Fed to WH: We’re not going to bail you out

posted at 4:01 pm on April 26, 2012 by Ed Morrissey

With economic indicators flashing red all over the place, the Obama administration may be looking at some bad news this spring on economic growth.  If they’re looking to the Fed to toss them a lifeline, they may be waiting a while.  Despite some expectations that the Federal Reserve might embark on a third round of quantitative easing, Fed chair Ben Bernanke announced yesterday that they will wait and see — and keep from causing any more damage:

Facing fire from the left and the right, Federal Reserve Chairman Ben S. Bernanke on Wednesday mounted a spirited defense of the central bank’s wait-and-see approach to the economy, arguing that his detractors fail to grasp the damage that could be done if the Fed were to prematurely take any new actions.

After its third policymaking meeting of the year, the Fed left short-term interest rates near zero on Wednesday and said it planned to hold them there until at least late 2014. As it has all year, the Fed continued to say that the economy faced headwinds but would gradually improve. Economic projections from senior Fed officials suggested the economy would grow a bit faster than anticipated early this year and the unemployment rate would come down a bit more than earlier thought, perhaps ending the year around 8 percent.

Bernanke attacked Paul Krugman for demanding an inflationary policy in order to produce a little more incentive for jobs growth.  One would think that the two previous rounds of quantitative easing — which has weakened the dollar and helped drive energy prices higher — would be enough for any interventionist to love.  Bernanke called Krugman’s demands “very reckless”:

Bernanke seemed to take most umbrage at Krugman’s critique, in the New York Times Magazine, which suggests that the Fed has refused to take action to help the out-the-work because it worries too much that such efforts can cause inflation. Economic theory holds that creating money to spur lending and drive economic growth — what the Fed does — tends to cause prices and wages to rise, but the Fed expects that inflation will come in at or below its target of 2 percent for the next few years.

“The question is, does it make sense to actively seek a higher inflation rate in order to achieve a slightly increased pace of reduction in the unemployment rate?” Bernanke said. “That would be very reckless.”

Not to mention ineffective.  We’ve already had two rounds of quantitative easing.  Has that solved unemployment?  Spurred economic growth?  Not at all.  In fact, we’re heading into the third straight Stagnant Spring thanks to the incompetent and interventionist policies of this administration, the weakening of the dollar, and regulatory and tax environments which have predictably driven investors out of the market.  Few of those who hold capital want to take risks in the US economy, thanks in large part to all of the uncertainties introduced by Obama’s team and all of the ad hoc interventions that keep taking place.

Bernanke did say that if the economy deteriorates significantly, the Fed would be prepared to intervene again.  They don’t have much choice.  The current administration won’t change course, and the only option Bernanke has is to take the helm and steer the ship away from the biggest icebergs.  If the Fed has to do that a third time by essentially printing money, the temporary lift it provides to the economy will be far outweighed by the demonstration of Obama’s impotence and incompetence in economic policy.


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B S !

KOOLAID2 on April 26, 2012 at 4:03 PM

Knee Pads required!

KOOLAID2 on April 26, 2012 at 4:04 PM

I heard there is a bridge in Brooklyn….

Oil Can on April 26, 2012 at 4:04 PM

How much do we print Present?

KOOLAID2 on April 26, 2012 at 4:04 PM

I had a quantitative easing myself a little bit ago after having lunch at a Mexican place.

Had about the same affect as the fed’s.

NoDonkey on April 26, 2012 at 4:05 PM

B B will eat dog for B H O !

KOOLAID2 on April 26, 2012 at 4:05 PM

People always say they aren’t going to do something right before they do it. They always say this isn’t a lie before they lie. Beware.

aniptofar on April 26, 2012 at 4:06 PM

This is comforting, Bernanke is trying to paddle our canoe away from the rapids.

Dr Evil on April 26, 2012 at 4:06 PM

November 7th…November 7th…

If 0bamacare gets struck down, it may start a recovery, will 0bama take the credit?

cozmo on April 26, 2012 at 4:06 PM

PBHO immediately went on the offensive, declaring that he would use the power of his office to set short term interest rates at -5%.

Bishop on April 26, 2012 at 4:07 PM

My smell factor is going ‘skunk’ on this one! Who thinks that the feds won’t bail out the US again? You can bet your bippy that bho/team/d’s/and some rino’s in dc will not stop spending, SO what is the option?

