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« Extraordinary Times Requires ... Well Ordinary Economics | Main | Russ Roberts Asks the Right Question »

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I also don't like the fact that people who can't afford their mortgages are getting bailed out. But this is shoddy journalism (an "on-air editor" whipping up anti-government fervor from a commodities trading floor - give me a break!) and it's mean-spirited (calling millions of people "losers"). How does aligning yourself with this kind of stuff help the cause of Austrian Economics? It makes it hard for people like me to talk about the benefits of, say, free banking with my friends when one of the guys I'm likely to quote at them is promoting Rick Santelli's rant as a "great moment"!

Check out the Rick Santelli Chicago Tea Party site: http://www.reteaparty.com/

and it's mean-spirited (calling millions of people "losers")

Chris B:

He wasn't calling Americans losers, he was merely trying to explain why individuals on the losing side of the market ought not be rewarded. It doesn't matter whether they are losing a home, made a bad investment, or are running their business into the ground. I think we can agree that this sort of behavior ought not be incentified, yes? And they certainly ought not be incentified by punishing the winners, or those who, at the very least, did not make any error in judgement.

J, I agree with you. It's just that "loser" is a very harsh word, and we're talking about potentially millions of foreclosures here: "An analysis by Moody's Economy.com forecast 3.1 million defaults in 2009 and 13.5 million defaults from 2006 to 2011." (USA TODAY, Feb 11, 2009).

I agree with Rick 99%. Even sitting here without a camera on I can't think of a better word than 'loser' so maybe 100%. I read my contract and it was re-read by a lawyer so I can't claim ignorance and don't need anyones help.

I'll take the hit on my house since if I do buy another I won't have to pay an inflated price for it when I sell mine for an inflated price.

I'm sure the brokers and agents are sweating since their commission is tied to the house price but c'est la vie.

$9 trillion pumped in, the DOW cut in half, housing prices cut in half and the only solution is to pump money in twice as fast.

Get some gold. You may be able to pay the balance of your mortgage with a coin or two very soon.

Everyone here is missing the point. If the President's plan is understood, you'd realize that the point of it is to slow the deterioration of the price of the house so that the incentive to walk away from it slows. Walking away from the house not only increases pressure on banks but also erodes the value of neighborhoods and thus the occupants of housing in those neighborhoods. Those who are paying on time will eventually give up if the upside-down value of the home vs the loan debt reaches a tipping point where they feel that it's in their own interest to walk away from the obligation. Thus completing the circle.

Rick Santelli was asking a room full of wealthy individuals what they thought. What do you think the answer would be in Fresno, CA? Or in Maimi, FL?

I love Rick Santelli’s tea party idea. How about a real tea party? Skip your April 1 mortgage payment.

Everyone who is tired of paying for others mistakes and only does the constant bailing and never gets anything in return should join. Also, everyone who thinks that the stimulus package is a bunch of crap that that will just result in stolen, wasted Federal spending, new entitlements for years and not create hard lasting asset or private sector jobs is invited.

Let’s get of the attention of Obama and Congress, a real protest to what is coming out of Washington. Boy if just 10 percent of us who pay our mortgages every month skipped our April 1 payment you bet they would hear us.


Let’s get of the attention of Obama and Congress, a real protest to what is coming out of Washington. Boy if just 10 percent of us who pay our mortgages every month skipped our April 1 payment you bet they would hear us.

He's assembled a small army of half-hearted, floor-trading broheims to cheer and hoot as he rails against President Obama's plan to not immediately foreclose on everybody and kick them out into the streets, because that rewards "bad behavior," and clearly what we should be doing is rewarding people who incentivized all the risky lending, because until the house of cards collapsed, things were looking pretty for everybody!

He's a wanker....in parlance...

Uh David,

As a novice myself, I'd have to say you are missing the point. Why is keeping house prices inflated a good thing. Just one of the unseens - all the folks out there who have been saving and biding their time but have been kept out of the market because house prices are inflated. Now, not only will Obama's plan maintain inflated prices, keeping those people out of the market, but they and their children will have to pay, through taxes (for decades) to help keep others in those houses they couldn't afford themselves. Sound fair? Will we taxpayers get a cut if and when the homeowner we helped save is able to sell the house for a profit?

