A naive economic, recession fixing question

Probably not.

Recessions happen because people lose faith in their ability to trust business transactions. When people stop trading the economy slowly grinds to a halt due to the recessionary spiral.

The only way to get things going again is to make the system trustworthy again. This means putting regulations on all that financial hand waving the bankers came up with since the last recession, in my opinion.


PS: changing interest rates on mortgages is screaming for disaster. It's easy to say on the surface "hey that's a good idea!" but the banks have made such a mess of the system that there are likely dozens of different parties relying on the increased interest rate of all the packages they invested in. Suddenly your parents retirement account, your companies investments, your personal mutual funds, etc, are all losing money. Your parents have to sell their house on a dead market to survive, your company lays off people to handle the loss, and you stop buying things because you have less money, all of which spirals even more out of control.

It's easy to blame the people who bought a house they can't afford. It's also easy to blame the people who invested in such shady investments, but really it's the fault of the banks for playing games with numbers in such a way that it hides the risk inherent in investing in the lending business. Regulations would have gone a long way towards preventing this.

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Original post by Mithrandir Probably not. Recessions happen because people lose faith in their ability to trust business transactions. When people stop trading the economy slowly grinds to a halt due to the recessionary spiral.

Probably it was in the times of 1930's depression,but present crisis in addition has another,global reason-the crash of world consumption pyramid.

[Edited by - Krokhin on July 14, 2009 11:48:41 AM]

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Original post by Alpha_ProgDes Would the country fall apart?

What you propose is grossly unfair to pretty much everyone except those it's intended to help. I think there'd be riots.

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Anyone who lost their home (from 2003 forward) would get that removed from there credit report.

As it stands this defeats the point of credit reports - what effect are you trying to achieve?

I don't mean to be negative - it's good to discuss ideas like this.

Double or nothing your money back.

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Original post by Alpha_ProgDes Cut everyone's Federal Income Tax as: 90% for those in the poverty level, 50% for those above poverty level but under $250,001, and 25% for those above $250,000.

Reducing federal governemtn income by a very significant amount? I'm not familar with US finances, but I would assume a very significant chunk of federal government revenues come from income taxes on those under $250k.

This means the federal government would have to borrow heavily from somewhere to finance their enormous deficit.

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Put a moratorium on all foreclosures (I believe this was done in some fashion already).

That's right, force debtholders to give away their capital without compensation. Wait a minute, where's the federal government going to get the financing for their enormous deficit if all the capital flees to a safe haven?

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For anyone who still had a home (and under the risk of foreclosure) the government would pay their mortgage for the next 12 to 13 months.

Home != house.

Ok, the federal government would increase their deficit by transferring money directly to the remaining debtholders, which is convenient for them so they can borrow it back to finiance the deficit they're growing by transferring the money to their own lenders. Mmmm, bureaucracy double plus.

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Their interest rates would be set at the original rate, if it's lower than their current rate, and be fixed (as opposed to ARM).

Lost me there. Must be an American thing.

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Anyone who lost their home (from 2003 forward) would get that removed from there credit report.

Hmm, obfuscate risk. Worked for the financiers before the latest recession, should work even better now.

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The government would not give tax refunds from 2009 to 2013.

Would all other debt also be forgiven? How about corporate debt? We could just send all bondholders packing. Reduced debt like that would mean fewer jobs lost.

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Would the country fall apart? Would this be too much strain on the economy?

Well, considering you're proposing a complete abandonment of capital and the capitalist system I would think it would be a pretty significant strain on the economy. Say goodbye to all foreign trade and most industry. I would imagine a rapid breakdown of civil society, a reversion to an agarian existence run by whoever controls access to the best weapons and ammunition. At least the surplus population would be reduced.

I don't think your ideas will work.

Cutting taxes like that sounds great if your goal is to bankrupt the nation. Even if the two wars were ended today and all the troops brought home tomorrow, the bill for those wars still has to be paid. At any rate, I think that's a dumb idea, the kind of thing that Grover Norquist, Stephen Moore or a host of other troglodytes would advocate. Where did you come up with those proposals?

