[quote=FormerSanDiegan]
Yes, that was me. Just caught this thread.
For every dollar not paid back to the lender, there is one less dollar for the holder of the note that was secured by that property. The holder of that note has one less dollar to spend, be it on pension payouts, development, venture capital or whatever.
The net sum is not positive, since we have an economic system based on credit. For every dollar lost in reserve at a bank there are several dollars not available to lend. The net effect is negative.
If people NOT paying their mortgages is a net positive to the economy, why did our economy approach the brink of the next great Depression when the sub-prime borrowers stopped making payments ?
Paul Jackson’s analysis quoted in this CNBC article ignores the other side of the ledger and is thus incomplete.[/quote]
Not a problem when the govt takes those loans off your hands (via refinancing through Fannie, Freddie, and FHA, etc.) at or near par…or when the Fed loans you money against those loans, also at or near par.
A lot of the “bad” debt has been shifted over the past couple of years from the private sector to the public sector. IMHO, this is why prices have been kept so high — they wanted to exchange this debt at a high price so the private market could recoup their money without the political fallout that would have occurred if the govt paid par AFTER it had already tanked. This way, it looks like they are doing J6 a favor by refinancing their “toxic” mortgage into a 30-yr FRM at very reduced rates. In reality, they are only interested in helping the banking sector.
