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December 23, 2008 at 9:43 AM in reply to: Some math on how we’re going to get out of this mess #319642December 23, 2008 at 9:43 AM in reply to: Some math on how we’re going to get out of this mess #319692
davelj
Participant[quote=4plexowner]
260% debt was too much in the 1920’s
are we capable of carrying these debt levels for another decade?
************
none of the bailout plans so far have made much difference to the housing marketreducing mortgage principal might help some people but the ‘forgiveness’ plans I have read about just transfer the ‘forgiven’ part of the loan into a 2nd note or lien that remains a burden on the property – the new mortgage is likely to be a recourse loan so the ‘forgiven’ loan holder puts their other assets at risk – better to walk away IMO
outright forgiveness of mortgage principal would have to be widespread and dramatic – we are talking about millions of mortgages which, in some cases, are underwater by several hundred thousand dollars per mortgage – it is possible but I’m not holding my breath
rewriting mortgages is complicated by the layers of derivative paper written against bundled mortgages – what happens to these MBS, CDO, etc when the mortgages bundled within them are being written down? – some of these derivatives have clauses that force the issuer to repurchase ‘bad’ mortgages at face value
~
what signs do you see that indicate any slowing of debt build?
I see articles talking about $2 and $3 trillion dollar deficits in 2009 – lots of new spending with no reductions in existing spending
again, time will tell[/quote]
The structure of the debt of the late-1920s was very different than today. Much shorter-term and at higher rates, so the payments as a percentage of income were higher. Don’t get me wrong, I think a more sustainable – that is, “healthy” – level of debt-to-GDP is under 250% (200% would be nice), but the total debt service ratio at 280% today (given mortgage and treasury rates and terms) would be materially lower than the debt service ratio of the late-1920s. Again, I’m all for less debt. I’m just trying to compare apples to apples from an economic standpoint.
Where the mortgage restructuring issue is concerned, as I mentioned in my original post, the issue is that restructuring these things is complicated. I’m right there with you on this issue. It all looks good on paper, but actually going through these things one by one is a major undertaking. Again, even though it rewards dummies, I’m for outright principal reductions that we – via our ownership of Fannie and Freddie – will eat. But that’s just me. A year ago I would have been against it, but my tune has changed based on the severity of the situation. From a pragmatic standpoint, I’d rather eat my share of those losses via higher taxes than see a depression. Again, that’s just me.
Regarding federal debt, recall that a lot of the debt we’re taking on right now is backed by assets. Some of these assets are of dubious quality, mind you, but most are not. I think, for example, that the TARP money going into banks will be, net/net, money good. We’ll lose some money in a few cases, but we’ll make it back on the others. The vast majority of the banks getting the TARP money will survive, pay back principal and interest and the equity stakes will be worth something. But a few will fall over, undoubtedly.
The REAL NEW debt is comprised of (1) the various stimulus plans and (2) the losses we take on however we decide to tackle the residential mortgage issue. These are pure holes that have to be filled and will likely total a few $trillion, as I addressed in my previous post. And even the stimulus isn’t a total hole – there will be some real benefits gained. But I think you get the point.
December 23, 2008 at 9:43 AM in reply to: Some math on how we’re going to get out of this mess #319709davelj
Participant[quote=4plexowner]
260% debt was too much in the 1920’s
are we capable of carrying these debt levels for another decade?
************
none of the bailout plans so far have made much difference to the housing marketreducing mortgage principal might help some people but the ‘forgiveness’ plans I have read about just transfer the ‘forgiven’ part of the loan into a 2nd note or lien that remains a burden on the property – the new mortgage is likely to be a recourse loan so the ‘forgiven’ loan holder puts their other assets at risk – better to walk away IMO
outright forgiveness of mortgage principal would have to be widespread and dramatic – we are talking about millions of mortgages which, in some cases, are underwater by several hundred thousand dollars per mortgage – it is possible but I’m not holding my breath
rewriting mortgages is complicated by the layers of derivative paper written against bundled mortgages – what happens to these MBS, CDO, etc when the mortgages bundled within them are being written down? – some of these derivatives have clauses that force the issuer to repurchase ‘bad’ mortgages at face value
~
what signs do you see that indicate any slowing of debt build?
