Wednesday, September 17, 2008

When ignorant, do nothing

Lots of chatter, invariably people feel obligated to say someone needs to do something. This, to me, is not correct. But you could start by rescinding the current government programs to encourage home ownership by allowing 3% down with bad credit. On Bloggingheads, Jane Hamsher blames the current crisis on the absence of regulation on swaps, which I find absurd (the real cause is the unprecedented losses on the collateral, not the derivatives based on that collateral). Stiglitz simply wants 'more regulation', and also blames Basel II (as if Basel I would have changed anything, he just hates the word 'market' in any regulation). The SEC is blaming short sellers. Lots of politicians are aiming solutions at the home owners, who bought houses they can't afford, and have nothing to lose (it's the lender's loss). Some blame hubris, or 'taking risks they don't understand', but without the benefit of hindsight, this is rather unhelpful, because no one intends to act with hubris, or take risks they don't understand.

In this scenario, the less done the better. At least the bailouts this time are wiping out equity owners, something not done previously.

5 comments:

Anonymous said...

don't think there's much to do anyway. bernanke says he lost control, mack he's not gonna make it and so forth. i understand it's getting scary out there, (and i'm about 70% in stocks) but what did ppl think 'adjusting' mean? change of life style at society level it's easier said than done. will be painful and that's how it starts.

Anonymous said...

I'm about 70% in stocks, too. The reason? I was 75% in stocks two months ago, and I did nothing. If it keeps going like this, maybe by next week I'll soon be 65% in stocks.

Pete Sattler said...

2 simple steps to end this crisis:
1) No capital gains on any real estate bought as an investment from today to 12/31/2009
2) Any remodeling/repairs/etc to existing housing stock can be expensed instead of capitalized until 12/31/2009
3) Added incentive: $3,000 tax credit for "closing costs" on any purchase of existing housing stock. Limit: 1 per tax return.

The goal here is to get investors to buy empty homes to rent them out. This will sop up all the empty inventory out there and allow the investors to get it into condition so that people can live in it.

Once the excess inventory is soaked up, prices will stabilize, and the sub-prime CDOs will have a value.

Can people really buy with 3% down?

Pete Sattler said...

2 simple steps to end this crisis:
1) No capital gains on any real estate bought as an investment from today to 12/31/2009
2) Any remodeling/repairs/etc to existing housing stock can be expensed instead of capitalized until 12/31/2009
3) Added incentive: $3,000 tax credit for "closing costs" on any purchase of existing housing stock. Limit: 1 per tax return.

The goal here is to get investors to buy empty homes to rent them out. This will sop up all the empty inventory out there and allow the investors to get it into condition so that people can live in it.

Once the excess inventory is soaked up, prices will stabilize, and the sub-prime CDOs will have a value.

Can people really buy with 3% down?

Anonymous said...

If foreigners get so nervous about US based debt that they stop buying it, there's the potential for long term interest rates to go up in the middle of a recession due to the credit crunch.

That could really tank things.

If you meet any wealthy foreigners, be nice to them.