If interest rates were higher and lowering them would bring the credit markets and the economy back, then this huge spending would not be occurring.

Since when it’s the government’s job to backstop people who take too much risk ? Since when is a government requirement to keep people in houses they cannot afford ?

All the government help talk centers around how bad it would be if the houses were allowed to correct to normal levels. But that’s not a given. And it doesn’t sound like government intervention is doing much beyond dragging this crisis for (conceivably) another decade while the losses continue to compound.

If one cannot afford a house, one rents. It’s not the end of the world. Like the rest who aren’t “homeowers” yet. It might even be better for them that they remove a 20-year burden they cannot possible sustain, one could rent a house for a lot less than what they pay for mortgage now.

Mark my words. This is not for the people. This is for the banks and the financial world. So the banks do not have to recognize a loss. To prevent people from “walking away” from underwater mortgages which would force them to admit the loss on the books.

Because so many banks leveraged so much that they would be considered immediately insolvent if investors learned how flaky their “A-grade” collateral is and how little the mortgage-backed securities are really worth.

It’s not for the little man. The little man gets to continue paying all his income into the system. He won’t have more money to “help the economy”. But the banks will be ok.

And your children will never afford a house, ever again, as long as house prices are maintained disconnected from the salaries.

The only question is how much damage will be done to the economy until those in power accede to this necessity. The answer appears to be far more than was initially expected, given the six months that have passed since the crisis hit full throttle and the fourteen months since the recession began.

Couple points: monetary policy does not create the boom/bust cycle. The cycle existed before that. Read up on the Tulip Mania. We had depressions (not recessions, the D word) in the 1800s every 20 years or so. This myth is plainly stupid, yet hard-money ultra-con fanatics perpetuate it everywhere. This is a pretty good tip-off that the person writing is intellectually deficient. While one can make legitimate arguments in support of hard money, lying about history is not one of them.

Point 2:

We’re currently in a classic prisoner’s dilemma. The only path out of growth is the expectation of future growth. Other than another world war, it’s hard to foresee what will spur this.

Allowing house and asset values to continue to plummet further means wiping out 20%-40% of households’ net worth. Nominal and real values must approach parity, and that can be done either through massive bankruptcy or reflation.

The consequences of massive bankruptcy are more extreme than one would expect. The size of the federal debt would continue to balloon as it _borrows_ money to pay off the increasing size of depositors and creditors, not to mention insurance companies going bust. Tax revenues drop like a rock. US Govt. loses its credit worthiness. Everything literally implodes. Unwilling to watch mass starvation, you can bet that governments will intervene and we will see MORE government control over the economy rather than less.

The interesting and uniquely American dynamic here is that everyone is so terrified that Joe and Jane down the street might get more than their fair share, that they would rather the entire economy burn. Hard money fanatics have been pumping the notion of “letting the dead wood burn so we can regrow from a stable base” or one of a dozen variations on this concept. They either have no clue or truly believe that suffering is a good thing.

BTW, it’s not that hard to not reward people who got locked into loans they could not afford. Place liens on houses that accept support – as incomes rise, so do payments. When the house is sold, the govt. recovers any future gain in asset values. The legal ssytem already supports this mechanism.

Stop trying to prop up house prices. They are not in touch with reality. Mortgages are waay higher than rents, that is not normal. They are also out of proportion compared to salaries, that is an indicator that the asset prices are too high.

If we “stabilize house prices” the way they are, we will fondly remember this as the last decade a worker could actually afford to buy a house on the salary.

Create new banks, fund them with the TARP money which will unlock 10-12 times as much credit (using “normal” leverage).
http://market-ticker.denninger.net/archives/622-Fiscal-Cat-5-Hurricane-Warning.html

Here’s a more recent and exhaustive laundry list of proposed changes:
http://market-ticker.denninger.net/archives/791-To-The-Republicans.html

Guess what. Do that and I guarantee my money will LEAVE THIS ECONOMY. I will not spend one cent over what you are already stealing from me in taxes to support the greedy who moved into mansions on a hairdresser salary while I sit there waiting patiently to accumulate 20% for a downpayment.

The Campaign to Cancel the Washington National Debt By Constitutional Amendment is starting now in the U.S. See the following URL for more information: http://www.facebook.com/group.php?gid=67594690498&ref=ts

Clue: think of the “woolpayer” (the animal formerly known as “sheep”).