I see articles talking about $2 and $3 trillion dollar deficits in 2009 – lots of new spending with no reductions in existing spending
again, time will tell[/quote]
The structure of the debt of the late-1920s was very different than today. Much shorter-term and at higher rates, so the payments as a percentage of income were higher. Don’t get me wrong, I think a more sustainable – that is, “healthy” – level of debt-to-GDP is under 250% (200% would be nice), but the total debt service ratio at 280% today (given mortgage and treasury rates and terms) would be materially lower than the debt service ratio of the late-1920s. Again, I’m all for less debt. I’m just trying to compare apples to apples from an economic standpoint.
Where the mortgage restructuring issue is concerned, as I mentioned in my original post, the issue is that restructuring these things is complicated. I’m right there with you on this issue. It all looks good on paper, but actually going through these things one by one is a major undertaking. Again, even though it rewards dummies, I’m for outright principal reductions that we – via our ownership of Fannie and Freddie – will eat. But that’s just me. A year ago I would have been against it, but my tune has changed based on the severity of the situation. From a pragmatic standpoint, I’d rather eat my share of those losses via higher taxes than see a depression. Again, that’s just me.
Regarding federal debt, recall that a lot of the debt we’re taking on right now is backed by assets. Some of these assets are of dubious quality, mind you, but most are not. I think, for example, that the TARP money going into banks will be, net/net, money good. We’ll lose some money in a few cases, but we’ll make it back on the others. The vast majority of the banks getting the TARP money will survive, pay back principal and interest and the equity stakes will be worth something. But a few will fall over, undoubtedly.
The REAL NEW debt is comprised of (1) the various stimulus plans and (2) the losses we take on however we decide to tackle the residential mortgage issue. These are pure holes that have to be filled and will likely total a few $trillion, as I addressed in my previous post. And even the stimulus isn’t a total hole – there will be some real benefits gained. But I think you get the point.
December 23, 2008 at 9:43 AM in reply to: Some math on how we’re going to get out of this mess #319793davelj
Participant[quote=4plexowner]
260% debt was too much in the 1920’s
are we capable of carrying these debt levels for another decade?
************
none of the bailout plans so far have made much difference to the housing marketreducing mortgage principal might help some people but the ‘forgiveness’ plans I have read about just transfer the ‘forgiven’ part of the loan into a 2nd note or lien that remains a burden on the property – the new mortgage is likely to be a recourse loan so the ‘forgiven’ loan holder puts their other assets at risk – better to walk away IMO
outright forgiveness of mortgage principal would have to be widespread and dramatic – we are talking about millions of mortgages which, in some cases, are underwater by several hundred thousand dollars per mortgage – it is possible but I’m not holding my breath
rewriting mortgages is complicated by the layers of derivative paper written against bundled mortgages – what happens to these MBS, CDO, etc when the mortgages bundled within them are being written down? – some of these derivatives have clauses that force the issuer to repurchase ‘bad’ mortgages at face value
~
what signs do you see that indicate any slowing of debt build?
I see articles talking about $2 and $3 trillion dollar deficits in 2009 – lots of new spending with no reductions in existing spending
again, time will tell[/quote]
The structure of the debt of the late-1920s was very different than today. Much shorter-term and at higher rates, so the payments as a percentage of income were higher. Don’t get me wrong, I think a more sustainable – that is, “healthy” – level of debt-to-GDP is under 250% (200% would be nice), but the total debt service ratio at 280% today (given mortgage and treasury rates and terms) would be materially lower than the debt service ratio of the late-1920s. Again, I’m all for less debt. I’m just trying to compare apples to apples from an economic standpoint.
Where the mortgage restructuring issue is concerned, as I mentioned in my original post, the issue is that restructuring these things is complicated. I’m right there with you on this issue. It all looks good on paper, but actually going through these things one by one is a major undertaking. Again, even though it rewards dummies, I’m for outright principal reductions that we – via our ownership of Fannie and Freddie – will eat. But that’s just me. A year ago I would have been against it, but my tune has changed based on the severity of the situation. From a pragmatic standpoint, I’d rather eat my share of those losses via higher taxes than see a depression. Again, that’s just me.
Regarding federal debt, recall that a lot of the debt we’re taking on right now is backed by assets. Some of these assets are of dubious quality, mind you, but most are not. I think, for example, that the TARP money going into banks will be, net/net, money good. We’ll lose some money in a few cases, but we’ll make it back on the others. The vast majority of the banks getting the TARP money will survive, pay back principal and interest and the equity stakes will be worth something. But a few will fall over, undoubtedly.
The REAL NEW debt is comprised of (1) the various stimulus plans and (2) the losses we take on however we decide to tackle the residential mortgage issue. These are pure holes that have to be filled and will likely total a few $trillion, as I addressed in my previous post. And even the stimulus isn’t a total hole – there will be some real benefits gained. But I think you get the point.