Garret,

The organizations who incentivized all the risky lending, the Federal Reserve, Fannie and Freddie and banks "too large to fail" are being rewarded. F&F after first getting bailed out to the tune of $400 billion and taken over by the government will now receive another $200 billion as part of O's plan.

Sorry, I had to leave before I finished my thought.

Garret,

My point is, Obama's plan now just keeps the negative incentives in place. Why won't that just postpone the inevitable forclosures? As I see it, the market will not be denied over the long term. There will be a correction. It is unfortunate that so many will pay the price for government interference in the market. More interference will not save them though, and it will lead to even more painful times, probably soon.

All that being said, I can understand the anger exhibited by people like Santelli and the other brokers, and myself. Buying a house, like buying stocks is speculation, it's a gamble. When my wife and I, who bought just two years ago and so are probably a little upside down ourselves, were told by the mortgage company that we qualified for way more house than we thought we could, we nodded our heads and found a house about $100,000 under that amount. And now we will be rewarded by having to help pay for others who weren't so prudent. Can't find the justice in that myself.

My comments to David also apply.

I completely agree with Rick! If you make a stupid decision like buying an investment you no nothing about, that is no different than "NOT UNDERSTANDING YOUR MORTGAGE" but still agreeing to it. At some point people need to be responsible for there own actions. If I purchase a house that I cannot afford then quite frankly I should not be in that house. If the banks where irresponsible enough to give me more of a loan than I could pay, based on information that was not verified then they also deserve to take a loss. With any investment including your home there is upside and downside if you take the risk but do not share the profit then why should the taxpayers remove your risk by taking the down side risk away.

I totally agree with Rick!!! There are a number of things I see posted here.

First, it wasn't a group of traders behind Rick because the market was closed. It was the everyday staff sitting there, a very good slice of "normal" America.

Our housing market was inflated many years ago and it has to be brought back to a realistic level.

This entire fiasco started with the mandate that banks lend to those who couldn't afford it. This was a "political correctness" move on the part of the Clinton regime. It was brought to light by republicans who were fought for over a year before anything could start to be done with it.

I feel I am "sharing the wealth" enough already. I'm a state employee that will not see a raise this year or next and not sure when after that. We are already behind inflation and have been for some time. Our contracts are typically two years behind.

With Obama's plan, I'm not only expected to pay for my own share, but for the thousands of others that sit on their behinds and collect welfare. We've been footing their bills all along, it didn't need to be increased to the extent he did.

And then there is National Healthcare coming into the mix, having us pay for more of that as well.

What ever happened to having a "work ethic" and self pride for making something of yourself??

Beth,

The Republicans had eight years to correct it, and didn't. It's a bit weird to blame a political move from a decade ago when that could have been reversed in the meantime. I don't think it's a party-political issue.

I think global current account imbalances, lower-than-natural interest rates emanating from the Fed on account of its mandate to keep unemployment low and of its ability to create money at will, the near complete disappearance of a savings ethic in the U.S., and a terrible failure of the U.S. financial system to evaluate and price risk properly all played bigger parts in this.

A lot of people ended up getting in way over their heads with a mortgage, and government pressure on firms to lend more to people than made sense financially surely played an important part in this. But what about the loan markets for autos and credit cards that the Fed is also currently supporting? How do you explain on party-political grounds how people got in over their heads with them?

Low interest rates, if not backed up with high savings rates, lead to bubbles. In the last 10 years we've seen a bubble in tech, then housing, and currently gold, with oil and wheat and some other things also acting bubbly over the last few years. Had it not been housing as the immediate cause, it surely would have been something else in some other unpredictable way. And you've got to see how home owners are just one group of people looking for or being given bailout money now, along with banks, automakers and a whole bunch of - I would argue - much more undeserving candidates.

In support of my comments to David and Garret, I offer the following from http://www.angryrenters.com

"All we hear these days is whining from reckless home borrowers and their banks.

But did you know that renters are 32 percent of American households? And that homes in foreclosure are less than 2 percent?

So why is Congress rushing to bailout high-flying borrowers and their lenders with our tax dollars?

Unfortunately, renters aren't as good at politics as the small minority of homeowners (and their bankers) who are in trouble. We don't have lobbyists in Washington, DC. We don't get a tax deduction for our rent and we don't get sweetheart government loans.

Quite simply, we are just Angry Renters. And now it is our time to be heard: no government bailouts!"

They've already had 62,000 people sign the petition.