I love Greek food, but I DO NOT WANT to be like Greece and we are a hair away from them if not already?
L

letget on April 26, 2012 at 4:09 PM

Bishop on April 26, 2012 at 4:07 PM

For some reason I just cannot laugh at that. Especially if you add the caveat; “for some people”.

cozmo on April 26, 2012 at 4:10 PM

aniptofar on April 26, 2012 at 4:06 PM

Let me be clear…

I don’t mean to be rude but…

If you make less than $250,000 you will not pay one penny more in taxes…

DanMan on April 26, 2012 at 4:10 PM

“In fact, we’re heading into the third straight Stagnant Spring thanks to the incompetent and interventionist policies of this administration, the weakening of the dollar, and regulatory and tax environments which have predictably driven investors out of the market…”

Too bad this isn’t an election year…

Seven Percent Solution on April 26, 2012 at 4:11 PM

No QE3?! But I love paying more for gas and food while my wages remain stagnant.

Doughboy on April 26, 2012 at 4:11 PM

Paul Krugman is the biggest fool in town…any town. I am so sick of his lunacy projected thru the MSM. He’s a traitor to everything America used to stand for/be.

johnnybgood on April 26, 2012 at 4:12 PM

The FED is buying 61% of all US Tresury Bonds at aution over the last 12 months…

Ben is a liar just like the One…

PatriotRider on April 26, 2012 at 4:12 PM

Bernanke attacked Paul Krugman for demanding an inflationary policy in order to produce a little more incentive for jobs growth. One would think that the two previous rounds of quantitative easing — which has weakened the dollar and helped drive energy prices higher — would be enough for any interventionist to love. Bernanke called Krugman’s demands “very reckless”

Gotta give Ben his kudos for not taking the advice of Paul “Space Invaders” Krugman.

Bitter Clinger on April 26, 2012 at 4:12 PM

Wait, didn’t Ben recently say that things were looking up? What?! You mean he doesn’t know what the hell he’s talking about?! How can that be?

Rational Thought on April 26, 2012 at 4:13 PM

Preventing getting thrown under the bus

cmsinaz on April 26, 2012 at 4:13 PM

PBHO immediately went on the offensive, declaring that he would use the power of his office to set short term interest rates at -5%.

Right Bishop. Squeeze it in between the $2,500/year in health care premiums we’ll save and the $400-$500/month is interest we’ll have knocked off our mortgages when rates are at all time lows anyway…

DanMan on April 26, 2012 at 4:14 PM

In other news, Tiger Woods has declared that he won’t sleep with that one hooker.

MadisonConservative on April 26, 2012 at 4:14 PM

they have to decouple cost of living increases from the debt before they can print it away, or there is little to be gained. Fortunately the ideal has just been floated.

DFCtomm on April 26, 2012 at 4:14 PM

Gotta give Ben his kudos for not taking the advice of Paul “Space Invaders” Krugman.

Bitter Clinger on April 26, 2012 at 4:12 PM

Beat me to it…. Leave it to Krugman to make the dollar weaker so the paycheck-to-paycheck folks take it in the shorts.

Complete moron.

Turtle317 on April 26, 2012 at 4:15 PM

Sorry, I don’t believe him.

JPeterman on April 26, 2012 at 4:15 PM

No QE3?! But I love paying more for gas and food while my wages remain stagnant.

Doughboy on April 26, 2012 at 4:11 PM

On the other hand, I don’t mind seeing the $ value of my gold and silver eagles go up… :-)

(and yes, I’m aware that it’s just the dollar being devalued rather than commodities becoming more valuable)

Doomberg on April 26, 2012 at 4:16 PM

You might want to keep an eye on paper futures to see if there is a big spike for the feds buying for the printing presses?

Ammo, guns, and paper sure to make you money?
L

letget on April 26, 2012 at 4:18 PM

This is comforting, Bernanke is trying to paddle our canoe away from the rapids.

Dr Evil on April 26, 2012 at 4:06 PM

I wonder how he will do it without a paddle. And my goodness! Why is this water brown and what is that smell?!

Lily on April 26, 2012 at 4:19 PM

Gotta give Ben his kudos for not taking the advice of Paul “Space Invaders” Krugman.

Bitter Clinger on April 26, 2012 at 4:12 PM

I took Bernanke’s statement to mean he isn’t going to take one for the team. Obama may not get reelected, but Bernanke’s got to live with consequences of his actions as they play out over the long run. Obama doesn’t have to worry about what comes after if he doesn’t get reelected so I can see why he’s willing to take the risk. Paul Krugman is just a dipsh1t.

