Of course this has been discussed here before many times, mostly with a tone of outrage.
As one of those “responsible” types who would not qualify for the free boost to my balance sheet, I really want to find a reason not to like this idea. But I’ll step back and try to be objective.
[/quote]
I wouldn’t qualify either. Frankly, I feel sorry for those that would. I mean, how financially challenged are these folks? Helping these folks – who are at least trying to be responsible – wouldn’t bother me too much at this point. I certainly wouldn’t want to trade places with them.
[quote=pri_dk]
I agree the idea has merits. Mainly, it eliminates the huge transaction costs of the slow but inevitable foreclosure process. Most of the underwater portion of mortgage debt will ultimately be written off balance sheets anyway, so why not just get it over with?[/quote]
Also, recall that a goodly portion of this money would effectively be going to Fannie/Freddie… which we as taxpayers already own! So, there’s a circular reference in this strategy as well.
[quote=pri_dk]
But what about government? What is the government really doing here? They are sending out checks, but only to forgive debt that is already lost. Is there a cost? Where does the money come from – can the government just “print” this money since it isn’t real anyway?[/quote]
Yes, the Federal Reserve can just print the money (in effect). This is one iteration of Bernanke’s “helicopter” strategy.
[quote=pri_dk]
And in what ways is this different from taking on (and monetizing) debt? [/quote]
None, in effect. This would be a “targeted monetization” of consumer debt as opposed to a “general monetization” of government debt, which is what the various QEs are.
[quote=pri_dk]
It could work, but it is definitely uncharted territory.[/quote]
Yup, the devil’s in the details… and we just don’t know.