This won't fix our current problems, but we can pretty easily prevent b******t of this scale in the future simply by outlawing the current system which gives every bank CEO in the country a money printing press.

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Original post by LessBread Cutting taxes like that sounds great if your goal is to bankrupt the nation. Even if the two wars were ended today and all the troops brought home tomorrow, the bill for those wars still has to be paid. At any rate, I think that's a dumb idea, the kind of thing that Grover Norquist, Stephen Moore or a host of other troglodytes would advocate. Where did you come up with those proposals?

Partially from the arse, partially from 'someone needs to give me a (financial) break.

• People in the poverty level get there taxes back in full anyway. So I'm saying the government keeps 10% of those taxes. If my FICA was cut in half, I'd feel alot better about spending as opposed to constantly checking my bank account. The rich can get a break too.
  
• People losing houses left and right. So now those people needs more gov't assistance than before.
  
• We can give the businesses over 400 billion dollars (plus the stimulus!) but can't pay mortgages for a year (i would think paying the mortgages would be cheaper)????
  
• If you got preyed upon and swindled, at the very least your credit scores shouldn't be punished for it, IMO.
  
• If you're getting such a major tax cut, then why do you need a tax refund too?

And yes, I agree better regulations to keep these sheninigans from happening in the first place will be good, if not necessary.

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Original post by Bregma Quote: Original post by Alpha_ProgDes Cut everyone's Federal Income Tax as: 90% for those in the poverty level, 50% for those above poverty level but under $250,001, and 25% for those above $250,000. Reducing federal governemtn income by a very significant amount? I'm not familar with US finances, but I would assume a very significant chunk of federal government revenues come from income taxes on those under $250k. This means the federal government would have to borrow heavily from somewhere to finance their enormous deficit.

Aren't we already borrowing heavily? The gov't before Obama has been spending wildly. We've given corporations and rich 10 years of guaranteed tax cuts. I keep hearing that the rich in the US pay the majority of the taxes here. So if you're debt burden is reduced, you getting more on your paycheck, encourages you to spend, businesses are making a profit again... why is that a bad thing?

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Quote: Put a moratorium on all foreclosures (I believe this was done in some fashion already). That's right, force debtholders to give away their capital without compensation. Wait a minute, where's the federal government going to get the financing for their enormous deficit if all the capital flees to a safe haven?

Once you foreclosure on a house and have no one to buy it, how is that any better than having people stay in their homes and having the gov't pay it? That's more income in those people's pocket which means: bills are paid, spending increases, businesses and people are happier... right?

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Quote: For anyone who still had a home (and under the risk of foreclosure) the government would pay their mortgage for the next 12 to 13 months. Home != house.

I misspoke. You are right. I meant houses.

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Ok, the federal government would increase their deficit by transferring money directly to the remaining debtholders, which is convenient for them so they can borrow it back to finiance the deficit they're growing by transferring the money to their own lenders. Mmmm, bureaucracy double plus.

Do we not have that now with the current state of things?

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Quote: Anyone who lost their home (from 2003 forward) would get that removed from there credit report. Hmm, obfuscate risk. Worked for the financiers before the latest recession, should work even better now.

Given that those people are not controlling Wall Street or manipulating the numbers for financial forecasts. Yes it should work better.

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Quote: The government would not give tax refunds from 2009 to 2013. Would all other debt also be forgiven? How about corporate debt? We could just send all bondholders packing. Reduced debt like that would mean fewer jobs lost.

Honestly, I don't see how my question led to your answer.

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I don't think your ideas will work.

Hence, it was called a naive solution [smile]

[Edited by - Alpha_ProgDes on July 14, 2009 2:05:40 PM]

Note: Elements of this post require a functioning sense of humour.

I don't get why people think we should be restarting something that has clearly been shown to have been a massive and unsustainable bubble. I also don't understand why we should be helping those people who were stupid enough to buy homes they couldn't afford or got into debt by buying consumer crap they didn't need and couldn't afford.

