Instead of spending Billions or should I say Trillions on private companies that go defunct or “Greenie Weenie” jobs that are not going to work the way they want them to work in our economy. Let’s face it; a family of 5 living on $22,000 per annum cannot afford a “Greenie Weenie” light bulb that costs $7.95, and a company as big as GM shouldn’t have been bailed out in the first place.

Let’s put that money to some good use and “invest” in the citizens of the United States –

The 2010 Census has counted 308,745,538 living in the United States, so my plan says, give every person 18 and over, with-out a criminal record, that makes less than $1M per annum, $1M, but with some conditions, and these conditions are as follows.

1.  You have to spend it within 1 year; whatever you can’t/don’t spend goes back to Uncle Sam.
2.  It has to be spent in the United States.
3.  You can’t put more than $50,000 in a savings account.

You can spend it on whatever you like, you can buy a car, you can buy a house, buy a vacation home somewhere in the U.S., pay-off loans, set up a college fund for your children or you can go to college, donate to your favorite charity or church, spend it anyway you want to spend it, as long as the money stays in the United States and helps our economy and companies here in the United States.

Now I’m dead set against Socialism, Progressive Socialism, whatever you want to call it, all I’m saying is instead of throwing good money after bad investing in companies that go belly up or bailing out companies, maybe bail-out the citizens, plus my plan would be a lot cheaper.

Or the congress could pass the proposed jobs bill.

So you are against SOCIAL security?

It’s disgraceful what’s been allowed to happen to social security. Anyone paying attention knows the SS fund has been robbed to pay for wars. This needs to be made right.

Disgraziati… as the Sicilians would say.

Coyote - 23 September 2011 08:43 AM

Instead of spending Billions or should I say Trillions on private companies that go defunct or “Greenie Weenie” jobs that are not going to work the way they want them to work in our economy. Let’s face it; a family of 5 living on $22,000 per annum cannot afford a “Greenie Weenie” light bulb that costs $7.95, and a company as big as GM shouldn’t have been bailed out in the first place.

Let’s put that money to some good use and “invest” in the citizens of the United States –

The 2010 Census has counted 308,745,538 living in the United States, so my plan says, give every person 18 and over, with-out a criminal record, that makes less than $1M per annum, $1M, but with some conditions, and these conditions are as follows.

Now I’m dead set against Socialism, Progressive Socialism, whatever you want to call it, all I’m saying is instead of throwing good money after bad investing in companies that go belly up or bailing out companies, maybe bail-out the citizens, plus my plan would be a lot cheaper.

Please do the math…according to the BLS September employment survey there are 154,017,000 employed persons in the US. That probably lowballs your selection criteria.

Now multiply 154 million by 1 million….what do you get?

My calulator shows $154 Trillion (I used 2 different calcs to verify)...or more than 10 times the entire annual output (or darn close) of the entire US economy. This is also about 51 times the annual budget of the US govt.

If you’d like to do something that might actually make a difference, then housing must be fixed.

Taxing the rich won’t solve the problem, it’s just a distraction (although as part of a complete solution the tax code does need to be reformed). Silly slogans won’t make a difference. Camping out in a tent makes for good tv, but will have no effect on the problem…because all the protestors are talking about are the symptoms, not the cause.

Housing is the root of the problem. Take a trillion and buy down the mortgages of those who are underwater but making payments on time then let them refinance thru a govt backed mortgage. The US can borrow the money at a little over 2% and turn around and loan it out at 4.5%. The current cost is high…the longer term cost is less. It won’t make money because of the writedowns, but it should increase confidence and unleash some consumer pent up demand leading to growth. This would also help solidify the balance sheets of the banks and allow them to ease their lending restrictions (of course strong oversight of the banks and mortgage/lending standards are a must).

The President’s job act is unlikely to have any real lasting effect. Unfortunately, some of it (payroll tax and a few other items) most likely must continue in order to reduce the drag on growth next year.

The Republican candidates won’t even touch housing.

Shadow:
I like your thinking.  Status-quo clearly has not been working.  Unfortunately, it’s the politicians who must ultimately make the decisions, and Congress is so busy fighting itself that nothing is getting done.

Except it’s not really the people who are paying on time who need the help. As for the others, why would they refinance, when they can just continue not to pay with virtually no risk of foreclosure?