Dr Evil on April 26, 2012 at 4:22 PM

Beat me to it…. Leave it to Krugman to make the dollar weaker so the paycheck-to-paycheck folks take it in the shorts.

Complete moron.

Turtle317 on April 26, 2012 at 4:15 PM

“Should we or should we NOT follow the advice of the galatically stupid!!!”.

Bitter Clinger on April 26, 2012 at 4:23 PM

Bernanke has been indicating no more QEs. Not that it matters. We crossed the tipping point a while back and The Emperor Zero can’t hide it any more. We are in for one bumpy ride down into that crater.

dogsoldier on April 26, 2012 at 4:24 PM

This is comforting, Bernanke is trying to paddle our canoe away from the rapids.

Dr Evil on April 26, 2012 at 4:06 PM

I wonder how he will do it without a paddle. And my goodness! Why is this water brown and what is that smell?!

Lily on April 26, 2012 at 4:19 PM

I hear ya.

And Paul Krugman want’s him to ad some Eau de toilette water, to make it all seem/smell like it’s smooth sailing from here on out.

Dr Evil on April 26, 2012 at 4:26 PM

Bernanke will do as he is told by his masters.

CorporatePiggy on April 26, 2012 at 4:26 PM

I kinda disagree, Ed. Not that you don’t make a compelling case, but the way the market’s traded, it certainly seems to be assuming that QE3 is in the cards. When the ISM number printed a huge miss (biggest in 3 years) yesterday, the market shrugged it off and rallied off the FOMC meeting. When more people were shown to be filing for unemployment this morning, the market shrugged it off and rallied 112 pnts. When existing home sales, new home sales, and the Case Shiller index all came in lower, the market shrugged it off, and we’re now almost sitting at a 4 year high in equities. Seems to me the market is only trading off of one reality: the Bernanke put.

Weight of Glory on April 26, 2012 at 4:27 PM

One would think that the two previous rounds of quantitative easing — which has weakened the dollar and helped drive energy prices higher

I can’t say I agree with that. Despite the Fed’s enormous balance sheet, most of that money is not in circulation. We really aren’t experiencing much monetary inflation. Rather, we are seeing supply questions from the mess in the MidEast and increased worldwide demand. In the face of such factors normal market forces SHOULD increase the price for energy. That is a signal to suppliers that good profits can be had for producing more.

That’s the case for the moment. However, it could turn on a dime if we do see real economic growth and the commensurate demand for money. Then the excess money supply will indeed devalue our dollars and the inflation genie will have a field day. But due the anemic economy, we ain’t there yet.

MJBrutus on April 26, 2012 at 4:29 PM

That’s a nice Fed you got there, Spanky Bernanke. Shame if something happened to it…

/

ghostwalker1 on April 26, 2012 at 4:29 PM

Actually, I think that the Fed has SAVED the economy from the disaster that it would have otherwise been if it hadn’t enacted it’s policies.

blink on April 26, 2012 at 4:24 PM

Really?!? How’s that?

Bitter Clinger on April 26, 2012 at 4:29 PM

Blue Plate Special of dog most affected.

Marcus Traianus on April 26, 2012 at 4:29 PM

Actually, I think that the Fed has SAVED the economy from the disaster that it would have otherwise been if it hadn’t enacted it’s policies.

blink on April 26, 2012 at 4:24 PM

Depends on what you mean by “saved”. If you mean “bought more time” then yes you are correct. If you mean anything other than that, you’re wrong.

Weight of Glory on April 26, 2012 at 4:32 PM

It is entirely possible that ol’ Ben “Ben Dover” Bernanke is already hedging his bets. If he opens the cheap money floodgate for Comrade Obamov and Romney somehow pulls to victory, he might end up in a federal motel on a date with 6’4″ Ahmed or Bubba-Joe.

Archivarix on April 26, 2012 at 4:33 PM

o/t

Oh Where, Oh Where Have Our Little Blue Dogs Gone?

http://predicthistunpredictpast.blogspot.com/2012/04/oh-where-oh-where-have-our-little-blue.html

Resist We Much on April 26, 2012 at 4:33 PM

In other news, Tiger Woods has declared that he won’t sleep with that one hooker.

