Some math on how we’re going to get out of this mess

[CA renter]

davelj,

Thank you very much for your well thought-out response. I was the one who originally asked for your suggestions, and apologize for not having read this thread sooner, as I’ve been out of town and busy with the holidays, etc. and missed it for some reason.

We’re in agreement that the problem is too much debt. In some ways, we agree on the solutions.

Your quotes will be in bold…

Now, that $2 trillion in mortgage-related losses that we, the good taxpayers of the US, are going to eat will largely consist of principal reductions given to homeowners in order to lower their mortgage payments.

I actually agree with principal reductions — and advocated for them in 2007 and early 2008 in letters and phone calls to the Federal Reserve, Treasury, congressional representatives, and I suggested it at a Community Reinvestment Task Force meeting earlier this year — but think the losses need to be borne by the lenders themselves. Additionally, the written-down amount should be held as a second lien against the house that would be due upon sale or refinance of the house. If the lenders and borrowers can’t agree to this, then they should foreclose. There is no reason for the taxpayers to take on the risks assumed by the lenders and borrowers.

If the costs are not isolated to the lenders and borrowers who took the risks, and there is no negative outcome for them, then every single homeowner in the U.S. will want a mortgage principle reduction…and rightly so! There is no way we (the taxpayers) can afford to do that.

Also, if it’s any consolation, it will help us avoid a depression which would be even more painful than the ultimate bill associated with bailing out these irresponsible fucksticks.

The “systemic risk” argument for a taxpayer bailout of the financial entities who made massive amounts of money during the run-up, and have yet to be jailed and have those assets stripped and used as compensation for their vicims… As long as insured deposits are saved (FDIC, Treasuries, and perhaps SIPC), exactly why will failing banks cause a depression any more than if we spend trillions of dollars bailing them out? Whether we lose the trillions as they fail, or lose the trillions as we default on our federal debt, we lose. If they fail, stronger, better-capitalized banks and lending institutions will replace them, no? Besides, we need fewer lenders, because we need to have less debt. Eliminate the lending capacity via fewer lenders and less leverage, and we are on our way to a recovery from the disease that is debt!

From what I understand, the big risks are in the derivatives markets. Unfortunately, pension funds and various government entities are invested in these, and those **might** deserve to be bailed out, but the financial entities themselves? Not so sure about that.

All that being said, I have long believed that we would be heading into a multi-year, severe recession/depression; and I do think that we will need to offset some of the deflationary destruction that is heading our way. I support efforts to help the middle class via jobs programs. It would be wonderful to redirect our energies and money toward productive enterprise — infrastructure, transportaion, energy, healthcare technologies, etc.

It’s high time the FIRE industry took a back seat to the real economy. We need to focus on the middle class, and do what’s right for the country as a whole, not what’s best for Wall Street and Washington D.C. They have destroyed enough already.

[stockstradr]

Great, brilliant posts from gandalf. Now this thread is getting interesting.

[stockstradr]

Great, brilliant posts from gandalf. Now this thread is getting interesting.

[stockstradr]

Great, brilliant posts from gandalf. Now this thread is getting interesting.

[stockstradr]

Great, brilliant posts from gandalf. Now this thread is getting interesting.

[stockstradr]

Great, brilliant posts from gandalf. Now this thread is getting interesting.

[gandalf]

Ditto, CArenter.

“It seems to me what our nation needs is more civil engineers and electrical engineers and fewer financial engineers,” Volcker said.

And I agree with your suggestions about remediation but expect it’s water under the bridge at this point. Feds will do what they want to do. Measures will buffer the downturn for the banking sector, not much else.

Yes, credit risks and losses seem to spread far beyond the residential real estate and secondary mortgage markets. It’s pervasive.

[gandalf]

Ditto, CArenter.

“It seems to me what our nation needs is more civil engineers and electrical engineers and fewer financial engineers,” Volcker said.

And I agree with your suggestions about remediation but expect it’s water under the bridge at this point. Feds will do what they want to do. Measures will buffer the downturn for the banking sector, not much else.

