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IRA on a solution to the mortgage mess
I have a lot of respect for Chris Whalen and the folks at Institutional
Risk Analytics. I think of them as being sort of centrists on some of
the critical economic issue. They don’t support the Fed, they most
certainly are not supporters of the big banks. They are no fan of “kick
the can down the road” plans. On the flip side they are not in the camp
that says that all must be torn down before we find a sensible base that
we can move forward with.
So when IRA came out with, “A Brady Plan for Fixing the Mortgage Mess”
I got excited. Then I read it and got disappointed. I think the plan
has warts. That said, something along these lines is probably what we
will see from D.C. in the coming months. Some of the blemishes:
On the general concept of a “Brady Plan” IRA had this to say:
Remember that the Brady Plan was mostly about acknowledgment of huge losses at the big banks.
While it is true that back in the 80’s the US and global banks took some
big losses on their exposure to busted developing county debt the Brady
Plan was (and still is) the biggest “extend and pretend”
accounting gimmick in history. The solution for Brazil and Mexico (and
others) back then was to eliminate the obligation to pay back the
principal on the debt. The plan split the old loans into two pieces. An
interest only and a principal only (IO/PO) security was created. The
principal of the loan was secured by a 30-year zero coupon bond issued
by the US Treasury. The only obligation of the borrowers was to pay
interest at the reduced rate of Libor +13/16ths for 30 years.
The accountants were leaned on. The banks were able to put the new Brady
Bonds on the books with no haircut as the principal repayment was
assured. A clever solution (that worked very well), but extend and pretend was born from this deal. Suggestions on what do with mortgages from the IRA report:
Lower interest rates/duration in existing mortgage through new or expanded GSE guarantee programs.
The conforming loan size limit should be made permanent at $729,750, going up to 130% of this limit in high cost areas.
Ugh! Subsidize already low interest rates? Make the ridiculous
GSE high limit of $730K permanent? Increase the already ridiculously
high limit to $950K in high cost areas?
These recommendations represent a massive increase in the federal
commitment to the mortgage market. The 730k limit was established with
the 09 HERA bailout. It was supposed to end a week ago. But it has been “temporarily” rolled over to September 30, 2011. What has been the consequence of the steps taken two years ago? Easy answer: Washington has become 95%+ of the new mortgage market.
The mortgage market has been totally socialized as a result. Do we
really want to take additional steps that cement D.C. into the mortgage
business? Forever?
IRA points to the problem:
The private label mortgage security market will never come back.
I ask, “Why is this the case?” The answer is that with Washington
lending money under terms and conditions that private investors can’t
compete with (and terms that would result in losses for “real” lenders
if they did) there is no hope that a private market will resurface at
anytime soon. More from the proposal:
Allow for discounted payoff of underwater mortgages so that homeowners have at least 5% positive equity.
So here is the debt relief. Anyone with an underwater mortgage gets a
write down so that the new debt is equal to, at most, 95% of current
appraised value. This is a very big deal. Something like 25% of all
homeowners currently are in this terrible position. By waving a wand IRA
makes the problem go away. But what about the 75% who are not
underwater? They get nothing in this plan? Where is the fairness to
that? What about all the renters out there who will be kicking in for
the cost of this? Why should they have to pay?
Second liens should be written off in the case of principal reduction on the first lien.
This should (and will) happen. Cleaning up the sub-debt is part of the
process of wiping out the dreck. But hold onto your socks as to the
implications of this. The “second” that IRA refers to is actually a
critical component of housing finance. Without it, residential RE is
dead for as long as the eye can see.
The second mortgage is the airball between a conventional mortgage (80%
LTV) and the purchase price. There was a time that you had to put up 20%
of money out of your pocket to buy a house. Second mortgages eliminated
the need for equity. With no restraint on buying a home too many people
did it. It first caused a boom and then a bust.
But if we legislatively wipe out all seconds where will the new seconds
come from? Once legally "nicked" this money (high risk capital) will be
gone for a very long time. If we revert back to a sane policy that
requires a big down payment (and results in a good borrower) you can
kiss off the housing market. So who will provide the money given that
private capital will be forever gone? Washington of course. Fannie,
Freddie and FHA are all providing 97% LTV loans today.