Most people don’t have a clue how amortization works. I’d venture a guess that most of these mortgages being discussed here are 5-7 years old. That’s all front-loaded with interest. Refinancing might help with their household cash flow problems in the short run, but won’t actually reduce their debt load, which is a bigger problem here, IMO.

Hydrilla - 01 November 2011 05:28 PM

Shadow:
I like your thinking.  Status-quo clearly has not been working.  Unfortunately, it’s the politicians who must ultimately make the decisions, and Congress is so busy fighting itself that nothing is getting done.

It’s nothing original…lots of talk lately about geting those with negative equity to refinance.

Those with negative equity but still paying on time can be saved. I just refinanced and cut my monthly mortgage payment by 25%. Imagine if we can help millions of households do the same, especially if we also reduce their negative equity.

This is not a short term cash flow fix (I can’t believe I read that…well, actually I can). It is a permanent (30 years anyway) cash flow increase to millions of families. Money that can be used to spend down other debt, increase savings or increase consumption/demand which leads to a more stable economy and increased hiring. its not a magic bullet, but it would do a lot more long term good than the President’s current proposals (at least have to give him credit for proposing something.

Keep hating if you like, hoss. No skin off my back. I’ll be right here.

From the plans/proposals I’ve seen you’re not eligible if you have a non-GSE-backed mortgage, and you’re not eligible if you’ve missed more than one payment in a calendar year. Like I said: the people who really need the help probably won’t be helped. Forgive me if I’m not drooling over this.

Furthermore, you know as well as I do that Obama can order the banks themselves to write-down and/or modify the loans if he wanted to, and it wouldn’t cost the government a dime. Why do you insist the middle class take a bath (yet again), rather than let the whole thing collapse and allow housing to find their natural price levels again according to supply and demand, i.e., this little thing we call capitalism and the free market? Do you stand to lose if some big banks take a bath and have to reorg? Most of us will make out just fine if Goldman, Citi, BoA, etc., go tango uniform. You want to jump start the economy, think of the secondary market for homes post a housing collapse. The jobs for real-estate professionals, jobs for house repair/house inspection types to get inventories up to snuff, a whole new lot of transfer and recordation fees, etc. going into government coffers.

Were I in that situation, I’d be happy to give it all up and rent for while until things shake out.

Also, I think the numbers I’ve seen bandied about for the number of mortgages underwater has varied between 11-19%. I think 25-30% is probably a more realistic number. The numbers I’ve seen the government push rely on over-simplified averages of principal write-downs, IMO. I think (rather I fear) that when you get down in the weeds at the micro level the picture will be much bigger than the back-of-napkin calculations seem to suggest.

Have you ever met a government bailout program you didn’t love?

xcitor - 02 November 2011 08:25 PM

From the plans/proposals I’ve seen you’re not eligible if you have a non-GSE-backed mortgage, and you’re not eligible if you’ve missed more than one payment in a calendar year. Like I said: the people who really need the help probably won’t be helped. Forgive me if I’m not drooling over this.

Furthermore, you know as well as I do that Obama can order the banks themselves to write-down and/or modify the loans if he wanted to, and it wouldn’t cost the government a dime. Why do you insist the middle class take a bath (yet again), rather than let the whole thing collapse and allow housing to find their natural price levels again according to supply and demand, i.e., this little thing we call capitalism and the free market? Do you stand to lose if some big banks take a bath and have to reorg? Most of us will make out just fine if Goldman, Citi, BoA, etc., go tango uniform. You want to jump start the economy, think of the secondary market for homes post a housing collapse. The jobs for real-estate professionals, jobs for house repair/house inspection types to get inventories up to snuff, a whole new lot of transfer and recordation fees, etc. going into government coffers.

Were I in that situation, I’d be happy to give it all up and rent for while until things shake out.

Also, I think the numbers I’ve seen bandied about for the number of mortgages underwater has varied between 11-19%. I think 25-30% is probably a more realistic number. The numbers I’ve seen the government push rely on over-simplified averages of principal write-downs, IMO. I think (rather I fear) that when you get down in the weeds at the micro level the picture will be much bigger than the back-of-napkin calculations seem to suggest.