Yes, credit risks and losses seem to spread far beyond the residential real estate and secondary mortgage markets. It’s pervasive.

[gandalf]

Ditto, CArenter.

“It seems to me what our nation needs is more civil engineers and electrical engineers and fewer financial engineers,” Volcker said.

And I agree with your suggestions about remediation but expect it’s water under the bridge at this point. Feds will do what they want to do. Measures will buffer the downturn for the banking sector, not much else.

Yes, credit risks and losses seem to spread far beyond the residential real estate and secondary mortgage markets. It’s pervasive.

[gandalf]

Ditto, CArenter.

“It seems to me what our nation needs is more civil engineers and electrical engineers and fewer financial engineers,” Volcker said.

And I agree with your suggestions about remediation but expect it’s water under the bridge at this point. Feds will do what they want to do. Measures will buffer the downturn for the banking sector, not much else.

Yes, credit risks and losses seem to spread far beyond the residential real estate and secondary mortgage markets. It’s pervasive.

[gandalf]

Ditto, CArenter.

“It seems to me what our nation needs is more civil engineers and electrical engineers and fewer financial engineers,” Volcker said.

And I agree with your suggestions about remediation but expect it’s water under the bridge at this point. Feds will do what they want to do. Measures will buffer the downturn for the banking sector, not much else.

Yes, credit risks and losses seem to spread far beyond the residential real estate and secondary mortgage markets. It’s pervasive.

[davelj]

[quote=CA renter]

The “systemic risk” argument for a taxpayer bailout of the financial entities who made massive amounts of money during the run-up, and have yet to be jailed and have those assets stripped and used as compensation for their vicims… As long as insured deposits are saved (FDIC, Treasuries, and perhaps SIPC), exactly why will failing banks cause a depression any more than if we spend trillions of dollars bailing them out? Whether we lose the trillions as they fail, or lose the trillions as we default on our federal debt, we lose. If they fail, stronger, better-capitalized banks and lending institutions will replace them, no? Besides, we need fewer lenders, because we need to have less debt.

It’s high time the FIRE industry took a back seat to the real economy. We need to focus on the middle class, and do what’s right for the country as a whole, not what’s best for Wall Street and Washington D.C. They have destroyed enough already.

[/quote]

I have no problem with zeroing out the common, preferred and parts of the debt structure of these huge banks that are on the brink. (That would be “almost” like allowing them to fail.) I’ve got no financial or emotional attachment to their survival, per se. But, as I’ve said before, I don’t want to do it all at once because of the enormous business disruption it would cause and the impact it would have on the real economy. But that’s just me. These banks are so huge, unfortunately, that I think it would take quite some time for the “stronger, better-capitalized banks to fill the lending void.” I actually think we need MORE lenders as opposed to fewer lenders. But we need all these lenders, in aggregate, to do less lending. More lenders, less concentration, less systemic risk. Part of the problem is that we’ve allowed a handful of banks to get too large. And these banks happen to have the most leverage and (among the) riskiest assets.

As to your last paragraph, I agree. But the devil’s in the details in terms of getting from A to B.

[davelj]

[quote=CA renter]

The “systemic risk” argument for a taxpayer bailout of the financial entities who made massive amounts of money during the run-up, and have yet to be jailed and have those assets stripped and used as compensation for their vicims… As long as insured deposits are saved (FDIC, Treasuries, and perhaps SIPC), exactly why will failing banks cause a depression any more than if we spend trillions of dollars bailing them out? Whether we lose the trillions as they fail, or lose the trillions as we default on our federal debt, we lose. If they fail, stronger, better-capitalized banks and lending institutions will replace them, no? Besides, we need fewer lenders, because we need to have less debt.

It’s high time the FIRE industry took a back seat to the real economy. We need to focus on the middle class, and do what’s right for the country as a whole, not what’s best for Wall Street and Washington D.C. They have destroyed enough already.