MadisonConservative on April 26, 2012 at 4:14 PM

Unless the economy in his pants warrants it.

Weight of Glory on April 26, 2012 at 4:33 PM

Oh Where, Oh Where Have Our Little Blue Dogs Gone?

Resist We Much on April 26, 2012 at 4:33 PM

Do you really need to ask what has been happening to them the last few years with a dog eater in the White House?

cozmo on April 26, 2012 at 4:36 PM

Actually, I think that the Fed has SAVED the economy from the disaster that it would have otherwise been if it hadn’t enacted it’s policies.

blink on April 26, 2012 at 4:24 PM

They just kicked the can farther down the road is all. No saving here. The car is headed off a cliff and they built a short little one-sided bridge out over the drop.

Low interest rates were gasoline on the housing bubble fire.

Low interest rates are killing the incentive to save.

The fed has tripled the amount of cash in circulation in 3 years. That inflationary monster will come and bite us.

PastorJon on April 26, 2012 at 4:37 PM

what the Fed does — tends to cause prices and wages to rise, but the Fed expects that inflation will come in at or below its target of 2 percent for the next few years.

The Bernanke is walking a tightrope and he knows it. The problem is manifold. First of all you have a fed funds rate of near 0% and there is no inflation? That says there are some SERIOUS systemic problems in the economy. If the banks aren’t making money with this arrangement, that says there is still some major deflationary pressure someplace and I believe that is in the real estate market. The banks are still losing money on the collateral on much of the money they have tied up in various loans and so they are still having to maintain huge capital reserves against that.

The problem is going to come when those mortgages begin to come up from under water. When a mortgage comes up from under water, the reserve requirements reduce. If the economy inflates rapidly, a large number will come out from under water in a short period of time. Now the banks will switch from being under pressure to maintain huge capital reserves to suddenly being flush with cash they are going to want to lend because that’s how they make their money. So we can “flip” very quickly from cash-tight to cash-flush.

The Federal Reserve under QE(x) shoveled a lot of cash into the reserves of those banks by having the banks issue stock that the fed bought. The Fed basically printed a lot of cash and then squirreled it away in the vaults of the banks, you can see this by looking at a graph of M0, the monetary base. If you compare M0 to M1, you will see that when M0 absolutely jumped nearly straight up by huge amounts (fed pumping money into bank vaults), M1 (money actually circulating) didn’t move nearly as much. When those mortgages begin to come out from under water, you will see more of that money move from M0 to M1. That might happen VERY quickly (in a quarter or two). It would take two quarters of data for the fed to establish that it is a trend, not a fluke, and another quarter for the fed to react. So by the time anything actually gets implemented, we are already three quarters behind us and with that absolutely gargantuan amount of cash sitting in those vaults ready to flood the markets, that might not be fast enough. The fed would have to return that stock to the banks and get the cash back before the banks could lend it out.

To make matters worse, there is a positive feedback. Once the economy inflates and home prices rise simply due to inflation and that cash floods into the market, inflation then rises even FASTER. As the inflation increases speed, even MORE mortgages come out from under water at a faster rate making the problem even worse. Notice that this isn’t going to be an increase in the VALUE of the homes, just an increase in the PRICE. So your house might have doubled in price and not be under water anymore, but gasoline, coffee, and potatoes have also doubled in price. Valued in potatoes, your house doesn’t buy any more of them than it did before, but your mortgage is no longer under water. Refinance, right? Nope, because by that time they are going to have to jack interest rates up and why would you want to refinance that 6% mortgage at 12%? So now you are STILL stuck.

All of the above said, there is still a dark cloud on the horizon. We have another slug of foreclosures working its way through the system and we might see yet ANOTHER drop in home values. If home values drop even more, the fed is either going to have to pump MORE money into the bank reserves or ease up on the reserve requirements so the banks aren’t required to hold as much capital reserve. All of this could have been avoided by razing foreclosed homes instead of putting them back on the market and depressing home values and putting the mortgage industry under water.

So, the Bernanke is stuck. He knows there is the potential of a massive increase in inflation once home prices begin to rise but he also knows that there is likely at least one more dip in home prices coming. He is walking a tightrope and one false move and the economy explodes.

crosspatch on April 26, 2012 at 4:50 PM

cozmo on April 26, 2012 at 4:36 PM

That’s the point. Did you open the link and look at the picture or listen to the song?