The republicans did try back in 2002, 2003 but Barney Frank and others said that Fannie Mae and Freddie were just fine--nothing to worry about.

"Losers" a bit harsh. However, I do not wish to subsidize people who were irresponsible and bought houses they could not afford or that they hoped they could "flip" for quick profit.

Instead of a tea party--how about we all refuse to file our taxes and pay our taxes on April 15. Could the government handle that?

Folks,
I, former patriotic US American am looking now
(in vain so far) for a new national identity,
in some not too backwater area, one not tied
to the US dollar or the insane debauch that is
now underway in US policymaking. Some place
where they drive on the right side of the road,
respect private property & free enterprise and
have a cultural respect for rational thinking,
civilised discourse and things less ephemeral
than pop culture hero worship. Must have a
critical mass of internal manufacture and tech-
as its underpinnings, with reasonable raw mat-
erial /energy resources onsite, and a governable
non-polyglot population that has control of its
immigration criteria. Any suggestions, please?

All

My earlier comments weren't political party bashing as Beth may have thought. I am pointing out that the current problem with the correcting, over-inflated market is that the correction is becoming a vicious circle.

The right way to handle this would be to allow individuals to take the risk upon buying a home when they think the risk/reward ratio is in their favor. The problem is that there is blood in the water and no one wants to get in because of the fear of sharks. Further, because of this fear, housing prices will further erode and thus further erode confidence. Which in turn erodes consumer spending which is of course killing the economic engine.

Since this spiral into a 1930's type world drama which would take decades to turnaround, some sort of injection of spending to stem the worsening downturn is necessary. Unfortunately, this adds to the nation's debt but if not done, what will the nation's (world's) economic future look like? To me, it looks very scary -- I mean buy guns and move to the hinterlands where your can grow your own food scary. I'd rather pay higher taxes and not face Armageddon if I had a choice.

BTW, both parties are to blame for this mess. Increasing home ownership was tauted as good by both the Republicans -- remember the "ownership society" and by Democrats with the bleeding heart for those less fortunate.

However, I place most of the blame on the IDIOT mortgage brokers and banks that allowed no-doc "liar" loans and little to no responsible lending practices. If they had just done their jobs, those who bought but couldn't afford would've been denied!!

Those who have had catastrophic sicknesses, death of a partner or job loss can't be blamed for not being able to afford. We all take chances on bettering ourselves through some sort of wealth increasing behavior and this one is govt subsidized.

The ideal was noble but the greed of the money merchants have screwed us --- royally.

Hey George G.,

It's called the United States of America. Let no one convince you otherwise. Look at history and name one, just one, other country that has faced the history we did and came out as strong and vibrant as we have. Just one!!!

We are the greatest nation because we always face the hard times and think, innovate and beat everyone else with free thought and enterprise. And sometimes with govt assistance/intervention.

okay, according to rick, if each american was given an equal share of the stimulus package that would come to less than $3,000.00. what is that going to do. that amounts to the tax cuts that bush handed out. that will pay at best a few months of payments for those families in trouble. lets allow the new stimulus to work. like obama says if it dosn't work i am out of work. santelli shut up! you are just a ham.

There are three kinds of people in America today:
1. Those who make stupid decisions and want the government to bail them out.
2. The politicians who want to pander to the above group.
3. The rest of us who work hard and try to make good decisions, but will have to pay the taxes to bail out the idiots so the politicians can look good for re-election.

We--the people in the third group--are the people who keep the country running. I think it's time we made it clear that we won't stand for distribution of our hard-earned wealth to those people who are too stupid or too lazy to earn their own.

It all comes down to this--people who have made this country what it is, is being disenfranchised. I don't care who or what has happen before--people who have worked hard and played by the rules are now getting scammed. That's not what made America great and that's not why people come here. Obama was suppose to bring us together, but all he has done is take on a radical left wing agenda that most Americans do not agree with--in less than a month.
Our politicians are irresponsible--not reading a bill that indebts us for generations to come. Maybe this all happen before, but never to this degree at one time. And America is still a center-right country and there are too many people who are not going to let this continue. So the question is--is Obama going to get off his left wing band wagon and include the majority of Americans in this system, are the politicians going to start acting responsibly and actual read bills that are nothing but pork? If not, well I do not see any good coming out of it.

Nick
What pork is in the unread bill? I've heard this said in the media but as a center-right person, I haven't seen anything to support the claim.