A technical point. The CBO has recommended that the D.C. lenders take a haircut at the time a new mortgage is written
equal to the difference between "market" and actual terms. Under this
approach, if a mortgage is written at 98% LTV (an embedded 18% second)
the GSEs would have to take a big current hit. This would flow directly
back onto the federal budget (where it should be). But the cost of
subsidizing new issuance would explode (as it should). Other budget
priorities will dominate coming years. This conflict will result in many
less supercharged (+80%LTV) mortgages.
Cleaning out old seconds solves an old problem. But the absence of new
seconds is going to hurt more than the problems that are solved. Let's
face it. If the terms to buy a home required the buyer to pony up 20%;
RE would fall by 30%. It's all well and good to take the rotten seconds
out back and shoot em. But don't think there is no cost to this. Another
recommendation:
The losses from the write-down of principal of the first and second liens would be borne by the bond/loan holders.
Okay, I like this. Whack the bondholders. But who are these bondholders?
The biggest is the Federal Reserve. Last I saw they were sitting on 1.1
Trillion of dodgy mortgage paper. The losses could be in the 20% range.
So the Fed would suffer a hit of $200b or so. But the Fed is the
Treasury and the Treasury is the taxpayer so really this just ends back
up being a socialized loss shared by all.
What about the losses for private sector holders of mortgage bonds? IRA has an answer:
These losses should be treated as full tax credits, accounted for as a Treasury Strips on the balance sheets of the institutions who take the principal loss.
Hold on a second. A tax credit is a much different thing than a tax loss.
By creating a credit the holder of the bad mortgage paper never feels
any pain. The credit creates an asset that is equal to the loss. As
future tax liabilities come due the credits are used to offset dollar for dollar
the prior losses. Under normal circumstances a lender who suffers a
loss can shelter that with other gains and reduce taxes. For our big
financials the average federal tax is around 20%. A tax credit is therefore 5Xs more valuable than a tax loss. With a tax credit, the end result is that 100% of the losses are born by unsuspecting tax-payers. The lenders get off Scot-free. Where is the fairness in that?
To address this concern IRA suggests:
Non- US
taxpayers (like German Landesbanks and Cayman Island hedge funds) get
nothing. This should cut the cost to the Treasury by 30% (estimated) and
spread it out over 7 to 10 years.
Read this differently. PIMCO, Citi, Wells, BoA, JPM and the others would
get to write off their losses against $ for $ credits (no loss) while
the bad boys at the Landesbank and the white spats guys at hedge funds
eat the losses. What kind of plan is that?
If you wanted to put a dent in the US financial position and cripple
future capital formation the best way to do it is to drive foreign
capital from our shores. A plan that had an asymmetrical result, where
one class of investors got significantly better treatment than another,
would result in money moving away. Exactly what we don’t want. While it
is nice to put up a proposal that saves the taxpayer 30% of the cost,
one has to look at the broader implications related to those “savings”.
I’m no lawyer, but I doubt that an asymmetrical result like this is even
legal. It most certainly would produce some of those dreaded, “unintended consequences”.
IRA recognizes the various inequities of their plan. Their solution:
As a matter of equity, homeowners with written-down mortgages would be subject to higher taxes.
Okay, that sounds good, but from the report:
Principal
reduction will count against taxpayer's $500,000 exemption from capital
gains tax on the sale of the primary dwelling. If you get a principal
reduction, you have to pay capital gains taxes until the IRS gets the
amount of the principal write down back. Reduction of capital gain
exemption will last for 20 years and apply to the gain from the sale of
any residential real estate, not just the home associated with the
principal reduction.
The assumption here is that RE is going to explode in value and all of
the losses today will be gains (and tax income) tomorrow. I’m sorry.
This is smoke and mirrors. Everything will work out fine, provided we
have another bubble. As IRA concludes:
This scheme may not work for every homeowner; some will die before the gain is repaid.
I think we will all be dead before it is repaid. It's too easy to
shelter RE gains. The IRS will not see much from this. So really this is
just a, “kick it down the road and hope” kind of approach.
I pick apart the IRA thoughts to make a point. There is no “solution”
to the mortgage mess. Every approach has costs, inequities and
long-term consequences. This effort is the best that I have seen and I
believe a number of features in this plan will be adopted. But let’s
face it. This “good” plan sucks. We are going to hate it.
It's too bad Chris Whalen isn't involved with this. He should be. 2011
is the year when key choices on the GSEs will be made. As of right now
the only voices that are steering the ship are all saying that we need
to return to what we had in 07. A (series of) privately owned (AKA:
Wall Street) mortgage providers who live off the taxpayers with a
government guarantee of their debt. Absolutely the dumbest thing we could do.