Resist We Much on April 26, 2012 at 4:53 PM

Big Ben cant do what he cant do, explanation -QE3 will cause the cost of energy spike faster, than it decreases unemployment, and 4-5-6$ gas makes for better anti-Obama commercials. So until election, he is all for strong dollar. After that, screw the savers, screw retirees, print money, debase the dollar, expand government. Fed can only so long pretend that there is no inflation, when they print more money. They already exclude everything from the basket calculating inflation. But it is just that – numbers, very different from real people with pitchforks.

anikol on April 26, 2012 at 4:57 PM

crosspatch on April 26, 2012 at 4:50 PM

Your points are well taken. But housing while important, isn’t event the biggest driver, IMHO. Businesses are not making capital investments to expand. There is no demand for money from home buyers as you mentioned, but also from industry. When demand for money comes about, then we will see the economy flooded with dollars which are now just sitting in Ben’s electronic safe. That hasn’t and won’t happen under Obama. He has made sure that the only people wanting to borrow money, even at near 0%, are the Feds.

When we get some pro-growth policies are put in place by President Romney, we’ll see an explosion in inflation if steps aren’t taken beforehand to prevent it.

MJBrutus on April 26, 2012 at 4:59 PM

Resist We Much on April 26, 2012 at 4:53 PM

Afterwards, but it isn’t as much fun as the immediate joy of bringing up 0bama is a dog eater again.

I’m waitin’ for November to see how many yellow dogs he consumed.

And what about the pics…short skirts sweaters and heels, I’m waitin…

cozmo on April 26, 2012 at 5:02 PM

Bernanke will do as he is told by his masters.

CorporatePiggy on April 26, 2012 at 4:26 PM

Which ones? The ones in the Obama administration? Or the Financial oligarchy that pulls the strings behind the scene?

I am putting my money on the banksters.

Dr Evil on April 26, 2012 at 5:07 PM

They’re going to need a GE90 to untwist Krugman’s shorts after that. He does *not* like having his pronouncements questioned. And the fact that Bernanke’s as well-credentialed as he is will make Krugman’s next column all the more frantic, ugly, petulant and preening.

DrSteve on April 26, 2012 at 5:08 PM

So, Bernanke administers a much-needed spanking to the NY Times’ resident hack economist. About time someone pointed out that Krugman’s theories are irresponsible and downright foolish.

morganfrost on April 26, 2012 at 5:09 PM

I am putting my money on the banksters.

Dr Evil on April 26, 2012 at 5:07 PM

At least they prefer a good economy.

cozmo on April 26, 2012 at 5:11 PM

Businesses are not making capital investments to expand. There is no demand for money from home buyers as you mentioned, but also from industry.

That is for two reasons:

1: tight cash. Banks are MUCH less free with the lending than they were 6 years ago. The requirements have tightened up and it is harder to get a line of credit you might need, particularly if your needs are seasonal or sporadic.

2: Regulatory uncertainty. Business doesn’t trust this administration or politicians in general to keep the same playing field for more than a couple of years. A business making the sort of capital investment is looking at the potential return over a period of 5 or maybe more years. If they think the rules are going to change, and they can’t be sure HOW they are going to change, they are going to sit on that money and invest only when and where it is absolutely necessary. Or they will go offshore.

But it isn’t the “housing market”, it is the value of the real property that is collateral on the loans they already have out. If they have a $200,000 loan out on a property that was worth $250,000, they were pretty well covered. If that property is only worth $100,000 then they have their butts out in the breeze because if anything happens and that loan must be foreclosed on, they are going to have to take a $100,000 loss. So they need capital reserves offset that so the bank will remain liquid if that loan goes under. The deeper under water its portfolio if collateral, the more reserves they need.

In the stock market it would be like buying stock on margin and the value falls so the bank makes a “margin call” and makes you put up more cash. In mortgages, the bank can’t call the homeowner and say “hey, I need you to pony up another $50,000″. The BANK has to basically do a margin call on itself and put more in reserve to offset that potential loss. That reserve is money they can’t lend. So when they have less to lend, they get pickier on who they lend it to.

crosspatch on April 26, 2012 at 5:11 PM

DrSteve on April 26, 2012 at 5:08 PM

morganfrost on April 26, 2012 at 5:09 PM

You two are scary.

cozmo on April 26, 2012 at 5:12 PM

When we get some pro-growth policies are put in place by President Romney, we’ll see an explosion in inflation if steps aren’t taken beforehand to prevent it.

