaults (and those are your retirement and insurance funds at risk), fewer fund collapses (again, your retirement and insurance and etc were invested into those CDOs), fewer foreclosures, fewer disrupted communities, higher home prices for non-foreclosed households, etc.
The whole idea that we could just foreclose and the bank could get their money out hasn't been tested with a crisis like this. In some communities in socal and Florida, 50% of home sales are foreclosure sales! The bank is going to recover what -- probably well under 50 cents on the dollar in this case. Finally, the whole bit about a judge changing the terms of the mortgage does prevent people from being stuck under crushing debt -- that's the point!
Finally, the author of your link is, well... stupid. Very briefly: Bear Stearns was rescued because if they failed, they'd take all the other banks with them via intertwined obligations. We need banks to act as financial intermediaries in all sorts of transactions... no banks, no credit markets, no ability for people and business to borrow, no economy. Fannie and Freddie got bailed out because, well, amongst other reasons China told us to. And when somebody owns more than a trillion dollars of your debt, you need foreign central banks to buy another trillion or two in 2009, when they say jump we get to say how high sir.
Now look -- you appear to think that I'm happy with this situation; like other people, particularly those of us that don't own homes, I'm pretty pissed off about the whole thing. But the time for preventing this was in 2000- maybe 2005, and now what's done is done and the best we can do is ameliorate this for as many people as possible. That pretty directly implies the government should do their best to stop the rapid home price falls... the prices will fall no matter what, but the more they fall in real instead of nominal terms probably the better off the nation will be.
Finally, prices in the markets aren't low and uncertain because of government meddling -- prices are low and uncertain because most banks are probably bankrupt, we as a country are sitting on enormous piles of bad debt and nobody can figure out whom and how bad, and btw, the entire world is entering a severe recession. Simultaneously. From China's imports that plunged this month, to the US, to Korea, to England and W Europe, it's hard to find any bright spots in this economy.
The fact is (and nobody is disputing this) homes are
overpriced. Home prices will fall. How far and how fast
is a matter of direct interest to most people in the
nation, particularly other homeowners. Measures we can
create to prevent overshooting on the downside are
probably worthwhile.
Anyways, I'm reminded of the time in kindergarten when I brought my piggy bank to school for show-and-tell, and dropped it like a stupid fucking clumsy five-year-old. My teacher, a government employee, glued that shit back together good as new. So, anytime you find yourself glum about the ineffectiveness of government, about their chronic inability to fix anything, please remember my piggy bank and take heart. They fixed that good.