[davelj]

[quote=HLS]Dave,
I know that you know your stuff..

Do you really believe that we are going to actually avoid a depression ??

It’s just being delayed for those that aren’t ready to attend yet, like a meeting that is running a few minutes late, waiting for more to show up.

I’m thinking that the future comparisons will be to the “Greatest Depression” which will be the one of 2007-2016, not the “Great” 1929-1941.

In your example, only their payment will be lower, not their balance.

…..happily ever after. THE END. HLS[/quote]

Yes, I believe we are going to avoid a depression, as defined by a peak-to-trough decline in GDP of 10% or more. If you look at the capacity for the govt. to borrow and stimulate (go back to WW II and you’ll see federal debt to GDP at 122% – right now we’re at about 70%) we’ve got many trillions of dollars of capacity. At very low rates. It gets paid off slowly – with lower corresponding GDP going forward – over the next 10-20 years. Painful, yes. But not the end of the world.

No, in my example, there is a blend of lower rates AND substantial principal reduction. That’s one way in which the lenders are going to lose. They just won’t lose as much as if all of these houses go into foreclosure.

Look, we’re in a serious bind here. Which is not surprising to me or anyone else here. But one thing we have going for us is the experience of Japan and the Great Depression to look back on for lessons of what not to do. Current policy prescriptions are far from perfect, but I will say this: they get marginally better each week. At least the Officialdom is “learning” from each little mistake and taking some marginal corrective action. I believe that we’re going to see a massive globally-coordinated stimulus plan in 2009. The US, Asia, Europe – the whole freakin’ globe. Will it prevent a steep, long recession? Nope. That’s baked into the cake no matter what happens. But if policy actions are handled properly, we should avoid a depression. The tools and capacity are there.

[davelj]

[quote=HLS]Dave,
I know that you know your stuff..

Do you really believe that we are going to actually avoid a depression ??

It’s just being delayed for those that aren’t ready to attend yet, like a meeting that is running a few minutes late, waiting for more to show up.

I’m thinking that the future comparisons will be to the “Greatest Depression” which will be the one of 2007-2016, not the “Great” 1929-1941.

In your example, only their payment will be lower, not their balance.

…..happily ever after. THE END. HLS[/quote]

Yes, I believe we are going to avoid a depression, as defined by a peak-to-trough decline in GDP of 10% or more. If you look at the capacity for the govt. to borrow and stimulate (go back to WW II and you’ll see federal debt to GDP at 122% – right now we’re at about 70%) we’ve got many trillions of dollars of capacity. At very low rates. It gets paid off slowly – with lower corresponding GDP going forward – over the next 10-20 years. Painful, yes. But not the end of the world.

No, in my example, there is a blend of lower rates AND substantial principal reduction. That’s one way in which the lenders are going to lose. They just won’t lose as much as if all of these houses go into foreclosure.

Look, we’re in a serious bind here. Which is not surprising to me or anyone else here. But one thing we have going for us is the experience of Japan and the Great Depression to look back on for lessons of what not to do. Current policy prescriptions are far from perfect, but I will say this: they get marginally better each week. At least the Officialdom is “learning” from each little mistake and taking some marginal corrective action. I believe that we’re going to see a massive globally-coordinated stimulus plan in 2009. The US, Asia, Europe – the whole freakin’ globe. Will it prevent a steep, long recession? Nope. That’s baked into the cake no matter what happens. But if policy actions are handled properly, we should avoid a depression. The tools and capacity are there.

[davelj]

[quote=HLS]Dave,
I know that you know your stuff..

Do you really believe that we are going to actually avoid a depression ??

It’s just being delayed for those that aren’t ready to attend yet, like a meeting that is running a few minutes late, waiting for more to show up.

I’m thinking that the future comparisons will be to the “Greatest Depression” which will be the one of 2007-2016, not the “Great” 1929-1941.

In your example, only their payment will be lower, not their balance.

…..happily ever after. THE END. HLS[/quote]

Yes, I believe we are going to avoid a depression, as defined by a peak-to-trough decline in GDP of 10% or more. If you look at the capacity for the govt. to borrow and stimulate (go back to WW II and you’ll see federal debt to GDP at 122% – right now we’re at about 70%) we’ve got many trillions of dollars of capacity. At very low rates. It gets paid off slowly – with lower corresponding GDP going forward – over the next 10-20 years. Painful, yes. But not the end of the world.

No, in my example, there is a blend of lower rates AND substantial principal reduction. That’s one way in which the lenders are going to lose. They just won’t lose as much as if all of these houses go into foreclosure.

Look, we’re in a serious bind here. Which is not surprising to me or anyone else here. But one thing we have going for us is the experience of Japan and the Great Depression to look back on for lessons of what not to do. Current policy prescriptions are far from perfect, but I will say this: they get marginally better each week. At least the Officialdom is “learning” from each little mistake and taking some marginal corrective action. I believe that we’re going to see a massive globally-coordinated stimulus plan in 2009. The US, Asia, Europe – the whole freakin’ globe. Will it prevent a steep, long recession? Nope. That’s baked into the cake no matter what happens. But if policy actions are handled properly, we should avoid a depression. The tools and capacity are there.