MJBrutus on April 26, 2012 at 4:59 PM

Absolutely correct. President Romney will have to say something like “we are going to take steps that are going to increase economic activity so we need to incentivize the pulling back of that capital we stoked you with”. Basically he needs to say “if you return some of that cash to the fed, we will reduce your reserve requirements” and take a risk that things won’t get too bad between the time the reserve requirements are reduced and when the economic results kick in. If they don’t kick in or things do get worse, the cash can always be put back.

crosspatch on April 26, 2012 at 5:14 PM

Actually, I think that the Fed has SAVED the economy from the disaster that it would have otherwise been if it hadn’t enacted it’s policies.

blink on April 26, 2012 at 4:24 PM

Thats the same as saying you were saved when the guy kicking your ass took your wallet and walked away.

“Thanks for saving me, Mr. Bandit!”

BobMbx on April 26, 2012 at 5:15 PM

In other words, the damage the housing collapse did to the banks via mortgages was much like the damage done to the banks due to the 1929 stock market collapse when everyone was leveraged to their eyeballs in stocks bought on margin.

A $1 drop in the value of a stock might have represented millions of dollars in loss of collateral value to a bank that had millions of loans backed by that stock.

It is about leverage and we were WAY over leveraged in the housing market.

crosspatch on April 26, 2012 at 5:17 PM

crosspatch on April 26, 2012 at 5:17 PM

Very well put. I don’t even know, are banks still required to use mark to market valuation on their collateral?

MJBrutus on April 26, 2012 at 5:20 PM

are banks still required to use mark to market valuation on their collateral?

MJBrutus on April 26, 2012 at 5:20 PM

I believe mark to market requirements were “suspended” for housing but I don’t know for how long or if they still are. THAT was a HUGE positive feedback that drove the market down faster than it otherwise would have, too.

crosspatch on April 26, 2012 at 5:26 PM

Thugman wants more intervention in order to claim any short-term gain as being a result of Barry’s “Economic Genius”.

Once Barry gets re-elected, who cares what happens to the economy.

It’s all Bush’s fault anyway.

GarandFan on April 26, 2012 at 5:27 PM

In other news, Tiger Woods has declared that he won’t sleep with that one hooker.

MadisonConservative on April 26, 2012 at 4:14 PM

Tiger is particular about carousing with Secret Service castoffs.

timberline on April 26, 2012 at 5:40 PM

But we need to stop and turn around before we get to the edge of the bridge that has been built for us.

Exactly.

To compare two situations:

People would go to a mortgage lender and the lender would give them a great loan because housing prices are not going anywhere but up. A $250,000 house, no money down loan on a 5 year 6% ARM but they can just barely make the payments at 6% interest but they can make them. But it is OK because housing prices are going up and they will gain equity for refinancing through appreciation. Now interest rates rise. The 5 year loan is expired, they need to refinance, best they can find is a 7% loan which they take because they are desperate, can’t make the payments, and their home is foreclosed on. Bank sells the house for $200,000 which reduces the “median home price” in that market.

Then family number 2 comes up for their loan to refinance. Their loan was for $250,000 but the market says their home is only worth $200,000 and they either have to come up with $50,000 cash to refinance it or lose it. They don’t have $50,000 cash so the house gets repossessed and sold for $185,000 depressing the market’s “median home price” even more. In the meantime those with fixed rate mortgages are still paying off that $250,000 loan on a house worth $185,000 that they can’t sell without losing their entire savings.

Now lets compare that to:

Lets say you ask the bank for a loan to buy $200,000 worth of Enron stock. You want no money down, basically you just want the bank to give you the stock without putting up any cash of your own. You just pay the brokerage fee. Banks says you can have the money for 5 years and because Enron stock is going nowhere but up, its a great deal for the bank. At the end of five years you have to refinance but two things have happened, the value of the stock went DOWN and interest rates went up. How are you going to finance $200,000 of debt at a higher rate with only $185,000 worth of collateral and what bank in their right MIND would make a bet like that on a stock?

The problem was the notion that housing prices could only go UP. When the price of housing went DOWN, the entire system broke because the system was built on the notion that prices only go up.

And we are going to be in trouble with housing for 30 years as the baby boomers move out of their last house and the generation that is moving into their first house is broke, unemployed, and smaller in number than the boomers.

