Quote:
Originally Posted by Aliantha
If too many homes exist, there can not be inflated prices. Your statement in this paragraph is false.
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Having run prices so high with low interest rates, sub-prime loans, and other money games; homes around here are selling for $30,000 less and are still too overpriced.
Welcome to the conundrum of why a liquidity crisis exists. Your logic assumes no liquidity crisis. Your post makes the same mistake that bond rating agencies made - measure risk only in terms of capital. Too many homes can exist AND prices remain inflated. Many cannot sell their home for what it is really worth. Why? Liquidity crisis. Please appreciate the difference between capital and liquidity. Appreciate why so many financial experts making $hundreds of thousands annually also did not grasp the concept. A problem that should have been obvious four years ago when this problem actually existed.
Numerous options exist for homeowners. Hold properties in hope prices might rise, or earn enough money by doing two jobs for five years to pay off their loans, or get enough money (liquidity) to eventually sell at a loss, or just suffer through bankruptcy, or ... numerous options. But the only acceptable options also must be painful for years. Emotion or empathy only makes reality worse.
No way around this reality: economics takes revenge when we solve money games with more money games, as you have advocated. That pain is good and necessary. Not in the short term. But the responsible person is only concerned about 10 years from now. How many obvious examples do you need - including NYC, Ford, and Chrysler? Or Baring, Northern Rock, AT&T, IBM, Apple Computer, Enron ... The music industry in denial for so many years needs some horrific threats of bankruptcy.
Almost nobody is going homeless. They are now living in two bedroom apartments or living in post WWII densities. They are suffering in 1000 or 1700 square foot homes. Good. Still living quite well but suffering a severe reduction in living standards because of their mismanagement.
What is the proactive action? Learn from history. As Gerald Ford is paraphrased to NYC - "Drop Dead". That is the proactive situation; the best solution. Anything else is classic bleeding heart liberalism that Urbane Guerrilla so criticizes AND actually rewards the wrong people. Who would prosper most from your solution? The rich financial houses that created this mess by playing money games so that their failures stayed off spread sheets for maybe four years. You want to reward them with government welfare?
Why were the seventies so bad? Rather than address the problem, we did bleeding heart solutions. Nixon used price controls. Gerald Ford even distributed campaign badges that said WIN. (Whip Inflation Now). Therefore stagflation only got worse. Everyone suffered even more. What did we do to finally fix the American economy? Interest rates went to 14% and 22%. Only then did the American factory worker stop getting poorer. How can this be? Raising interest rates on everyone that high make everyone's life miserable. Of course. We all suffered. Our economy had been playing money games to mask lies from top government and industry criminals. It took 20+% interest rates to create enough pain; finally fix the economy.
Welcome to what we knew was coming when some here instead mocked The Economist for what was obvious.
Best thing that can happen to those who were not fiscally responsible? Five tough financial years where household budgets are made daily. Anything less would have meant even destruction of Ford and Chrysler - everything sold to fiscally responsible foreigners. It takes something that vicious to educate even our so called financial geniuses who make big bucks by playing money games rather than doing things productive. They go by titles such as stock brokers, bond traders, and equity analysts.
It is only a liquidity crisis; not a capital crisis. Shame on anyone who treats it like an accident by recommending welfare. Like car crashes, this liquidity crisis is directly traceable to human brains that must witness or suffer pain before they decide to learn. That sometimes means five years working two or three jobs.
Bankruptcy threat must be that vicious to change mindsets. Would you rather wait for people to actually become homeless? This liquidity crisis is almost trivial; will be solved in only a few years IF we don't aggrevate it with corporate welfare. Aliantha, your solution would only be corporate welfare to those who created this problem by not doing their jobs. Your solution would mostly enrich those finance firms.