[davelj]

[quote=HLS]Dave,
I know that you know your stuff..

Do you really believe that we are going to actually avoid a depression ??

It’s just being delayed for those that aren’t ready to attend yet, like a meeting that is running a few minutes late, waiting for more to show up.

I’m thinking that the future comparisons will be to the “Greatest Depression” which will be the one of 2007-2016, not the “Great” 1929-1941.

In your example, only their payment will be lower, not their balance.

…..happily ever after. THE END. HLS[/quote]

Yes, I believe we are going to avoid a depression, as defined by a peak-to-trough decline in GDP of 10% or more. If you look at the capacity for the govt. to borrow and stimulate (go back to WW II and you’ll see federal debt to GDP at 122% – right now we’re at about 70%) we’ve got many trillions of dollars of capacity. At very low rates. It gets paid off slowly – with lower corresponding GDP going forward – over the next 10-20 years. Painful, yes. But not the end of the world.

No, in my example, there is a blend of lower rates AND substantial principal reduction. That’s one way in which the lenders are going to lose. They just won’t lose as much as if all of these houses go into foreclosure.

Look, we’re in a serious bind here. Which is not surprising to me or anyone else here. But one thing we have going for us is the experience of Japan and the Great Depression to look back on for lessons of what not to do. Current policy prescriptions are far from perfect, but I will say this: they get marginally better each week. At least the Officialdom is “learning” from each little mistake and taking some marginal corrective action. I believe that we’re going to see a massive globally-coordinated stimulus plan in 2009. The US, Asia, Europe – the whole freakin’ globe. Will it prevent a steep, long recession? Nope. That’s baked into the cake no matter what happens. But if policy actions are handled properly, we should avoid a depression. The tools and capacity are there.

[davelj]

Everyone will win with this and everyone will lose.

The buyers will be stuck with mortgage balances greater than the house is worth (they lose!), but their mortgage will be much lower than it was before (they win!). The investors will take a hit on their loans (they lose!), but they’ll take less of a hit than if the houses were foreclosed on (they win!). The taxpayers will end up funding a big chunk of this (they lose!), but such funding (the “socializing of loss” concept) will help keep us out of a depression (they win!).

Everyone will be unhappy. Yup, sounds like the essence of a perfect compromise to me.

[davelj]

Everyone will win with this and everyone will lose.

The buyers will be stuck with mortgage balances greater than the house is worth (they lose!), but their mortgage will be much lower than it was before (they win!). The investors will take a hit on their loans (they lose!), but they’ll take less of a hit than if the houses were foreclosed on (they win!). The taxpayers will end up funding a big chunk of this (they lose!), but such funding (the “socializing of loss” concept) will help keep us out of a depression (they win!).

Everyone will be unhappy. Yup, sounds like the essence of a perfect compromise to me.

[davelj]

Everyone will win with this and everyone will lose.

The buyers will be stuck with mortgage balances greater than the house is worth (they lose!), but their mortgage will be much lower than it was before (they win!). The investors will take a hit on their loans (they lose!), but they’ll take less of a hit than if the houses were foreclosed on (they win!). The taxpayers will end up funding a big chunk of this (they lose!), but such funding (the “socializing of loss” concept) will help keep us out of a depression (they win!).

Everyone will be unhappy. Yup, sounds like the essence of a perfect compromise to me.

[davelj]

Everyone will win with this and everyone will lose.

The buyers will be stuck with mortgage balances greater than the house is worth (they lose!), but their mortgage will be much lower than it was before (they win!). The investors will take a hit on their loans (they lose!), but they’ll take less of a hit than if the houses were foreclosed on (they win!). The taxpayers will end up funding a big chunk of this (they lose!), but such funding (the “socializing of loss” concept) will help keep us out of a depression (they win!).

Everyone will be unhappy. Yup, sounds like the essence of a perfect compromise to me.

[davelj]

Everyone will win with this and everyone will lose.

The buyers will be stuck with mortgage balances greater than the house is worth (they lose!), but their mortgage will be much lower than it was before (they win!). The investors will take a hit on their loans (they lose!), but they’ll take less of a hit than if the houses were foreclosed on (they win!). The taxpayers will end up funding a big chunk of this (they lose!), but such funding (the “socializing of loss” concept) will help keep us out of a depression (they win!).

Everyone will be unhappy. Yup, sounds like the essence of a perfect compromise to me.

[davelj]

[quote=davelj]If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. [/quote]

Allow me to reply to my own quote…

So you want to know who’s going to be dumb enough to take on 30-year paper at 3% do you? Answer: China and Japan.