We are going to have a surplus of existing homes. We need to raze the units going into foreclosure.

crosspatch on April 26, 2012 at 5:44 PM

I am putting my money on the banksters.

Dr Evil on April 26, 2012 at 5:07 PM

At least they prefer a good economy.

cozmo on April 26, 2012 at 5:11 PM

Yep and I am guessing they are tired of the 1% schtick the media’s humping for Obama.

Ask a dog, it’s dumb to bite the hand that feeds you…..there is an Obama joke in their somewhere ;)

Dr Evil on April 26, 2012 at 5:52 PM

We are going to have a surplus of existing homes. We need to raze the units going into foreclosure.

crosspatch on April 26, 2012 at 5:44 PM

Why not have Freddie and Fannie foreclose, take possession and then just give that home to a deserving, lifelong recipient of welfare or turn it into communal housing for illegal aliens?

And then we can ask the Treasury to reach into our private retirement accounts and help themselves to some of the $16T in cash just sitting there…and spread it around a little.

Utopia!

BobMbx on April 26, 2012 at 5:53 PM

Why not have Freddie and Fannie foreclose, take possession and then just give that home to a deserving, lifelong recipient of welfare or turn it into communal housing for illegal aliens?

Because it probably won’t do that lifelong recipient of welfare or the illegal alien any good. It will probably make their situation worse, in fact.

Who is going to maintain that home and pay the taxes on it? Also, if the value of those properties drop due to neglect, it reduces the market prices of homes in the entire area.

But razing it does three things: 1. When the lot is resold it does not get sold as a single family home so it does not reduce the median home price in the market. 2: It reduces the supply of existing homes to help put some support under any further decline in value of the remaining homes. 3: the person buying that lot will do so with the intention of building a new home on it. It sows the seeds for an increase in construction activity.

Also, while the lot has no unoccupied house on it, it does not become a crime scene.

crosspatch on April 26, 2012 at 6:03 PM

Your explanations for the cause of the housing/financial crisis were spot on, but I can’t agree that this is a good idea.

blink on April 26, 2012 at 5:59 PM

Why do you think it is a bad idea?

What advantage is there to having a glut of foreclosed homes on the market?

crosspatch on April 26, 2012 at 6:05 PM

The current administration won’t change course, and the only option Bernanke has is to take the helm and steer the ship away from the biggest icebergs.

The ship has already hit the iceberg and sank. All that’s left are the huddled survivors in the lifeboats, looking for another iceberg to anchor to while we sit and freeze to death.

MichaelGabriel on April 26, 2012 at 6:09 PM

MichaelGabriel on April 26, 2012 at 6:09 PM

Then whats the point of continuing to live?

cozmo on April 26, 2012 at 6:12 PM

I would use this philosophy judiciously. Take places where you might have entire neighborhoods of abandoned homes that are all in various states of falling apart. It would be better to bulldoze the entire neighborhood than to try to sell those lots with the houses on them. In fact, removing the houses would increase the value of the lots and the entire surrounding area.

It is counter-intuitive but like any other market where you have a surplus of something, you have a choice. You can either deal with the price rapidly falling or you can reduce the supply and stabilize prices. Government has been trying to operate on the demand side by trying to offer incentives to buy. That doesn’t work when people are losing their jobs. They just don’t have the wherewithal to buy. So … reduce the supply to maintain what market you have left.

It wouldn’t be a good approach to apply in all markets, but it would work well in some like California, Arizona, Nevada, Detroit, etc.

crosspatch on April 26, 2012 at 6:14 PM

Then whats the point of continuing to live?

cozmo on April 26, 2012 at 6:12 PM

Exactly. Bravo.

We CAN get through this. We have just been approaching the problem as if it was a temporary glitch. We need to approach it like it is a fundamental systemic change.

In economics it is the difference between a change in demand and a change in the amount demanded. The government has been approaching it as a change in the amount demanded that will come back. I am seeing a more fundamental change in the nature of demand. The generations at the youngest end of the spectrum can’t afford a house and there is no indication they ever will be able to afford a house due to government regulations that keep that age demographic largely unemployed and in debt and the generation at the older end is leaving the housing market in droves as the baby boom becomes the retirement boom.

crosspatch on April 26, 2012 at 6:18 PM

In other words, the debt the young USED to incur for their first house has been displaced by student loan debt and they are living at home because the student loan payment eats what they would otherwise be able to afford in rent.

crosspatch on April 26, 2012 at 6:20 PM

I think I could support your idea if you were confident that the home would not be sold and fall into squalor anyway.