No one likes the solution as presented so far but what do you do with banks that were insolvent? What do you do when the 2nd derivative of unemployment growth is sooo high? Do you stand around, wring your hands and hope for the best or do you sit down with scholars and non-partisan thinkers and come up with ideas....maybe bad but ideas.

My first reaction to many of Obama's plans are to disagree with them. But given that the unbridled fervor of the mantra "free enterprise will fix all" has brought us to this point, I'm willing to listen to a new view on economic behavior.

These extradordinary times need some new thinking. I have my doubts about the housing bailouts but I think after it gets fleshed out, the moral hazard the Rick Santelli ranted about will be addressed.
No one wants to give individuals more than deserved but as my earlier posts state, there are scary outcomes if we spiral further.

David

Pork--I can't type all of it but for one that is really outrageous is the community reinvestment that gives money to Acorn;

There are a lot of banks that are solvent. I use to work for one of them and I still get emails and such from the president of that company--he disclosed he was forced to take the money and by smaller banks with it. Then our government hauls these people before congress and tries to berate them. Unbelievable. Unemployment levels are the same percentage as they were in 1981-82.

Obama's plans are only driving the market farther and farther down and what does the white house say--"we dont listen to the market."--What are you serious?

That free enterprise mantra has not brought us to this point. What do you expect when the government tells the banks they have to loan to people that have no chance of paying it back? Is it the banks fault or the government's fault? Maybe it is both, but Obama and his colleagues do not want to take responsibility for there part--they only want to punish the private sector.

How will the moral hazard be addressed? Also, this is not new thinking, this is thinking that has already failed. Even Vladimir Putin is warning us about going down this path.

What will happen if we let it take are of itself is that all the corruption is burned away and something stronger takes place. This cycle has happened time and time again.

Like I said, all this is doing is disenfranchising the people who made this country great. An this isn't Europe; this is America. We are punishing people who did the right thing. 92 percent of the population. i have lost a lot of money that my grandparents put in stock for me--who is bailing me out?

My mother was a single mom, had hardly a penny to her name and refused to get on welfare. She work hard, and she succeeded and she feels better about herself now for going through such times than she would have if she took hand outs. That is the American dream. Working hard, even if your house is going to get foreclosed and coming out stronger. Help should be given by a private individual out of the kindness of their heart--not the welfare state. Obama is taking money from me, my children, my mom, my grandparents, my friends, my family and so on. His is disenfranchising us--he laughs at us. The reaction to this from the white house as reported by NBC was to laugh. My president and his minions are laughing at my concerns; are laughing at taking my money away. What is this? This is not help. This is a government gone mad with no checks in place.

Tha bailouts do not work--if they are why is GM coming back for money? This just prolongs the the rescission.

And one last question--why are you not outraged that your government, in passing a bill that is unprecedented, could not even wait 1 day to read it? Obama singed on Tuesday--they had the whole 3 day weekend to read it and they didn't. If this is what is the best thing to do, then why not read it? It is because it is ideological and that all it is. I really, really, want to give this man the benefit of the doubt, but I know when the truth is not being told to me.

I think President Bush made many mistakes, but I honestly believe he thought what he was doing was best for the country. This man, OBAMA, is doing what we wants for something else, I don't know what, but it is not for the country.

This is not the country I grew up in. I t is almost unrecognizable. People who failed were allowed to fail and try again. Many succeeded the second or third time around, on their own. In this age of entitlement those who fail look to someone to bail them out so they don't have to buckle down and try again. The Obama administration is enabling this attitude with their housing bailout, leaving those of us who have lived by the rules and used our common sense to pay the bills for those who have believed in "pie in the sky" for all, whether they work for it or not. Rick Santelli is exactly right, there are more of us than them. The "silent majority" needs to become a "vocal majority.

Dave 7

Free enterprise is not what got us into this mess. The federal government meddling in the housing market got us into this mess, and now your proposed solution is further meddling. This economy is like someone who just went on a drinking binge and woke up the next morning with a hangover. Instead of staying in bed all day trying to recover, the government has decided to postpone the crash by drinking more booze. The only problem is that this will only work so long. Eventually they will have to stop, but the crash will be much more severe.

God bless Rick Santelli!!!!!

