Everybody needs to cut through the spin and propaganda and see things the way they are. Terms such as “stimulus”, “relief”, “QE” and “help”are all either deflation stopping plans or wealth transfers. Yes, often times, irresponsible borrows are in the line of fire of these two things.
The whole banking system is bankrupt. Which is why they have fraudulent accounting rules and currently indefinite short selling bans in Europe. And Buffet just stepped in to save BofA.
RE values are connected to the health of ALL the big banks. They drew a line in the sand and are doing everything they can to uphold that line. The further it drops the more bankrupt the banks are.
Not that I think these things will work – but acceptance that the whole system is dead will be instant-depression and market panics. So we have to lie to ourselves to maintain social functionality.
So as for all the moral hazards, poor incentives, etc.. They are not looking at it ideologically or with any type of principles whatsoever – they are looking at is systemically. Where “systemically” to throw money to keep it propped up. That’s it.
Which would be lowering payments, principle forgiveness and any host of other areas to shield the banks from risk, keep people paying in their overpriced homes and maintain that line in the sand.
We will continue to focus all energies on propping up asset prices and stimulating aggregate demand for the consumer economy, until we can’t anymore. How long that is is anybodies guess – it goes far beyond the current administration into geo-politics and really the structure of the whole global economy.
