today. He makes the clear case for some quarters of negative growth in
the future, but his view is that a double dip is irrelevant. I agree
with him.
While it may be hard to forecast a double dip it is now a slam-dunk that
we are going into a longer period of sub par growth. That outlook is
even worse than two quarters of negative growth followed by six quarters
of anemic recovery. If we go two years with growth around 1% our fiscal
books will be in the tank. We would be so far off on the critical
issues of total debt, debt service to GDP, debt to GDP, deficit to GDP,
employment and unemployment that I can’t envision how we could dig
ourselves out of that hole. If we don’t grow we die.
Krugman says that we should throw everything we have got at the problem.
It was clear that he was angry at the lack of action at the Fed and the
Administration. I got a sense of trepidation in his words. Here are his
suggestions of what should be done:
The
Administration can use Fannie Mae and Freddie Mac, the
government-sponsored lenders, to engineer mortgage refinancing that puts
money in the hands of American families.
Mr. K we are doing that. The Agencies are 95% of the lending. One can
still get a 96-1/2% LTV loan for heavens sake. QE-1 and now QE-2 have
killed savers and brought mortgage rates to 50-year lows! With HAMP and
HARP nearly anyone who has a chance of landing on their feet can get a
trial modification. The FHA is lending $50k to people in default at zero
interest and the loan is non-recourse and subordinated. What the hell
is that?
Mr. K wants to turn up the dial on this? The only way to do that would
be to drop lending standards. The stupidest thing that we could do. Bad
lending got us into this mess. Bad lending is not going to get us out
it. It will only ensure our demise.
The Fed can buy more long-term and private debt.
Private debt? Who’s private debt? GE’s? BP’s? Citi’s? AIG’s? This is
over the top in my opinion. We have already socialized big parts of the
financial system. Now Mr. K wants everything to be owned by the
government. This is not an idea that will sell in America. There has
already been too much intervention. If the Fed starts buying Wal-Mart
bonds America is finished. And heaven help us if the buy common stocks.
Japan started doing that 20 years ago. Their market is down 70%.
The Fed can raise its medium-term target for inflation.
What does that mean? Does the Fed come out with a statement that says, “Our old target for inflation was 2%, we have changed it to 4%”?
There is only one way to achieve that goal. The Fed would have to print
money. Trillions of it. The fed balance sheet would go to $5T. To me
this is assured destruction. I don’t think we would get to $5t. The
financial system would implode before we got there. America would look
like Argentina in the 1980’s.
Treasury can finally get serious about confronting China over its currency manipulation.
I’m sorry but just shut up with this Mr. K. In the past 24 months the US
has intervened and supported financial markets at levels never before
seen in history. The Federal Reserve bought $1.75 trillion of fixed rate
paper! Have you looked at the tape lately Mr. K? The yields you’re
seeing are in no small part due to those POMO operations. And he wants
to do trillions more? Talk about a double standard. When America
actually stops the intervention in the global credit market it can then
sit down with the Chinese and talk turkey. Before that it is the pot
calling the kettle black. And Mr. Krugman knows it.
These steps are big gambles. The downsides are enormous, the upsides questionable. Krugman acknowledges this:
Nobody
can be sure how well these measures would work, but it’s better to try
something that might not work than to make excuses while workers suffer.
No one wants to see “workers suffer”. I think this use of words was a
cheap shot. The fact is the steps Mr. Krugman is advocating could very
well destroy most of the things we consider important.
Friday evening. The markets are up big. The weather is perfect. But
there are big storms in the Atlantic and I am worried that we are dead
either way.
Thank you, most useful. If these egregious business practices you describe are what allows them to be the low cost provider then they should be shut down before they fail.
OK, OK, they're not totally evil. Some of my best friends shop there.
Actually, I think it would be way cool if Medicare D shopped out their pharmaceutical procurement to Wally. Think of the things we could do with the money saved!
Exactly gotta look at the whole picture, especially at Walmart's scale. Providing goods at cheapest price is a marketing slogan, not a statement of "what is good".
What's bad is that it gives control of production to the government, which control they will use to destroy it.
With regard to "The Administration can use Fannie Mae and Freddie Mac, the government-sponsored lenders, to engineer mortgage refinancing that puts money in the hands of American families."
I own a house but I can't refinance to take advantage of the lower rates because, technically, I have no equity. So Fannie and Freddie could be used to help people in my situation (Let's assume that they're actually going to do some research to make sure I'm a safe investment). The question is: should they?
Here is the mortgage problem as I see it. Because of the bursting of the housing bubble, the economy is in the shitter. Who's to blame and how can we fix it? Well, if we go by the government's actions, they seem to think it is the average taxpayer who is to blame, regardless of whether that taxpayer owns a home or even bought it during the bubble or not. I think it is clear to everyone, not just the people on this board, that this was the wrong answer.
See, the deteriorating balance sheets are due to deteriorating mortgages. To fix the balance sheets you have to fix the mortgages. You shouldn't reward the banks for making the risky loans (which is what happened) nor should you reward the people who made the terrible decision to buy a house they couldn't afford (hypothetically, by subsidizing mortgage payments).
