While squeezing my mind to finish this Yedioth Aharonoth newspaper printshop plan, it ocurred to me that the 2008/9 world financial crisis was totally unnecessary. It all started with the realization that house prices in the USA were falling, and in many cases the mortgage was higher then the house's market value. Suddenly there was fear that the mortgage holders, especially the poorer ones, will stop paying their debts. According my calculations then, the amount in question was about 300 million dollars. But fear spread because the mortgages had been packaged and distributed worldwide - suddenly no one knew how much their "packet" was worth. American government forced the banks to declare how much they were about to lose and they could not do it because no one knew how much the "packets" were worth. Any "packet" that had even a minimum of doubtful mortgages was considered lost and billions were put apart to cover those potential losses. Suddenly the banks were considered broke and panic ensued. Wall Street banks lost the faith of the public and the government and giant Merryl collapsed overnight. To relax the stress, American government poured 900 billion dollars into the banks, but people is so full of fear and anxiety that they are buying gold and burying in the garden.
We are two years after the initial panic, and it appears that the fucked Americans whose mortgages are worth more than their houses are different from Wall Street financiers and are paying their debts. The panic was unnecessary, Americans and even the lumpen are basically decent folks that pay their debts. If the government, instead of demanding transparency from the banks, had let them work out the problem in a fog and ambiguity, the thing would have passed unnoticed. Alternatively, if the government would have quietly guaranteed the 300 million dollar doubtful debts, mostly incurred within the framework of government inducement, the banks would have never collapsed. So instead of offering a silent guarantee for 300 million, the government had to pay out 900 billion and sell off the next American generation into lifelong debt servitude to the Chinese. The imbeciles lost from sight the fact that all the banks are in technical bankrupcy all the time, that the thing that makes the world go on is the faith that things are stable and secure, that they are led by smart and honest individuals. When the Government fails to maintain this illusion, chaos and panic follows. unnecessary chaos and panic. Wars have been lost because of these nervous crisis.
11 comments:
How would your solution stop the irrational exuberance of housing prices? Don't those that were saved from paying too much for a house have rights too?
Viking
I wouldnt try to stop it. It will stop alone.
I think you underestimated the dimensions of the housing bubble. Where do you get $300 million from? I agree that it was not handled correctly, but to keep pumping the bubble up was not the right way either. There was a lot of criminal fraud involved. As usual in America, there was a racial dimension which prevents people from saying the truth in public. Race is the 3rd rail of American society, that no one respectable can touch or they will be labeled a racist which is like being a Nazi (lately, there is a whole new game among liberal commentators - if you say Obama is "skinny", this is coded racism, if you say he is "glib", also coded racism, anything you say to criticize him is racist so he cannot be criticized at all) , so you can read 1000 articles and not hear anyone speak the unspeakable truth. Houses in Detroit that were not even worth $20,000 were being sold for $200,000 and various people, including the "borrower" were taking cash out (and not putting one cent of equity in). The borrower did not have the income to pay a $200,000 mortgage - sometimes they would not even pay one payment. Then when the bubble collapsed the "owners" walked away from the house and the debt holder lost the entire $200,000. Because the "owner" was black and black people are considered to be children and not have responsibility for their actions (if they do anything bad it is because they are manipulated by whites), no one is sent to jail. Obviously this is not 100% of the problem but it created a base to the market and everything else stood on top of it - if a house in the ghetto in Detroit is worth $200,000, then a house in the suburbs is worth $400,000, etc. There was a conspiracy all around - the liberals in Congress wanted black people to live in fancy houses, the banks wanted to make loans and resell them, etc. As long as the market kept rising, the bank could foreclose and resell the house, so they didn't care that the borrower couldn't pay the mortgage. The basic principle of credit underwriting - that you should only lend money to people who can actually pay it back, was completely lost (this was apparently another outmoded "racist" concept). This was not a sustainable model.
K
Exactly. That racial taboo inhibited legislators to act on what was a simple mortgage problem. The whole subprime mortgage problem was about 300 million dollars potential loss, and now we know that Moody was right and in average, most people did not default intheir mortgage payments and they keep paying evennow that the worth of their house is lower than their mortgage. American people, even the dumbest, are basically honest.
Mortgage defaults in America are infrequent. As for the question where from 300 million? From the same place that came the 900 billion being distributed these days.
The pound is next to go belly-up.
Anon.
What do you mean? The dollar is not yet dead. The euro is fighting back courageously. Do you think the speculative attack against the euro will succeed?
Wait - currencies can only go down in relation to other currencies. It's impossible that the pound, the dollar and the euro will ALL go down relative to each other.
K
It's impossible that the pound, the dollar and the euro will ALL go down relative to each other.
They can go down in absolute terms, losing purchasing power at the same time.
The pound will be worst affected, in the short term.
It has not escaped my attention that they can't all go down against each other, but Ronduck is right too; these countries will all have to devalue their debt obligations via inflation.
The best (western) country, economically, is Canada but they cannot afford to let their dollar get overvalued in comparison to the US $.
Anon.
Apparenty Britain is broke, not less than Greece. The country with largest IQ/GNP difference is North Korea, herefore it has the larges potential for catching up in no time. How can one invest in that country?
You can't. Not legally, anyway.
Maybe through Chinese proxies.
But this is not for widows and orphans.
Alternatively, seize the bull by the horns, and start a fund:
"J's Dear Leader Hedge Fund",
register it it in Panama, or one of the many newly emerged crime states of the Western world, and knock on Kim's door. You might even get a hearing.
Anon.
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