Nick and Dave, while I agree with some of your points I think that you're still missing the point. The real problem here is NOT the moral hazzard but the LACK of confidence in the consuming populace. The propping up of the money center banks -- btw, the mortgage program is to help the banks stay somewhere close to solvency -- is necessary. If the incentive to walk away from a mortgage obligation becomes large, people are going to do it. Period.

Would you stay in an obligation where you'd be looking at at 10-20 year term before it becomes positive?? It's throwing money after bad and the administration knows it IMHO. One way to avert such a catastrophe is to incent people to stay in there homes and to short circuit the spiral to large scale bank failures.

Neither of you are looking at the CDO/CMO burdens these banks are holding. I think we aren't being told the complete truth about amount of obligations and it may be worse than we've been told. If so and we scenario I drew up in earlier posts occur, then God help us. It already took down Iceland(?) banking system.

The whole problem with the world economy is that everyone is hoarding money and not buying items. We need to create buyers and not jobs as jobs is an outcome of companies meeting the needs of consumers. So this is my solution to creating buyers.

1. Every homeowner who has a mortgage on their PRIMARY residence can apply for a grant from the government for an amount not to exceed $100K. The grant money can only go to pay down the mortgage on their PRIMARY residence. There are approximately 80M homeowners, so this could cost the government $8T; however, not every homeowner will take the grant and the end cost of this whole bailout will probably be close to that anyway.

2. Each homeowner that takes money from the government loses the right to take the mortgage interest deduction for a set period of time. If a homeowner takes $20K, then they cannot take the interest deduction for 2 year; if they take $60K, then 6 years; or if they take $100K then 10 years.

3. Any one caught making a fraudulent application receives an automatic 20 years prison term, with no possibility for parole for the first 5 years of the sentence.

So what does this do for the economy?

1. It immediately puts money back into the hands of homeowners to become buyers again. For upside down homeowners, it will likely correct their mortgage situation, thus giving them more cash to buy items that would create need, that would then create jobs. For homeowners who have always done the right thing, it rewards them for not being part of the problem (e.g. someone could finish paying off their mortgage). It then gives them more cash to spend on the fun things in life, thus creating need, which in turn would create jobs.

2. It pushes money back into the banks. The banks will obviously lose money because homeowners will not be paying as much in interest, but they should simply get a blank check. This gets the much needed money into the banks, but helps the middle-income families that you pointed out were important to getting the company out of this recession. Besides, the banks should be punished for poor business management.

3. It improves the consumer confidence of the nation. People will start to feel good that the government is helping them and not simply bailing out business that made stupid business decisions. An improved consumer confidence leads to an increase in the number of buyers.

4. It gives State and Federal governments more tax dollars. With the loss of the interest deduction, homeowners who take the grant will have to pay more in taxes. Since this plan creates buyers, then their will be more corporate taxes to be collected.

5. It increases tax revenues for local governments. Obviously, by increasing buyers, there will be an increase in sales tax revenues for local governments.

Well, since I am not an economist, there are probably several flaws to this, but I think this would really end the recession rather quickly.

The word "losers" in this case is not meant in the pejorative, school-playground sense of the word. It's meant in its most literal sense: of those who've "played the game" and have lost.

Obama should let the economy fail by doing nothing. give the wolves what they want. there is no hope, here are the real numbers:

http://marketplace.publicradio.org/display/web/2009/02/19/pm_numbers/

if you want to stick your head in the sand and let financial and economic Armageddon come to pass; so be it but don't say the "bleeding heart liberals: who are worried about the 170,000 unemployed "losers" today didn't warn you that the crap can spill over to you.

What part of 'unemployed' and 'deserving homeowners' do you not get??

unemployed is defined as one who would LIKE to work; but can't find a job..not some "lazy bum"

and, in the Housing Plan..only homeowners which the banker determine can reasonably pay back the mortgage under the revised terms; and those who continue to make payments; are helped; those you cannot/do not are not.


I thought this was an "Austrian Economics" blog??

Why is no one talking numbers, data, figures; economic theory?

Just a bunch of far-right ranting.