Instead we should shoot everyone who is in arrears on their mortgage or who has more than $3,000 of debt on their credit cards, then liquidate any remaining assets they have and give it as "assistance" to those of us who took care of our money.

[Edited by - Obscure on July 15, 2009 3:27:16 AM]

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Original post by Obscure I don't get why people think we should be restarting something that has clearly been shown to have been a massive and unsustainable bubble.

I'm with you here. Our society encourages the "Live like a king, don't think about the consequences until the future". To quote Homer Simpson, "You said I didn't have to pay that back until the future! This isn't the future, this is now!".

One of my problems with Obama is that he's not really fixing anything, just trying to move us back to the status quo so that the next time this happens we'll have an even bigger bubble.

Not sure what else he can do. I don't think any politician in the world has balls big enough to tell americans that living their lives entirely on credit is utterly ridiuclous. Look how much flak he gets from telling people we need to take it easy on our oil consumption. You'd think he was satan with the way the republicans reacted to that.

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I also don't understand why we should be helping those people who were stupid enough to buy homes they couldn't afford or got into debt by buying consumer crap they didn't need and couldn't afford.

Now this is where you lose me. Yes there were some people who were stupid and overleveraged themselves, and their delinquencies sparked the inevitable popping of the bubble. But it takes two to tango. The banks systematically hid the risk endemic of loaning money in many different ways and thought that protected themselves. Instead of loaning their own money out, they turned towards loaning other peoples money out. They stopped caring about the financial viability of the people they loaned to since their money wasn't on the line anymore, and hired third parties to sell these loans using whatever methods they could. These brokers lied to their customers enmasse and were handing out loans like crazy.

THEN we have the spiral effect. Once the bubble burst and house prices collapsed, this affected many other industries in unforseen ways. People stopped buying shit. Companies that were turning healthy profits the previous year were now deeply in the red because their customer base vanished overnight. People had to be let go in massive numbers, people who had mortgages and now could not pay them off either.

Would you consider those people stupid? Should they have not bought houses, even when they had previously stable jobs? Should they have bought cheaper homes... homes which didn't really exist due to the bubble artificially inflating home prices?

A lot of innocent people got screwed royally because of this. I am not against helping homeowners retain their homes. It is our responsibility as a society to be good to our fellow neighbors. Quite frankly it was our responsibility as a society to prevent the banks from fucking us up this badly in the first place, so we wouldn't be put in a situation where we had to help people keep their damn homes, but maybe this time we'll have finally learned that lesson. (Actually from all the insanity of the teabaggers lately it appears we have not).

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Instead we should shoot everyone who is in arrears on their mortgage or who has more than $3,000 of debt on their credit cards, then liquidate any remaining assets they have and give it as "assistance" to those of us who took care of our money.

Ok now you've just gone completely batshit insane. Honestly I wish I had read this part before taking the time to write all that stuff above. I would have realised you're too stupid to bother replying to.

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Original post by Alpha_ProgDes Would the country fall apart? Would this be too much strain on the economy?

Everithing what you are talking about hasn't sense at all.
It seems me I can give this link here, for you (it's not a Moskow propaganda,just our common disaster)...

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Original post by Alpha_ProgDes Quote: Original post by LessBread Cutting taxes like that sounds great if your goal is to bankrupt the nation. Even if the two wars were ended today and all the troops brought home tomorrow, the bill for those wars still has to be paid. At any rate, I think that's a dumb idea, the kind of thing that Grover Norquist, Stephen Moore or a host of other troglodytes would advocate. Where did you come up with those proposals? Partially from the arse, partially from 'someone needs to give me a (financial) break. People in the poverty level get there taxes back in full anyway. So I'm saying the government keeps 10% of those taxes. If my FICA was cut in half, I'd feel alot better about spending as opposed to constantly checking my bank account. The rich can get a break too. People losing houses left and right. So now those people needs more gov't assistance than before. We can give the businesses over 400 billion dollars (plus the stimulus!) but can't pay mortgages for a year (i would think paying the mortgages would be cheaper)???? If you got preyed upon and swindled, at the very least your credit scores shouldn't be punished for it, IMO. If you're getting such a major tax cut, then why do you need a tax refund too? And yes, I agree better regulations to keep these sheninigans from happening in the first place will be good, if not necessary.