Have you ever met a government bailout program you didn’t love?

So the govt pays off the original note and refinances at a lower level of principal and interest rate for the homeowner and you call that the middle class taking a bath? Really? You must be using some sort of “new math”.

Is helping the middle class just a slogan to you or do you actually have something worth putting on the table for discussion?

The only solution you seem to have is let the housing market completely collapse and/or forcing the banks to write down loans (exactly how does the President do this?) which may lead to their collapse. Is that what all your years of experience tell you is best? If so, have a happy depression. 30% unemployment and the implosion of the economic system is a great strategy. I am sure the middle class would just prosper under your scenario, they did so well during the Great Depression afterall.

Since you have no ideas of value to put forth, you attack from the standpoint of what holdings I may have? Exactly how does that go about solving any of our problems? It doesn’t…but it does fit with your typical style of trying to obfuscate and deflect.

But since you insist on going down that road…we do know that you own gold…so a depression or complete collapse of our economic system would favor those holding gold now wouldn’t it? So the question that begs to be asked is capitalism only “fair” if it works out in your favor?

Alright. Well I’m not sure we’re really solving any actual problems—more like mental
masturbation, but let’s try without any snark or sarcasm from me.

For starters let’s go back to an earlier point I made and you rejected out of hand, that is
my assertion that this government-backed principal buy down is little more than a temporary
cash-flow fix. And actually that may even be a mischaracterization. A better way to put
it is putting a trivial amount of money in the pockets of those who are underwater. Allow
me to share the math that drove me to that conclusion. If you believe my numbers/assumptions
to be off, please let me know where I have gone wrong, in your opinion.

The number I have seen that could be dedicated to this is $350 billion. You tossed out the
notion of throwing a trillion dollars at it. Was that an off-the-cuff remark or are there
sources quoting that number? I am working from Feldstein’s editorial in the New York Times:

http://www.nytimes.com/2011/10/13/opinion/how-to-stop-the-drop-in-home-values.html

To halt the fall in house prices, the government should reduce mortgage principal when it
exceeds 110 percent of the home value. About 11 million of the nearly 15 million homes that
are “underwater” are in this category. If everyone eligible participated, the one-time cost
would be under $350 billion. Here’s how such a policy might work:

Now let us assume an interest rate of 7%—recall we’re talking about folks that probably
weren’t awesome credit risks. By my math, let’s call that about $25 billion worth of
annual interest (I come out to around 24.6, but let’s round up to keep the math simple,
and I’m using Feldstein’s top end figure of $350 billion).

By all means, let me know if I am off. A higher assumed rate of interest will make the
numbers below larger; I think a 7% assumption is pretty safe.

Now let that $25B be the dividend, and the 11 million be the divisor, and I see that it
equates to about $2,272 per annum that’s “in play”, or approximately $189 per month.

Now I understand the time value of money is powerful, but I’ll bet you dollars to donuts
that < $200 ain’t gonna be saved or invested. It might be by you or I, but will all due respect
it probably won’t be by the folks in over their heads. I highly doubt it’ll even service other
debt. So from where I stand, you’ll have to forgive me, but with all due respect, I just
do not see how that will save the economy.

And also, by Feldstein’s plan, the banks are absorbing 50% of the principal writedowns,
with the government abosorbing the other half. Now, I understand this is the part that
may get you riled up, but if the banks can eat 50% of the costs, they can eat all of it.
If the government has the power to make them eat 50%, they can make them eat all of it.
That is the genesis of my comment of that nature.

I disagree with Feldstein’s statement that “there is no way to know how much further
house prices might fall.” They will fall precisely as far as required by the market to
reach equilibrium.

I could probably write more, but I’ll stop for now. Can we start from here and discuss?

I threw the $1 Trillion out as a hypothetical. But I read an article, I honestly forget where (Bloomberg maybe)that the total value of underwater mortgages was either 1 or 2 trillon.

In essence Feldstien’s numbers and what I threw out are probably close…I am using a gross number and he is using net cost to the govt….and this differenc is probably skewing your results. That and the misconception that the only savings in on the write down.

Its not just the savings on the written off amount, let’s stay with the $350B to be consistent. The added, and potentially larger impact is the savings on the new lower,new, lower interest rate.