For anyone interested in reading about the actual facts and reasoned debate from economists on this issue, here's a fairly balanced view:

http://economistsview.typepad.com/economistsview/2009/02/obamas-housing-plan.html

Last note: did any of you guys learn about "prisoner's dilemma" in a game theory class?
You know, that 'game' scenario where what is best for the individual is worse for the collective outcome? The beauty of capitalism is that usually what is best for the individual is best for society-wide outcomes; in the case of spiraling depression, for example, in bank runs, when consumers lose confidence in their banks, what is best for each depositor, in his mind, is take out his money before the bank fails. BUT as we all know, banks only keep a fraction of the money on reserve, hence what is good for each individual is bad for the bank; and bad for the economy if many banks collapse and there is widespread lack of consumer confidence.

We are in that sort of situation now. FDR created the FDIC and started insuring bank deposits up to $100,000. Haven't had a major bank run since then (though this past summer, i think there was one on a smaller bank..)

So, would y'all do away with FDIC insurance and let the "free" market work it's magic again..prisoner's dilemma, game theory, behavioral economics is what austrian econ needs a lil taste of..who here will admit govt. intervention in form of bank deposit insurance was a good idea, worthy of keeping, and by virtue, not all govt intervention is always inherently bad?!

My wife and I also agree with Rick 100%. We have attempted to save our money and decided NOT to purchase a nice, new home in the past couple of years. It was delayed gratification. Now why should I have to bailout someone that lives in a nicer house than me? Those people are living BEYOND their means....time to downsize, time to get their finances back in line.

I am in the USA, paying all of my mortage and bills on time. Go Mr. Santelli.I am tired of lazy Americans living on my dimeriding my coat tails ENOUGH! GO SANTELLI!

The unemployment rate must be higher than stated.
Every day I hear of friends, friend's children being laid off. The housing crises is becoming a diversion. You can't buy a house without a job. The basic problem is unemployment and will continue and increase. Housing construction held up the employment figures. This investment should have been poured into keeping our basic industries and leadership should have emphasized keeping some production at home. Our name brands are manufactured elsewhere though often marked "made in US" in free trade zones. Our tech manufacture has crossed borders. Can this be reversed? Once gone, hard to get back.

Ryan and Desiree,

What about the people that have lost their jobs, had a catastophic medical expense or a drop off in business such that his/her salary doesn't cover the mortgage which by the way is upside down? The circumstances are beyond their control and if their savings are wiped out, should these hard-working people be grouped with those who were living beyound their means?

No. Period.

The safe-guards will be in place to only help deserving people. Undoubtedly a few will squeak through the filtering process but should represent an insignificant minority.

Santelli had it wrong and if any one looked at his explanation the following day, you'd have seen how he tried to explain his rant and dispel the self-sanctification that many are espousing.

David,


Have you not been paying attention to how government actually works? I have, for about 45 years now. There are going to be massive unseen costs to the bailout, consequences no one has even thought about yet. Ever heard of moral hazard?

As far as the Obama team's safe-guards go and how free-riding will be minimized, let me tell you how Medicaid here in Tennessee works. See, I have an insider's view because my wife works in healthcare and sees dozens of fraudulent cases every week. She gave up reporting these frauds to the state because she has never seen one, not one, person she reported held accountable. The numbers and the waste is staggering.

Our Democratic Governor, who I happen to like, tried to reform the system a couple of years ago because of sky-rocketing costs. People who actually deserved the help got cut loose while a large number of the undeserving continue gaming the system to this day.

You never did address my question, posed above, about those folks kept out of the housing market by inflated prices. What about them? As I understand it, renters make up about 32% of the total housing market and the foreclosures about 2%. A lot of those folks have been saving and biding their time. The drop in prices might just be the opportunity for which they've been waiting.

Rick

Price corrections in general are good for those locked out as bursting bubbles usually have positive, but painful, effects. However, most corrections are localized to parts of a system. The correction in housing market is multiplied by the how deeply it effects other parts of the economic system.

Not only are the delinquent participants affected but homeowners who have a number of foreclosures in their neighborhoods are affected. The local govts and school districts are affected. The banks with the bad loans are affected and other banks that would count on the affected banks to do inter-bank loans are affected since lending is restricted because of solvency requirements -- as we have seen. This is a systemic danger.

So the people who are waiting for an opportunity now have it but they aren't taking it because of fear for their jobs and they expect that the future price of the housing stock will continue falling.

This, as I said earlier, is the crux of the problem that needs to be addressed. Not to be mean, but do you think that another 20% fall in the housing prices would be a good thing? If it incents more people to walk away, what would stop the cycle?