Thanks for recognizing that the hostility in my response was directed at Norquist and Moore and not you.

People in poverty don't get back sales tax which is probably why regressive legislatures across the country are raising them rather than raising income taxes on the campaign contributor classes. My remarks pertained to your proposal to drastically cut taxes. A moratorium on foreclosures isn't a bad idea, a year long mortgage amnesty isn't a bad idea either, especially given the links to the billions of dollars issued to cleanup the subprime mess. Money that homeowners would have used to pay their mortgages would likely be spent on other things kick starting the return to unfettered consumerism that economists say is needed to pull the economy out of the recession. The down side of that while only homeowners would benefit directly, everyone would be on the hook for the resulting debt. I suppose a similar suspension of rent could be offered to renters? or maybe car payments instead of that? I'm not sure what you mean by original interest rate. If the original interest rate wasn't very good, that wouldn't be a very good deal. I would rather that during the year of moratorium all mortgages were refinanced at lower rates across the board. I think giving people an opportunity to clear their credit score if they were victims of predatory lending is a good idea. I'm not so keen on given a blanket pass to anyone foreclosed from 2003 forward. Instead of not giving tax refunds for four years, I would rather see the mega corporations who haven't been paying any taxes start paying their fair share of taxes. Study says most corporations pay no U.S. income taxes (Aug 12, 2008) The Government Accountability Office said 72 percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005. The reason your taxes are high is because their taxes are so low.

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U.S. mulling mortgage aid for unemployed

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... The official told Reuters it was reasonable for policymakers to consider options for loan forbearance -- allowing borrowers to delay, defer or skip payments -- that are more effective than those currently available in the private sector. ... Servicers implemented 185,156 loan modifications during the first quarter of the year, up 55 percent from the prior quarter, according to data from the Office of the Comptroller of the Currency and Office of Thrift Supervision. The report also showed that seriously delinquent mortgages, defined as loans that are 60 or more days past due, increased by nearly 9 percent from the prior quarter to 5 percent of all mortgages in the portfolio. ...

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Original post by Mithrandir One of my problems with Obama is that he's not really fixing anything, just trying to move us back to the status quo so that the next time this happens we'll have an even bigger bubble.

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Original post by Albert Einstein Insanity is doing the same thing over and over again and expecting different results.

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Not sure what else he can do. I don't think any politician in the world has balls big enough to tell americans that living their lives entirely on credit is utterly ridiuclous. Look how much flak he gets from telling people we need to take it easy on our oil consumption. You'd think he was satan with the way the republicans reacted to that.

Ever heard of Ron Paul? (cognetive dissonance overload warming: I heard he ran for the republican ticket, even.)

Now for what its worth, i dont think he would have had the balls to make any substantial changes either, but at least he pretended he did. What made you think Obama ever had any such plans? You dont mean to say he just yelled 'change' and you projected your utopian visions upon him, do you?

No, that would be silly.

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Original post by Alpha_ProgDes People in the poverty level get there taxes back in full anyway. So I'm saying the government keeps 10% of those taxes. If my FICA was cut in half, I'd feel alot better about spending as opposed to constantly checking my bank account. The rich can get a break too.

Have zero withholding, put the money that would have been withheld into a savings account, then pay your liability in full at the end of the year, having earned some interest on your contribution.

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People losing houses left and right. So now those people needs more gov't assistance than before.

Losing your house doesn't mean you can't pay rent.

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We can give the businesses over 400 billion dollars (plus the stimulus!) but can't pay mortgages for a year (i would think paying the mortgages would be cheaper)????

The stimulus was a mistake. We should make another?