Ex. Let’s say you have a 7%, $400,000 mortgage on a house that is now worth $300,000. Feldstein used a 110% LTV threshold…so we’ll stick with that…the new loan would be for $330,000 at 4.5%. Assume 30 year notes:

The original monthly P&I payment was $2661 per month

The new payment with the modified principle and lower rate is $1672 per month.

That is a savings of almost $1000 per month for 30 years (that is not a short term cash flow impact…it is potentially a 30 yr cash flow impact).

Granted, most mortgages probably aren’t that large…so say the average savings is $500 per month. Multiply that by those 11 million households…that’s $5.5 billion dollars of extra disposable imcome in the pocket’s of families….every month…as long as they have that loan. Figure 70% of that is spent…and use the multiplier of your choice…that’s better than a 0.5% annual boost to GDP.

My math might be off because I am using averages and assuming all eligible participate, but the impact would go far beyond just the monetary. The psychological impact could be huge.

Right now this country is facing a massive crisis in confidence. Imagine where confidence would be if we could find a way to fix the mortgages and put a lot of money back in people’s pockets at the same time?

shadowdiver - 23 November 2011 01:27 PM

Its not just the savings on the written off amount, let’s stay with the $350B to be consistent. The added, and potentially larger impact is the savings on the new lower,new, lower interest rate.

Should have read new lower principal and new lower interest rate

shadowdiver - 23 November 2011 01:27 PM

In essence Feldstien’s numbers and what I threw out are probably close…I am using a gross number and he is using net cost to the govt….and this differenc is probably skewing your results. That and the misconception that the only savings in on the write down. Its not just the savings on the written off amount, let’s stay with the $350B to be consistent. The added, and potentially larger impact is the savings on the new lower,new, lower interest rate.

OK, I understand your logic and your math and your conclusions based upon your assumptions.

I don’t understand where you are getting the re-financing at a lower interest rate bit. As far as I’m aware, that’s not part of Feldstein’s suggestion/recommendation/plan. Sure, I’ve seen various takes on this very idea bandied about and discussed, but as I’m sure you know Feldstein has the president’s ear on this, and what he discussed in that editorial is likely to be what a plan would look like—there’s a reason he took to the pages of the New York Times to “prep” the American public for this idea. The plan for principal write-downs is outlined in his piece. But I’ve not seen Feldstein mention interest rate reductions.

Let’s not forget—some if not most of these people we’re talking about here weren’t cherry credit risks to start with. That’s why they’re paying in the neighborhood of 7 percent per annum, when other were getting sub-5 percent per annum rates. I doubt they’re credit-worthiness has improved much in the intervening time, so why is it a foregone conclusion at all that these folks ought to be able to be re-financed at a lower rate? Should I be able to get a lower rate as well, commensurate with the rate decrease these folks else will enjoy?

I will admit, this interest rate reduction could very well be an integral part of his plan, and I am just being dense and missing it. If that’s the case, I can concede how indeed the math works out quite a bit differently, and is counter to my point I am trying to make. But I can’t determine if you’re dealing with the situation as you’d like ti to be, or if I am missing a vital piece of reality here.

I really am not using any one particular idea…sort of a compilation of things I have read. Re-fiing at the lower rate, for worthy borrowers, is a key part of most of what I have read.

You are correct that many folks couldn’t get lower rates initially, those are also the folks who have already lost their home or are presently in foreclosure. However, there is a large segment of home owners who are 1. underwater 2. making on time payments 3. can continue to make the current payment and 4. would be eligible to refi if isn’t wasn’t for the negative equity position.

One of the largest problems facing the economy is a severe crisis in confidence…that boils down to three things: employment uncertainty, loss of home value and loss of investment/retirement plan values. Of those three the disease is rooted in homes, the other two are symptoms of the sickness in homes.

We could go a long way to boosting overall confidence by fixing the mortgage problems of these homeowners. Yes, it does have some negative moral hazard implications, but we basically did the same thing for the banks and we ended up making money on those loans.

In this case the gov’t (us), would incur some initial cost which can be shared with the now healthier banks. In addition, any bonds that are issued to fund the program would be backed by the house as an asset. So the net additon to the debt would be far smaller than the entire outlay of the program.