We need a few fresh faces with better ideas. I wish the 'deciders' would ask Whalen to the party. I (and many others) would feel just a tad more comfortable if he were involved.
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Chris is a great analyst of what's happening, terrible public policy advisor. This plan stinks to high heaven, but it's exactly the kind of economic nonsense that's being bandied about Washington, as double dipping housing prices put on the fear factor. On the other hand the administration seems to be suffering from "housing fix fatigue" - nothing they've tried worked and they seem rather disheartened about the workability of the rest of their housing-fix ideas. They might after all do nothing more than they're already doing, or just some obviously token measure to at least make it look like they're still trying.
Bruce,
Thanks for the walkthrough.
Writing a couple of years ago, John Hussman's suggested this: <http://bit.ly/eawEGa>.
If you were updating Hussman with the benefit (or burden) of hindsight from the past two years, what would that look like?
Best regards,
Here was my IRA solution to the Crisis. Cash out of my 403b rollover. Pay the taxes and pay off my house that was not underwater. Nothing to do with your article but I figured fuck it. Why keep paying the banks interest on my home while waiting for the U.S gov. to force all IRA's to be rolled over into U.S. treasuries. I'd rather be debt free and secure in the fact that I wouldn't be a victim of the upcoming fraud closures. I make my financial decisions based on common sense. I recommend it. Get what's real instead of putting faith in the system. The less they can fuck with you the better.
I was so hoping that we were going to hear of a plan put forward by the Economic Research Unit of the Irish Republican Army.
It might have something to do with monetary truth and physical justice for bankers (after a swift trial, natch').
Cheers.
Equal justice across all classes is the correct target. It is the enemy of tyranny.
Other targets are distractions that change nothing regarding criminal behavior at the top.
The king of words is power.
Without a working justice system to monitor and regulate the control points where are found the makers of fraud games, the crims will ever stay on top and accumulate overwhelming power.
To see the misleader criminals in prison, the other 99% of citizens would feel such relief that the "real economy" would flourish and prosper.
Equal justice across all classes releases citizens from tyranny and enables them to broadly self-correct. True leaders promote it.
It is not complicated.
Genuine solutions are usually simple.
That's not the 'problem'.
The complication isn't knowing what to do, when, who, and how.
It's the Power to effectuate execution and impementation of what, when, how, and who that is real problem.
"And if it is justice you seek, for that you will have to wait till you get to heaven". (Pynchon? D.F. Wallace?)
Have you ever noticed how many "fans" of "individual responsibility" hate individual responsibility when it comes to them taking a loss?
The debtor - "well no one put a gun to their head and made them buy those houses and sign those negative amortization/ARM/etc mortgages". They are all losers and cretins and frauds...
Yes, the typical American understands all of that terminology...uh huh...they bought a payment - that's it. I know people who can't tell whether they leased a car or purchased it - and the odds are - so do you.
The creditor - "well no one put a gun to their head and made them approve those loans and ignore the fraudulent applications". Oops slipped there - no - it was the gubmint and fannie and freddie - they made them do it - the CRA made them do it...they deserve a break.
The rating agencies - "well no one put a gun to their head and made them rate those ABS and MBS as AAA. No, wait - it was that mean old competitive marketplace and the "system". If they didn't do it - someone else would have. It's just free speech - it didn't mean nuthin'.
The various bond holding entities - "We don't deserve to take a loss. We need a bailout because all of those meanies (above) fooled us. We didn't do any due diligence whatsoever - we didn't pay any attention to any of the warning signs. We were told that "this time it is different" and besides - everyone else was doing it..."
Everyone - shout it out now: "It's not our fault!"
http://www.youtube.com/watch?v=JFvujknrBuE
I like QQQBALLS idea. Wholeheartedly agree.............Fuck the crooks!
Unfortunately it does virtually nothing without deconstructing the environment of "fraud is good" that has been pervasive on Wall Street and supported by Greenspan and the Bernank.
Wall Street needs learn to throw away the financial innovation fraud paradigm, accept less and invite more competition. THE EXACT OPPOSITE OF WHAT IS GOING ON NOW... as they embezzle massive amounts of money and close down independent banks all over the country.
All this should / would / could stuff is boring / useless / senseless.
TPTB know exactly what they should do.
They haven't done it and they're not going to do it.
They don't care about America, they don't care about you, they don't care about me, they don't care about any of us.