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If you got preyed upon and swindled, at the very least your credit scores shouldn't be punished for it, IMO.

Capitalism doesn't work without losers.

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If you're getting such a major tax cut, then why do you need a tax refund too?

Tax refund? A tax refund is only issued when an individual has overpaid taxes - typically people who have tax withheld from their paychecks. If you pay in full at the end of the year, you never get a tax refund. You can still use a tax cut.

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Original post by Alpha_ProgDes Aren't we already borrowing heavily?

Shouldn't we stop?

The contemporary American "way of life" is fueled by credit, and it has led to the current recession. You can't seriously suggest that our government continue to engage in a credit-fueled buying spree (taking on everyone's debt) so we can feel a little bit better about ourselves.

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Once you foreclosure on a house and have no one to buy it, how is that any better than having people stay in their homes and having the gov't pay it?

It's a lot better. The individual forfeits the equity vested in the house, the bank receives an asset that it can sell for at least fractional cost. It doesn't matter if it isn't bought immediately; it will be bought eventually.

(The key weakness in your economic perspective that I see is an overemphasis on the individual consumer, and not enough focus on the economy at large.)

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Given that those people are not controlling Wall Street or manipulating the numbers for financial forecasts. Yes it should work better.

No, it won't.

Risk is an important factor in investing, and lending is a form of investment: "I'll give you $X for Y months with interest of I each month so that you end up paying me back $(X + y * I)." Knowing whether the borrower is someone who pays his debts is important, so that you don't end up lending a large amount of money to someone who squanders it, reducing your ability to recoup your investment and then lend to others.

Personally, I think one answer can be found in the national debt.

11530538517907 national debt
132000000 employed
87352 dollars of debt for each employed person to pay off.

Lets say, 5% rates, that is about 4368 tax dollars of each person that is spent on paying of debts alone. I think that is quite a big part of what most people pay in taxes. Well, math might be a bit dodgy, but you get what I mean. If this trend continues, a lot of money will be spent on debts(not even paying them off), instead of improving healthcare, military, environment, economy, infrastructure, etc.

So that is the real issue imho, The US (and we have similar problems in Europe) needs people in control that spend money wisely, and with some sense of what the country can realistically spend. Now we are all just creating a huge problem, and noone is ready to pick up the bill, we will just leave it for future generations.

As for the individual cases, I think these days, we are all too focussed on our personal gain. This is interesting, because most of us are extremely dependent on others (gas, electricity, oil, clean water, medical care, global environment changes, etc.). So you would expect, at some point, it would matter less how big the TV is in our living room, or how big the car is in front of our house, and more about how many people have a nice standard of living, and how well we leave things behind for generations to come. Yet, nowhere, not in one country, I see this change occuring, it is still all about personal wealth.

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Original post by LessBread Cutting taxes like that sounds great if your goal is to bankrupt the nation. Even if the two wars were ended today and all the troops brought home tomorrow, the bill for those wars still has to be paid. At any rate, I think that's a dumb idea, the kind of thing that Grover Norquist, Stephen Moore or a host of other troglodytes would advocate. Where did you come up with those proposals?

The bill for the Iraq war will be dwarfed by the Obama administration's thoroughly non-stimulating spending. If we don't have to worry about paying that off, we might as well write off the war as well. The government may as well have just given people the stimulus money as a direct cash handout. The effect could not have been worse than what actually happened, and may actually have helped, given that what has hurt a lot of people is the wipe out in asset values and job losses that have deprived people of income.

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Original post by trzy The bill for the Iraq war will be dwarfed by the Obama administration's thoroughly non-stimulating spending.

You mean this war?

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Original post by Oluseyi Quote: If you got preyed upon and swindled, at the very least your credit scores shouldn't be punished for it, IMO. Capitalism doesn't work without losers.

Capitalism doesn't work when full of people who are paid to cheat either (AKA, all of those who got million-dollar salaries and comfy retirement packages while they misled investors and ultimately ran their company into the ground)....