(From yesterday) I didn’t think about it at first, but the big problem with my two major annoyances have a common root: too many people all trying to do the same damn thing.
If I leave home at 9 or later, and ride my bike to the station, I can count on it being a 40 (45 tops) minute commute overall with a seat almost guaranteed. I left home 40 minutes ago, at 8, and still have 20 minutes to go. All because the trains are all bunched up and have to wait for one another. Simultaneously, despite getting on 10 stations into the 27 station run, there were no seats to be had. And no space (not always a totally bad thing but usually a mostly bad thing thoughtbubble: the hotties of public transit calendar)
Anyone wonder why I routinely get in to work at 10 or later? Especially since it apparently has no negative impact on my performance evaluations?
Then there’s the market, or, more specifically our housing->credit crisis and the proposed bailout. Let me see if I understand it.
Here it seems that everyone and their brother decided housing was a rock solid investment and proceeded to overinvest. And why not? You get a generally stable investment (historically speaking), it eliminates rent (replacing it with mortgage interest, home owner’s insurance, real estate taxes and association fees), and pays for your child’s admission to an elite academy (if you pay through the nose)
Then one day, people woke up and said, you know, we have more chic condos for sale than we have people to buy them at these prices. So they start cutting prices. Meanwhile the loans with the “rock solid” investment as collateral were being sold to people who couldn’t quite afford them. Said loans were then swapped out (rock solid, real estate never goes down) and sold to a bunch of banks and retirement funds and what not.
People start defaulting on their mortgages. The supply of housing starts rising, again putting pressure on housing prices to fall. The magic loans are now backed up by assets worth less than the loans. People start worrying and want their promises of money-eventually turned into something more reliable and immediate. So, really it’s a evaporation of trust that people and real estate are “good for it”.
Since real estate is such a rock solid investment lots of conservative investment institutions put a lot of money into buying up mortgages. Now that people are panicking, the value of those assets is on the decline. Places that offer loans are going under or reorganizing and the financial system is losing the flexibility that easy credit provides.
I believe the fear of what is to come is a massive general loss in purchasing power. People will stop buying, the people who get their money from the products that are sold will lose their jobs and income, insert vicious cycle here.
The problems here include predatory lending (selling people loans they can’t afford now, or can’t afford in the future), overproduction of housing in many markets (probably related to the too-easy loan thing), and false representations about the risk and consequent value of the mortgages that were resold. Did I miss anything?
The bailout is aimed at stopping this by relieving the lending institutions of the bad mortgages at a price of the lenders’ choosing (buy them off of the cheapest sellers), and then selling them off later, when they suck less.
It doesn’t even pretend to address the problems that got us here. It’s a transfer from government funds to lending institutions, which would, in an ideal market, compete the difference between the bailout value and the mortgage value down to 0. (Any takers on that happening?)
And where is that money going to come out of? Medicare? medicaid? Farm subsidies? (Don’t bet on it) The military? Our roads? Or ultimately higher taxes? I have no problem with higher taxes for everyone, but I do have a problem with about $2,000 per U.S. Citizen going to cover for irresponsible lending practices. I want the right people to lose a lot more than $2,000. The ones who profitted from bad lending. I think my dreams of the end of agricultural subsidies are more likely, though.
Limits on executive compensation are symbolically, but not practically, significant. They stick it to the highly paid bozos who tried to make a mint, but do nothing to help the victims and still let them make more than 95% of the population (probably even more than that, really). Frankly, if we get universal health care and a better safety net in general, I don’t care if the bozos get their absurdly high paychecks. Harder to do, but a lot more worthwhile than the distraction.
Was I on target?
pretty good analysis..
.. but at the end, you may be a bit off target.. if only because I’m not sure which bailout plan you are talking about..
Bailout Plan #1==give treasury 700 billion with no oversight to buy out bad loans. This sucks and solves no problems–especially long term problems of discouraging practices that led to the situation–and again–who wants to give the Bush admin unfettered control to 700billion with no oversight–it’s not like they’ve been reliable so far..