They care about money. End of story, end of discussion.
I come to ZH to stay up to date on the slow destruction of our nation, to be aware, to stay informed, etc. I post no should / would / could solutions. They would be meaningless, a waste of bandwidth.
Whatever is done, will not be right thing. It will be done to save the bacon of the privileged class at the expense of the middle class. No More Bailouts, let the chips fall where they should.
Wow, you are cranky... but right, for the most part. The moves will be to benefit the banks, etc. There will be a sop or two for the lumpen proletariat, but little. When/if the regular folks are informed, in 6th grade wording, how they have been given the soggy biscuit they will revolt. How far do the Powers think they can go? They will push it to the wall, guaranteed.
The I in the IRA stands for Institutional, not Int'l.
Darn it. I was hoping for Irish!
What about all of us "little people" .... those who paid cash for the few things they allowed themselves to buy ? those people who saved money in a bank for their retirement ? Or, as Wall St. & Washington call us , TARGETS. Crumby jobs that don't even pay but $8/hour, inflation to come, probably hyperinflation .......... unless one is sitting on a pile of gold & silver, there will be very little in the way of inheritances for our kids & grandkids ! ........ they'll just inherit bunches of debt. Governments are made for draining wealth out of the masses.
You raise a good point. I would modify the above "cramdown" solution to deny the remedy to anybody who did a cash-out refi for more than the crammed-down value of their home. In other words, no ability to keep the house AND the cash they received only because the manipulated market artificially and temporarily raised their home's value.
There were both winners and losers in the past ten years. The winners include insiders at banks, mortgage brokers, real estate companies, appraisers, homebuilders. In the case of individuals and companies, most also became losers and have no net gain. But corporate insiders gained through bonus compensation and stock options without suffering any corresponding losses on the way down. Winners also include those who could not afford a home but nevertheless qualified temporarily to own one. As a result, they have received shelter for sometimes years at no or little cost. So even if they lose the house in foreclosure, they have nothing to complain about.
The reason why we should let the markets and not politics allocate the losses is because those who lose are precisely the people who took the risks (this includes both the borrower and the lender) and we paid to do so (each stood to gain from their risk-taking). The only reason I suggested the cramdown solution is because Bruce is trying to explore good policy options. In a perfect world, I'd prefer to see the market just play out. But that is not the world we live in. When we tried that in the 1930's, people couldn't stand the pain and we got political solutions in the end anyway. So I think Bruce is correct in trying to influence the policy debate before a worse outcome is forced on us.
You raise a good point. I would modify the above "cramdown" solution to deny the remedy to anybody who did a cash-out refi for more than the crammed-down value of their home. In other words, no ability to keep the house AND the cash they received only because the manipulated market artificially and temporarily raised their home's value.
There were both winners and losers in the past ten years. The winners include insiders at banks, mortgage brokers, real estate companies, appraisers, homebuilders. In the case of individuals and companies, most also became losers and have no net gain. But corporate insiders gained through bonus compensation and stock options without suffering any corresponding losses on the way down. Winners also include those who could not afford a home but nevertheless qualified temporarily to own one. As a result, they have received shelter for sometimes years at no or little cost. So even if they lose the house in foreclosure, they have nothing to complain about.
The reason why we should let the markets and not politics allocate the losses is because those who lose are precisely the people who took the risks (this includes both the borrower and the lender) and we paid to do so (each stood to gain from their risk-taking). The only reason I suggested the cramdown solution is because Bruce is trying to explore good policy options. In a perfect world, I'd prefer to see the market just play out. But that is not the world we live in. When we tried that in the 1930's, people couldn't stand the pain and we got political solutions in the end anyway. So I think Bruce is correct in trying to influence the policy debate before a worse outcome is forced on us.
"political solutions in the end", lol, and sans Vaseline no doubt.
One side of the coins says "bankers win", and the other side says "it belongs to Uncle Sam", what a solution! Obama looks more like Millard Fillmore with every passing day.
RE deriviatives should never have existed in the first place! Chairman Bernanke's Key mistake was to allow the propagation of that market. It shouldn't exist now, as long as it does the sword of Damocles is over the Us economy. Banks create multi-plaform clearing units all the time...this was the whole point of 6% USTs' way back when, to put a fire under the banks to get their house in order. Instead, mark-to-myth and no credibility.
The FED should get BAC to negotiate a 1% whack on their GSE/Mortgage paper. Come on Bruce the taxpayers' position is always to be downside with no upside.