If however, you penalize the banks with early payoffs and reward fiscally responsible homeowners with lower rate, then I believe we'd be as close to justice as possible. Of course homeowner's who had no way to afford their homes are left exactly as they should be and the bank that financed it gets what it deserves as well.
Perhaps this is what the HAMP program was supposed to do but I wouldn't know because I'm "too far underwater" to refinance under it. For anyone who's curious, I bought a $150k house that is now valued at $100k unless I do something nefarious like bribe the assessor. My monthly is about $1,100 (including taxes) which was and still is comparable to renting a decent apartment. With my 6.625% rate, I could really benefit from a refinance. I'd literally have hundreds of dollars more per month to spend.
Fucking stuuuuuck.
Enki- are you joking? Why should the government help you - I'm must be missing your point. You signed an agreement to pay off a mortgage with a monthly payment, probably with 360 equal sized payments. The mortgage is collateralized by your house, but I'm certain when you signed up there was no agreement that if the collateral declined in value you could walk away! In fact, I'd argue that if anything, you should post new collateral given your proclivity to now consider defaulting.
It is not as if you've lost your job (according to your post), or are under some distressed situation - you simply want me and other taxpayers to subsidize you so you can save some money.
I'm making a 1/3rd of what I was making in 2006, my house is not underwater, but I could still use a refi - I won't get it because of the new salary, but that just means I'm going to work harder to fulfill the obligations that I signed up for. It doesn't matter who the counterparty is, I respect my own name and my family's name enough to stand behind my obligations. People like you make me sick. How can you even attempt to rationalize being a fraud?
The reason you are stuck with regards to refinancing is that for you and people in similar situations to refinance, someone has to take a loss. Your loan is currently on someone's books earning a certain interest rate on a certain principal amount. If you re-finance that loan, the value of your debt (and therefore someone's asset) will decline. Who will take that loss? If the loan is owned by a pension fund, they are even further away from the 8% or whatever they're supposed to earn to pay their promised benefits. If owned by a bank, the bank's wafer-thin capital ratio gets even smaller. If owned by the government, the deficit increases. The fact is that you, the small-time homeowner, are less important to TPTB than pension funds, banks, or the government.
You can't bribe appraisers anymore either. Sorry Brah!
I am at 60% LTV, current and often making extra principle payments, income over double mortgage pmt, credit scores average 801. What do I get under this "new plan" other than the bill? And don't give me that crap about buoying home values helps me. I said "crap".
Appraiser News Online Headlines
Last Updated: August 11, 2010
Vol. 11, No. 15/16
FHA Launches Refinance Opportunity for Underwater Homeowners
Homeowners underwater on their mortgages could be getting relief through a government program designed to encourage principal write-downs for responsible borrowers, according to a Department of Housing and Urban Development news release issued Aug. 6.
In an effort to help responsible but struggling homeowners, HUD has detailed adjustments to its refinance program, which the agency hopes will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth.
Starting Sept. 7, the Federal Housing Administration will offer certain underwater non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10 percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage, according to the HUD news release.
"We're throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined," FHA Commissioner David H. Stevens said in the HUD news release. "This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product."
The FHA Short Refinance option is one of several Obama administration initiatives introduced as part of an administration plan to help stabilize residential markets by helping 3 to 4 million struggling homeowners through the end of 2012.
To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth, be current on their existing mortgage, qualify for the new loan under standard FHA underwriting requirements, have a credit score equal to or greater than 500, and the property must be their primary residence. Also, the borrower's existing first lien holder must agree to write off at least 10 percent of the borrower’s unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115 percent.
Existing FHA-insured loans cannot be refinanced, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.
To facilitate the refinancing of new FHA-insured loans under this program, the Treasury Department will provide incentives to existing second lien holders who agree to provide principal write-downs. To be eligible for the program, servicers are required to execute a Servicer Participation Agreement with Fannie Mae on or before Oct. 3.
I understand. As for HAMP, not a single person I've polled (who was in need of some relief) was told they qualified for HAMP. I've heard that only 3% of folks who applied for that were actually approved and modified.
As for F/F making loans more affordable, um, no. If you do a refi, it's not with F/F, it's with some other bloodsucking bank, which has no incentive to give you anything remotely good rate-wise.
Example: a friend of mine has a 220K loan on a house in San Francisco with 50% LTV on it (with a present time appraisal done by the bank). His current rate is 7%. He tried to refi with the lender, but they say he doesn't qualify because he doesn't make enough! OK--grasp, if you can, the logic that I won't lower your rates because I'm screwing you more than you can afford. Yep, I'm having trouble with this too.
I feel that F/F are only useful as a dumping ground for mortgages which have no income coming from them. The banks are then happily taking the fed discount rate (0.5 - 1%) and charging 6-7%. They won't stop making 6-15x their investment until you rip it away from their cold, dead hands.
Tough spot we are in. Thirty years of debt fueled growth has ended.
How can we grow if we live within our means?
Produce things people the world over need? Start a fight?
We need prosperity programs not an austerity focus.
We need prosperity programs for the people not the governments
Governments should only do what they are needed to to not what they want to
Government need not grow at 12% just to keep gdp up
Mr Krugman wants government step in everywhere but is that prosperity for all? I don't think so
Making your worker obese just keep up consumption will not make him better later