Bailout Plan #2–This is the Dodd plan–and it is much better. It not only works to stabilize the overall financial situation–but has stuff in it to help the people who are going into foreclosure. More importantly–it gives the gov’t an equity stake in the institutions that caused this–basically, they become gov’t property and can be sold off later if things get better for some profit–or at least to try and recoup costs done now. The executive pay thing is not unimportant from what I’ve read–it is a tool to prevent perfectly good banks from trying to pretend that they are in need and of tapping gov’t money–because it basically makes executives at that bank take a major pay cut if they are going to take part in the bailout–if they are going under, then, such a pay cut is probably worth it–but if not, then why should they do it..
So… I don’t think it’s quite so easy as you portray it. Personally, I think the bailout is necessary on a grand level. If we just let everything collapse, perfectly good people will get shafted in the resulting calamity…
Re: pretty good analysis..
I was commenting on bailout plan #1 with additional commentary on the only change I’d heard proposed: limiting executive compensation. As a litmus test of need it seems pretty well designed, and also highly politically palatable.
Originally, I was going to say that if limits on exec compensation stopped people from taking the bailout that would be a good thing. I considered the possibility that it would keep lots of people from taking it, resulting in excessively sweet deals for the few that do. I didn’t think about the testing element.
I would like more details on plan #2. I admit that macroecon didn’t make much sense to me when I took it.
One claim is that the US government can buy these toxic assets, thereby getting majority ownership of many mortgages, and renegotiate some of the them so that the foreclosure rate falls. That would limit the housing market crash, and would increase the revenue from the mortgages compared to what the banks can get through their ingenious machinations, which would, as in the RTC days of the S&L crisis way back when, make the bailout quite cheap. Your $2,000 per citizen figure assumes we make a 100% loss, which seems unlikely.
The current situation reminds a lot of people of the lead-up to the great depression. That stock market crash is widely believed to have been promoted to a depression by having the government tightening fiscal policy at the time it should have been loosened. This bailout package is, fundamentally, a way to print money to keep us out of a repeat performance.
What’s most dubious about it to me is that the plan has been in the works for months, but was dumped on Congress only a couple days ago in a three-page report without the new cover page (didn’t Paulson get the memo?) The initial plan was to hand Paulson a bag with $700 billion in it and no limits on how he could spend it, which is typical bushy nonsense. The more recent plan includes some strings and may be less nutty.
It seems to me that while we have understandable emotional beefs with the ‘bozos’, that taxing them is really just going to be a drop in the bucket. I’m not sure how many bozos there are, but I can’t imagine it is more than a few thousand. And I don’t know how much we could get from each one, but it is only a few million. This makes for quite a few billion dollars. But it would take some very generous values for “a few” to make any appreciable difference to the $700 Billion price tag.
Sure, but this assumes that I think $700B is the right price tag.
Of course the damage isn’t just the money taken (and often spread around). And this isn’t Warcraft III, we can’t unbuild housing for the resources put into it. At least, not very effectively.
And I don’t think the bozos have the ability to fix the mess they created.
I think it’s very telling that the economic turmoil is swinging the vote in *Obama’s* favour. This may be the first time in decades that a Democrat was seen as a natural leader for the economy.
Clinton
FDR
One could argue either way about which of Carter/Nixon was a response to stagflation and the first gas crisis.
I think the psychology isn’t “Oh, the economy is fucked up, lets elect the guy who will fix it” as much as “Oh shit, the economy is fucked up, regularly people like me might need the social safety net. Lets vote for the guy who will put it there.”
(p.s. It is well understood that stagflation, at least, was caused by LBJ’s policies. I won’t debate that. I’m simply not sure which subsequent president should count as the “response”)
I think it’s more “shit, the economy is screwed. Let’s get some new blood.” see also Reagan.
Two thoughts :
1) If one thinks very long term, the amount of land on this planet isn’t going to go up by very much, but the number of people might. This doesn’t mean US real-estate is necessarily correctly valued, but on average, world real estate prices will probably go up.
2) If we really wanted to keep the demand for housing up, one solution might be to open the immigration floodgates. Sure, most of the people might start by putting 10 people in a single rental — but demand will go up! This would’ve been most effective 2 years ago when the housing market first started to slump.
thoughtbubble: the hotties of public transit calendar
I have thought this oh-so-wrong thought many a time before.