Conventional 80% LTV, RE price falls by 30% - this part works going forward into the new normal.
For what's extant; take the remaining non-vacant property and transfer the mortgage b/w GSE and owner over a 50yr 1.5%. Take the foreclosed, Bank-owned mortgages and either offer the same at 2.5% or, mark the first lien as loss and second lien as a credit - so when it come time to sale the bank can offer the first lien as mortgage while the second lien stays a (diminishing) credit.
The solution is to give homeowners the same BK right to "cramdown" that commercial borrowers have after returning mortgage lending standards to their pre-bubble level (i.e., reasonable income ratios and down payment requirements). By limiting this debt relief to BK, the debtors who seek it will be required to turnover all non-exempt assets to the BK trustee. Give the banks an unsecured deficiency claim that is discharged. Limit this remedy to Chapter 13, which requires that the homeowners have verifiable income to service the "crammed down" mortgage. Make the remedy available only for the next year or two. Deny remedy to any homeowner who took out a fraudulent loan. To reward those who did not join the party (i.e., renters) give them a one time down payment tax credit to be used only for purchasing a government owned REO from Fannie and Freddie. To qualify, such purchases must conform to traditionally conservative income ratios and down payment requirements.
Benefits:
1. Limits losses to those who voluntarily accepted them (mortgage holders), at least for those mortgages that have not already been transferred to taxpayers via the Fed
2. Underwater homeowners only benefit by giving up all of their non-exempt assets and only if they did not participate in any fraud.
3. Sets a floor on housing by removing the current specter of millions of underwater homeowners who are current but are otherwise likely to default "strategically" over the next few years or as they entire retirement.
4. Rewards renters and encourages them to become homeowners at sustainable purchase prices backed by reasonable leverage ratios.
You know, BK cram down would sweep away a lot of fraudclosure issues too...because basically if fraud in foreclosure process one likely result is MBS becomes an unsecured debt...so cramdown says, hey its all unsecured debt anyways, some people will pay just like some will pay their credit cards...People strategically default anyways, if you are enough underwater, file BK just like you would if your small business was too much underwater...move on.
This is not super fair, but way better than anything else.
I'm tired of businesses getting MORE rights than people, if business can stragetically default, bankrupt on their real estate, why not people, if people can't committ fraud, why can businesses
Yep. Rule of law. Though I am not a lawyer, and have never played one on TV.
Buried a few, but that doesn't count, I suppose.
Though I am not a lawyer, and have never played one on TV.
Buried a few, but that doesn't count, I suppose.
It counts. They bury lawyers at www.nationalfraudconstable.net
You left me out. Sitting on cash and waiting.I should get a massive reach-'round for taking shit IR in deposits and investments for many, many years while watching my purchasing power being eroded by one scam after another to support WS and Big Banks?
Look, the answer is to foreclose and get on with price clearing. That's it. The world will not end. Everyone wants to devise a "plan". Just fucking foreclose. No give-aways, not freebies, no bullshit. Many people are upside down b/c the re'fied the shit out of their casa and blew the dough. The people that bought houses that they couldn't afford should lose them. FNM and FRE should cram the shit loans back at the lenders. There is the correct plan - people that borrowed too much lose. Banks that made bad loans, lose. People who acted prudently will get to buy at lower prices -win!
My advice to everyone is to stop chasing your fucking tails. The answer is on the books already - no magic koolaid required.Reward the prudent and screw the crooks. I mean WTF - enough of everyone's bullshit.
Tyler - we need a rec'd button as well as a junked button.
If there were a rec'd button, jnk'd on this post would be outweighed by rec'd, imo. Although the post is way down the attention span...
Mr TD Made-A-Sexy-List?
Marla?
P.S. Q3ball, I agree. But use the actual law to foreclose. Not the bankster's gamesmanship pretend rules. Just the rule of law (as was written at the time the loans were finalized).
I agree, as long as the foreclosures are handled RIGHT! Any lender found to have fucked with stuff (fraud) should be raked over the coals (just as anyone borrowers who knowingly committed fraud).
And all the RE derivatives crash...
Nice job. You should submit a resume.......
The only acceptable solution is to follow the rule of law, as long as it takes. No paper, no loan. No trail of conveyance, no conveyance. Bond and stock holders should take it in the bad place. But corrupting the law any further means why not ...........(edited due to day's events).