December 23, 2008 at 9:24 AM in reply to: Some math on how we’re going to get out of this mess #319273davelj
Participantbarnaby, I don’t disagree with anything you’re saying but… I’m a pragmatist, not an idealist. My tax share of this bailout will be huge. But I’d rather pay my share than see the country go into a depression. And I suspect the govt will force it down our collective throats. So rather than get miffed about it, I find it more constructive to just accept it and plan accordingly. I would be more upset (and prone to “action”) if I thought our officials were evil and that all of these measures were going to be permanent, but I don’t believe that. They’re just bumblers who very slowly come around to reasonable answers. The irony is that as each month passes and the economy and credit markets get worse (or don’t improve in the latter case), I think the Officialdom has a better understanding of the problems and how to combat them. Again, it will be ugly and full of trial and error, but we’ll trudge through this thing.
December 23, 2008 at 9:24 AM in reply to: Some math on how we’re going to get out of this mess #319627davelj
Participantbarnaby, I don’t disagree with anything you’re saying but… I’m a pragmatist, not an idealist. My tax share of this bailout will be huge. But I’d rather pay my share than see the country go into a depression. And I suspect the govt will force it down our collective throats. So rather than get miffed about it, I find it more constructive to just accept it and plan accordingly. I would be more upset (and prone to “action”) if I thought our officials were evil and that all of these measures were going to be permanent, but I don’t believe that. They’re just bumblers who very slowly come around to reasonable answers. The irony is that as each month passes and the economy and credit markets get worse (or don’t improve in the latter case), I think the Officialdom has a better understanding of the problems and how to combat them. Again, it will be ugly and full of trial and error, but we’ll trudge through this thing.
December 23, 2008 at 9:24 AM in reply to: Some math on how we’re going to get out of this mess #319677davelj
Participantbarnaby, I don’t disagree with anything you’re saying but… I’m a pragmatist, not an idealist. My tax share of this bailout will be huge. But I’d rather pay my share than see the country go into a depression. And I suspect the govt will force it down our collective throats. So rather than get miffed about it, I find it more constructive to just accept it and plan accordingly. I would be more upset (and prone to “action”) if I thought our officials were evil and that all of these measures were going to be permanent, but I don’t believe that. They’re just bumblers who very slowly come around to reasonable answers. The irony is that as each month passes and the economy and credit markets get worse (or don’t improve in the latter case), I think the Officialdom has a better understanding of the problems and how to combat them. Again, it will be ugly and full of trial and error, but we’ll trudge through this thing.
December 23, 2008 at 9:24 AM in reply to: Some math on how we’re going to get out of this mess #319694davelj
Participantbarnaby, I don’t disagree with anything you’re saying but… I’m a pragmatist, not an idealist. My tax share of this bailout will be huge. But I’d rather pay my share than see the country go into a depression. And I suspect the govt will force it down our collective throats. So rather than get miffed about it, I find it more constructive to just accept it and plan accordingly. I would be more upset (and prone to “action”) if I thought our officials were evil and that all of these measures were going to be permanent, but I don’t believe that. They’re just bumblers who very slowly come around to reasonable answers. The irony is that as each month passes and the economy and credit markets get worse (or don’t improve in the latter case), I think the Officialdom has a better understanding of the problems and how to combat them. Again, it will be ugly and full of trial and error, but we’ll trudge through this thing.
December 23, 2008 at 9:24 AM in reply to: Some math on how we’re going to get out of this mess #319778davelj
Participantbarnaby, I don’t disagree with anything you’re saying but… I’m a pragmatist, not an idealist. My tax share of this bailout will be huge. But I’d rather pay my share than see the country go into a depression. And I suspect the govt will force it down our collective throats. So rather than get miffed about it, I find it more constructive to just accept it and plan accordingly. I would be more upset (and prone to “action”) if I thought our officials were evil and that all of these measures were going to be permanent, but I don’t believe that. They’re just bumblers who very slowly come around to reasonable answers. The irony is that as each month passes and the economy and credit markets get worse (or don’t improve in the latter case), I think the Officialdom has a better understanding of the problems and how to combat them. Again, it will be ugly and full of trial and error, but we’ll trudge through this thing.
December 7, 2008 at 6:16 PM in reply to: FDIC Loan Modification Program *Screw the borrower* #312618davelj
Participant[quote=CA renter]davelj wrote:
Look, I’m quite bearish. But data suggests that avoiding a depression is easily achievable with the right policy response.