[/quote]

I have no problem with zeroing out the common, preferred and parts of the debt structure of these huge banks that are on the brink. (That would be “almost” like allowing them to fail.) I’ve got no financial or emotional attachment to their survival, per se. But, as I’ve said before, I don’t want to do it all at once because of the enormous business disruption it would cause and the impact it would have on the real economy. But that’s just me. These banks are so huge, unfortunately, that I think it would take quite some time for the “stronger, better-capitalized banks to fill the lending void.” I actually think we need MORE lenders as opposed to fewer lenders. But we need all these lenders, in aggregate, to do less lending. More lenders, less concentration, less systemic risk. Part of the problem is that we’ve allowed a handful of banks to get too large. And these banks happen to have the most leverage and (among the) riskiest assets.

As to your last paragraph, I agree. But the devil’s in the details in terms of getting from A to B.

[davelj]

[quote=CA renter]

The “systemic risk” argument for a taxpayer bailout of the financial entities who made massive amounts of money during the run-up, and have yet to be jailed and have those assets stripped and used as compensation for their vicims… As long as insured deposits are saved (FDIC, Treasuries, and perhaps SIPC), exactly why will failing banks cause a depression any more than if we spend trillions of dollars bailing them out? Whether we lose the trillions as they fail, or lose the trillions as we default on our federal debt, we lose. If they fail, stronger, better-capitalized banks and lending institutions will replace them, no? Besides, we need fewer lenders, because we need to have less debt.

It’s high time the FIRE industry took a back seat to the real economy. We need to focus on the middle class, and do what’s right for the country as a whole, not what’s best for Wall Street and Washington D.C. They have destroyed enough already.

[/quote]

I have no problem with zeroing out the common, preferred and parts of the debt structure of these huge banks that are on the brink. (That would be “almost” like allowing them to fail.) I’ve got no financial or emotional attachment to their survival, per se. But, as I’ve said before, I don’t want to do it all at once because of the enormous business disruption it would cause and the impact it would have on the real economy. But that’s just me. These banks are so huge, unfortunately, that I think it would take quite some time for the “stronger, better-capitalized banks to fill the lending void.” I actually think we need MORE lenders as opposed to fewer lenders. But we need all these lenders, in aggregate, to do less lending. More lenders, less concentration, less systemic risk. Part of the problem is that we’ve allowed a handful of banks to get too large. And these banks happen to have the most leverage and (among the) riskiest assets.

As to your last paragraph, I agree. But the devil’s in the details in terms of getting from A to B.

[davelj]

[quote=CA renter]

The “systemic risk” argument for a taxpayer bailout of the financial entities who made massive amounts of money during the run-up, and have yet to be jailed and have those assets stripped and used as compensation for their vicims… As long as insured deposits are saved (FDIC, Treasuries, and perhaps SIPC), exactly why will failing banks cause a depression any more than if we spend trillions of dollars bailing them out? Whether we lose the trillions as they fail, or lose the trillions as we default on our federal debt, we lose. If they fail, stronger, better-capitalized banks and lending institutions will replace them, no? Besides, we need fewer lenders, because we need to have less debt.

It’s high time the FIRE industry took a back seat to the real economy. We need to focus on the middle class, and do what’s right for the country as a whole, not what’s best for Wall Street and Washington D.C. They have destroyed enough already.

[/quote]

I have no problem with zeroing out the common, preferred and parts of the debt structure of these huge banks that are on the brink. (That would be “almost” like allowing them to fail.) I’ve got no financial or emotional attachment to their survival, per se. But, as I’ve said before, I don’t want to do it all at once because of the enormous business disruption it would cause and the impact it would have on the real economy. But that’s just me. These banks are so huge, unfortunately, that I think it would take quite some time for the “stronger, better-capitalized banks to fill the lending void.” I actually think we need MORE lenders as opposed to fewer lenders. But we need all these lenders, in aggregate, to do less lending. More lenders, less concentration, less systemic risk. Part of the problem is that we’ve allowed a handful of banks to get too large. And these banks happen to have the most leverage and (among the) riskiest assets.

As to your last paragraph, I agree. But the devil’s in the details in terms of getting from A to B.

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