“AMERICA, SHUT UP”

Giving your opinions of CNBC's Rick Santelli’s call for a "Chicago Tea Party" is worth-less. This is simple! Politics is a toilet! Democrats are diarrhea and Republicans are crap, you just need to figure out how you want the sewer to flow. Bush brought the barrel of sewage and the fan into the room. Obama closed the door, turned the fan on, and through a $787 billion bomb into the barrel. Now America is whining that it smell’s. America, you voted in the Congress and the Senate believing that they had a clue. This has been going on since the beginning. They are all IDIOTS!!!! They didn’t have to vote for the plan nor did any of them have a better idea. The Republican crap didn’t work for eight years and the Democratic diarrhea isn’t going to work. SHUT UP, STOP WHINING and vote all of them out of office. If you don’t, this stupidity will continue.
Finally! If Rick Santelli got rid of his brain he would still be smarter the whole White House, especially their 2yr old Press Secretary.

David,

http://www.independent.org/blog/?p=1366

Higgs says it better than me.

David,

You are making the same fallacious argument that Krugman and other Keynesian types love to make: price deflation is self-reinforcing, it just keeps going and going and going... Without benign intervention by the State, how does it stop?

Clearly the "spiral" of asset price deflation stops at the market-clearing price. This is axiomatic. You seem to believe, or at least you imply, that the price of houses would approach zero. Of course it wouldn't. Markets are a function, not just of price, supply and demand, but also TIME (as you point out). But at some point buyers, who really want to own a house -- SOONER rather than LATER -- will step into the market and purchase a house, even if they suspect that prices may fall a little further in the future.

An unspoken assumption, which is revealed by the "spiral" or "cycle" metaphor, is that markets consist of circular flows (just like in the textbooks). But of course markets are nothing like circular flows except in some theoretical state of general equilibrium. Markets change STRUCTURALLY in a coordinated fashion, and sometimes quite rapidly.

House prices will come down. People will buy and sell. Things will be normal again, but prices will no longer be inflated. People will spend that extra money on other goods and services which are more profitable and sustainable than boom-time housebuilding. This is how correction leads to recovery. Keeping house prices inflated only diverts more money and resources to a useless black hole of debt.

By the way, the notion of "systemic risk" is baloney. Assets do not disappear or cease to operate when a business, even a ridiculously big bank C or BAC, is brought into bankruptcy proceedings. The only real sense in which one can talk about "systemic risk" here is that the failed system of government bailouts may come to an end. This would be a positive good for the economy and for all of us.

It would, however, hurt a great number of wealthy people and even some foreign governments (i.e. the bondholders). But if there is a "systemic risk" that my children and grandchildren will not be bailing out those same bondholders in perpetuity, then by all means let's have big ol' dose of "systemic risk."

James,

Good answer to David. I don't have a background in economics so I'm a little uncomfortable with the language. I had actually written something very similar to the second paragraph of your first response to David, but didn't post it because of this discomfort. It quite simply seems like common sense that house prices will level off when people feel the prices are more realistic, and that government intervention will only prolong the pain.

And, for those interested in tea parties, there will be one in DC:
Feb. 27 (Friday)
Washington DC Tea Party -
12:00pm - 2:00 pm- Washington Monument

Sponsors:
* Americans for Prosperity
* Americans for Tax Reform
* Young Conservatives Coalition
* The Heartland Institute

If you haven't seen THIS, you need to--it puts the lie to the spontaneous, populist nature of his outburst. This is an article by Mark Ames on playboy's free site, detailing the whoe thing:

http://www.playboy.com/blog/2009/02/backstabber.html

From IPayMyMortgage....

"We--the people in the third group--are the people who keep the country running. I think it's time we made it clear that we won't stand for distribution of our hard-earned wealth to those people who are too stupid or too lazy to earn their own."

I believe you've just restated Sumner's famous (or infamous depending on which group you belong to) forgotten man in more modern terminology. My hat goes off to you!

I can hardly believe that anyone above who supports all these foolish plans cannot see the many fallacies of their reasoning. In simpler terms, if I run a business at a loss, how long would I be in business and why would anyone believe these rules should be suspended for any entity, private OR government? These laws of economics are as fundamental and natural as the laws of gravity. I'm just an ordinary secretary who works an 8-5 job and even I can see clearly the obtuseness of such thoughts and opinion as is displayed in some of these posts. It isn't just wrong, it is completely illogical.

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