——————What would you propose?[/quote]
I’m going to get to this – I promise – but I don’t have time at the moment. I’ve been juggling various strategies in my head but need to put pen to paper.
But I’ll say this for the moment – the problem isn’t financial capacity; it’s politics. It would be more beneficial to have a marginal, modestly effective strategy enacted immediately than to have the “perfect” strategy enacted over 2 years. Because 2 years is too long to wait. The danger here is the politics of the thing. There’s a lot of dawdling on about whose ox is getting gored and whose isn’t.
December 7, 2008 at 6:16 PM in reply to: FDIC Loan Modification Program *Screw the borrower* #312975davelj
Participant[quote=CA renter]davelj wrote:
Look, I’m quite bearish. But data suggests that avoiding a depression is easily achievable with the right policy response.
——————What would you propose?[/quote]
I’m going to get to this – I promise – but I don’t have time at the moment. I’ve been juggling various strategies in my head but need to put pen to paper.
But I’ll say this for the moment – the problem isn’t financial capacity; it’s politics. It would be more beneficial to have a marginal, modestly effective strategy enacted immediately than to have the “perfect” strategy enacted over 2 years. Because 2 years is too long to wait. The danger here is the politics of the thing. There’s a lot of dawdling on about whose ox is getting gored and whose isn’t.
December 7, 2008 at 6:16 PM in reply to: FDIC Loan Modification Program *Screw the borrower* #313006davelj
Participant[quote=CA renter]davelj wrote:
Look, I’m quite bearish. But data suggests that avoiding a depression is easily achievable with the right policy response.
——————What would you propose?[/quote]
I’m going to get to this – I promise – but I don’t have time at the moment. I’ve been juggling various strategies in my head but need to put pen to paper.
But I’ll say this for the moment – the problem isn’t financial capacity; it’s politics. It would be more beneficial to have a marginal, modestly effective strategy enacted immediately than to have the “perfect” strategy enacted over 2 years. Because 2 years is too long to wait. The danger here is the politics of the thing. There’s a lot of dawdling on about whose ox is getting gored and whose isn’t.
December 7, 2008 at 6:16 PM in reply to: FDIC Loan Modification Program *Screw the borrower* #313029davelj
Participant[quote=CA renter]davelj wrote:
Look, I’m quite bearish. But data suggests that avoiding a depression is easily achievable with the right policy response.
——————What would you propose?[/quote]
I’m going to get to this – I promise – but I don’t have time at the moment. I’ve been juggling various strategies in my head but need to put pen to paper.
But I’ll say this for the moment – the problem isn’t financial capacity; it’s politics. It would be more beneficial to have a marginal, modestly effective strategy enacted immediately than to have the “perfect” strategy enacted over 2 years. Because 2 years is too long to wait. The danger here is the politics of the thing. There’s a lot of dawdling on about whose ox is getting gored and whose isn’t.
December 7, 2008 at 6:16 PM in reply to: FDIC Loan Modification Program *Screw the borrower* #313097davelj
Participant[quote=CA renter]davelj wrote:
Look, I’m quite bearish. But data suggests that avoiding a depression is easily achievable with the right policy response.
——————What would you propose?[/quote]
I’m going to get to this – I promise – but I don’t have time at the moment. I’ve been juggling various strategies in my head but need to put pen to paper.
But I’ll say this for the moment – the problem isn’t financial capacity; it’s politics. It would be more beneficial to have a marginal, modestly effective strategy enacted immediately than to have the “perfect” strategy enacted over 2 years. Because 2 years is too long to wait. The danger here is the politics of the thing. There’s a lot of dawdling on about whose ox is getting gored and whose isn’t.
December 7, 2008 at 6:05 PM in reply to: FDIC Loan Modification Program *Screw the borrower* #312608davelj
Participant[quote=jpinpb]If everyone gets money from the gov, that would homeowners and renters. If just the homeowners get bailed, the renters get screwed again, doubly, b/c their tax dollars will/is helping the bailout.[/quote]
Depends on how you look at it. Renters presumably have jobs. Many of those jobs would disappear in a depression. So avoiding a depression would be in renters’ best interests.
Also, the average – note I said AVERAGE – renter probably earns around the median income or below. These folks don’t pay much in the way of income tax anyway. So they won’t be paying for a big piece of the various bailouts either.
Finally, prices are going to continue heading down regardless, so renters who want to buy are still going to come out ahead. And for folks that want to keep renting just because they like renting… how are they getting screwed? I’m not seeing it.
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