Yup, Treasury’s going to go them with this plan and their first reaction’s going to be: “30 years at 3%? Go fuck yourself.” Then they’ll have a moment of clarity and realize that if they DON’T do this, they’re fucked even worse. So, yeah, they’ll eventually take a hit on the value of that debt – but they’ll avoid an even bigger hit to their economies that’s inevitable if the US slides into depression. So, net/net China and Japan will realize that they’re better off buying that crappy paper from us and taking it in the cornhole a few years down the road as opposed to taking it even deeper in the cornhole all drawn out from 2009-2011. Yup, Japan and China are going to subsidize a big part of this stinkin’ mess. Just as it should be.

[davelj]

[quote=davelj]If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. [/quote]

Allow me to reply to my own quote…

So you want to know who’s going to be dumb enough to take on 30-year paper at 3% do you? Answer: China and Japan.

Yup, Treasury’s going to go them with this plan and their first reaction’s going to be: “30 years at 3%? Go fuck yourself.” Then they’ll have a moment of clarity and realize that if they DON’T do this, they’re fucked even worse. So, yeah, they’ll eventually take a hit on the value of that debt – but they’ll avoid an even bigger hit to their economies that’s inevitable if the US slides into depression. So, net/net China and Japan will realize that they’re better off buying that crappy paper from us and taking it in the cornhole a few years down the road as opposed to taking it even deeper in the cornhole all drawn out from 2009-2011. Yup, Japan and China are going to subsidize a big part of this stinkin’ mess. Just as it should be.

[davelj]

[quote=davelj]If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. [/quote]

Allow me to reply to my own quote…

So you want to know who’s going to be dumb enough to take on 30-year paper at 3% do you? Answer: China and Japan.

Yup, Treasury’s going to go them with this plan and their first reaction’s going to be: “30 years at 3%? Go fuck yourself.” Then they’ll have a moment of clarity and realize that if they DON’T do this, they’re fucked even worse. So, yeah, they’ll eventually take a hit on the value of that debt – but they’ll avoid an even bigger hit to their economies that’s inevitable if the US slides into depression. So, net/net China and Japan will realize that they’re better off buying that crappy paper from us and taking it in the cornhole a few years down the road as opposed to taking it even deeper in the cornhole all drawn out from 2009-2011. Yup, Japan and China are going to subsidize a big part of this stinkin’ mess. Just as it should be.

[davelj]

[quote=davelj]If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. [/quote]

Allow me to reply to my own quote…

So you want to know who’s going to be dumb enough to take on 30-year paper at 3% do you? Answer: China and Japan.

Yup, Treasury’s going to go them with this plan and their first reaction’s going to be: “30 years at 3%? Go fuck yourself.” Then they’ll have a moment of clarity and realize that if they DON’T do this, they’re fucked even worse. So, yeah, they’ll eventually take a hit on the value of that debt – but they’ll avoid an even bigger hit to their economies that’s inevitable if the US slides into depression. So, net/net China and Japan will realize that they’re better off buying that crappy paper from us and taking it in the cornhole a few years down the road as opposed to taking it even deeper in the cornhole all drawn out from 2009-2011. Yup, Japan and China are going to subsidize a big part of this stinkin’ mess. Just as it should be.

[davelj]

[quote=davelj]If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. [/quote]

Allow me to reply to my own quote…

So you want to know who’s going to be dumb enough to take on 30-year paper at 3% do you? Answer: China and Japan.

Yup, Treasury’s going to go them with this plan and their first reaction’s going to be: “30 years at 3%? Go fuck yourself.” Then they’ll have a moment of clarity and realize that if they DON’T do this, they’re fucked even worse. So, yeah, they’ll eventually take a hit on the value of that debt – but they’ll avoid an even bigger hit to their economies that’s inevitable if the US slides into depression. So, net/net China and Japan will realize that they’re better off buying that crappy paper from us and taking it in the cornhole a few years down the road as opposed to taking it even deeper in the cornhole all drawn out from 2009-2011. Yup, Japan and China are going to subsidize a big part of this stinkin’ mess. Just as it should be.

[davelj]

I think this is an interesting strategy under the circumstances. If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. Realistically, credit and operating costs will eat up the 1.5% spread over time, but break-even under the circumstances is pretty good. And, hell, the assets and liabilities would even exhibit matched durations. Holy asset-liability management!

So, govt. debt would increase but assets would increase as well, so net debt-to-GDP would remain constant, which is a good thing. There should be no additional ongoing net costs to the taxpayer so long as the credit costs and operating costs remain in check, which is a reasonable assumption given dramatically lower home prices.

I assume they’d use Fannie and Freddie to administer the whole thing because that would be the most efficient manner of handling things – they’re already set up for this type of operation.

The issue is how to determine who gets the loans, because everyone – including folks like me who have no issues with their mortgage payment – is going to want to participate. That’s going to be a tricky issue.

But the idea itself is solid. I think the Officialdom now realizes that housing prices are going to continue trending down until they’re back to trend relative to incomes and rents. They’re resigned to that fact. I think what they’re trying to achieve now is some mechanism for not allowing prices to go too much BELOW that trend. Because we’re staring a depression in the face if proper actions aren’t taken. And this is an interesting idea that shouldn’t burden the taxpayer too heavily if administered properly.

I give it an A for ingenuity. Let’s see how the execution is.

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