+ 10
+ 10
All of the plans I've seen propose to socialize the losses--this one is no different. What's the use of that--it doesn't serve to fix the housing/mortgage finance system--as it merely moves losses to a larger pool of fools (taxpayers), from investors or bondholders who underwrote the risks. And the underlying assumptions include reflating the housing bubble. What's the benefit in that?
I'd rather see Fannie and Freddie privatized--with no gov't/taxpayer strings. The mortgage interest deduction is unlikely to go away (irrespective of the policy argument, I don't see the politics changing), so that should be the extent of the tax subsidy.
Bruce, I tend to agree with your conclusion. There is no solution!
'Fairness' makes any solution 'unfair'. One thing we might want to consider is to wipe the slate clean for those who were foreclosed on or had to short sell their home. Without those people getting back into the housing market its hard to see how we can ever get rid of the excess inventory. The irony is though they may not have been able to afford 'their' bubble priced home most could easily manage the current price that home would fetch but their credit is gone so they are out of the market for years.
"most could easily manage the current price that home would fetch but their credit is gone so they are out of the market for years."
But... this is all about contraction, and with contraction you have, what we're currently seeing, job losses. While people may be able to manage adjusted mortages today, tomorrow looms huge.
Too late for a solution.
The only correct solution was to let the TBTF banks and insurers fail; and those more ethical and prudent people and organizaitons could invest in the risk.
Claw back bonuses, commissions, any funds gathered by securitizing mortgages that they did not hold.
Instead, the losses were socialized, and the private gains retained by the malfeasant.
It doesn't matter what we do now, it is like trying to help a rape victim by giving the rapist $5,000 in cash and a plane ticket for a bender in Vegas.
The horses have left the barn, the barn is burning, and we are sending our kids into it with buckets of water and orders to "put out the fire" that the bandits set when they stole the horses.
Let it burn.
lots to hate in the plan. but in the end tptb will justify their actions as necessary to save "the system", whatever that means anymore.
but in the end tptb will justify their actions as necessary to save "the system", whatever that means anymore.
That,in laymans terms means anything that screws the US Public.
If you think that the US public is screwed, just look at what the US public has done via the US govt to other peoples around the globe! This is Karma! The music has stopped and now we're to pay the piper...
MAD - Mutually Assured Destruction is the premise of every wrong-headed approach for the past 10+ years and the basis of looting the Treasury and US citizens... If we don't give AIG Traders $168B in bonuses, they might leave... Leave? Fucking fire them! If we don't play Price-to-Pretend with the banks' ports, we might have to recognize the losses - I mean again, WTF? So givve the banks a big reach-'round and watch the money flow to bonuses, b/c the bank execs know the game plan and can smell the rotting fish in their asset columns..
Bruce , for a second or two I thought you were getting really radical - anyhow some of those guys were CIA .
Dammit. I was hoping for something nationalistic, and drawing inspiration from the Irish Republican Army. Disappointed. :(
how many suckers are born every second?
http://covert2.wordpress.com
I go both ways.
A new report of Bankers of a failed small bank being deposed-short
http://www.xtranormal.com/watch/8244783/
A little fuzzy bear tells of more bank fraud. Short
http://www.xtranormal.com/watch/8242405/
Thanks for the delicious meal. It's nice to chew over things that are really weighing on my mind. You've got a great set of borders and an outline of unthinkable alternatives (unthinkable five years ago).
Unfortunately, we all come to the same conclusion: A bunch of politicos (Fed included) will make terrible mistakes based on their own personal interests (85%) versus what they think will work best for the USoA(15%) and we'll be back in the eighties. Ya-de-da...
Rinse. Repeat.
Ouch! Rattlesnake shampoo... J.P. Morgue conditioner!
Need. new. question.
: If "The Federal Reserve and The Treasury are the same" per yours - (bear with me, I understand, "effectively".)
You: BK
Okay, I like this. Whack the bondholders. But who are these bondholders? The biggest is the Federal Reserve. Last I saw they were sitting on 1.1 Trillion of dodgy mortgage paper. The losses could be in the 20% range. So the Fed would suffer a hit of $200b or so. But the Fed is the Treasury and the Treasury is the taxpayer so really this just ends back up being a socialized loss shared by all.
Me:
This is my question: If theFed is the Treasury and the Treasury is the taxpayer then (algebra here) if X is Y and Y is Z then X is Z.
Right?
So If the Fed is a Private Corporation...
I am done.
Think about it.