What you do is tell the banks that the protection program the government has in place for them when they lose money on foreclosed properties will not apply unless they raze the structure.

crosspatch on April 26, 2012 at 6:22 PM

This seems like a more worthy cause to fight for than to fight to raze foreclosed houses.

blink on April 26, 2012 at 6:21 PM

I think you are taking this way too far in your head. We might be talking about only a dozen homes over a few years in a county. Some areas might be worse, but I am not talking about a huge number of homes here. And the program an be stopped at any time, it can be turned off immediately when things turn around.

crosspatch on April 26, 2012 at 6:24 PM

In fact, the incentive to raze them goes away when mortgages come up out of water. Once that happens, there is no incentive on anyone’s part to raze it because then it is worth more overall being sold as-is.

It is only when the sale of that house would reduce the home values in the entire local market that it makes any sense to raze it. If the home has increased in value, he incentive is to sell it as is.

It only makes sense in the most depressed markets where median home prices are still falling.

crosspatch on April 26, 2012 at 6:27 PM

Then whats the point of continuing to live?

/SARC

I thought it was obvious.

“Sometimes I need what only you can provide: your absence.”
Ashleigh Brilliant

“It’s always darkest before it turns absolutely pitch black.”
Paul Newman

“It’s a catastrophic success.”
Stephen Bishop

“I feel so miserable without you, it’s almost like having you here.”
Stephen Bishop

“History teaches us that men and nations behave wisely once they have exhausted all other alternatives.”
Abba Eban

“If you find it hard to laugh at yourself, I would be happy to do it for you.”
Groucho Marx

MichaelGabriel on April 26, 2012 at 6:28 PM

Exactly. Bravo.

We CAN get through this. We have just been approaching the problem as if it was a temporary glitch. We need to approach it like it is a fundamental systemic change.

crosspatch on April 26, 2012 at 6:18 PM

Well, that’s obvious.

-Government artificially raised real estate prices

-Government artificially raised the price of education

-Government, and unions, artificially raised the price of health care

-Government made it easier to live off the dole

Its broke, but we ain’t dead. The problem is easy to see. Most uninformed people won’t take the medicine.

/SARC

I thought it was obvious.

MichaelGabriel on April 26, 2012 at 6:28 PM

You were as clear as mud.

cozmo on April 26, 2012 at 6:34 PM

It only makes sense in the most depressed markets where median home prices are still falling.

crosspatch on April 26, 2012 at 6:27 PM

I still don’t agree…
blink on April 26, 2012 at 6:35 PM

Same here, I have real estate. There would be a lot of good going out with the bad. If there was a plan to do that, I would add a barter option for homeowners not in default to do some house trading to put together those large parcels developers are looking for.

Its doable, but certainly not by the government.

cozmo on April 26, 2012 at 6:46 PM

You were as clear as mud.

“The United States is a nation of laws: badly written and randomly enforced.”
Frank Zappa

“The trouble with her is that she lacks the power of conversation but not the power of speech.”
George Bernard Shaw

“He has no enemies, but is intensely disliked by his friends.”
Oscar Wilde

“If you ever become a mother, can I have one of the puppies?”
Charles Pierce

“A modest little person, with much to be modest about.”
Winston Churchill

“He loves nature in spite of what it did to him.”
Forrest Tucker

“It is not necesssary to understand things in order to argue about them.”
Caron de Beaumarchais

MichaelGabriel on April 26, 2012 at 6:46 PM

“It is not necesssary to understand things in order to argue about them.”

MichaelGabriel on April 26, 2012 at 6:46 PM

You certainly have that one covered.

cozmo on April 26, 2012 at 7:20 PM

“The problem with common sense is that most people are morons.”
Sarcasm Society

“I’m not so good with the advice… Can I interest you in a sarcastic comment?”

Chandler Bing

MichaelGabriel on April 26, 2012 at 7:28 PM

blink on April 26, 2012 at 7:38 PM

But he puts so much work into glooming quotes. Seems a shame not to have some fun.

cozmo on April 26, 2012 at 7:58 PM

Barry is busy lending money to students so they can attend college, but if Krugman and Bernanke are the best the universities can do, I suggest considering a high school diploma sufficient for most people.

Colony14 on April 27, 2012 at 5:15 PM