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Rearranging the Deck Chairs?

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glynor:
So, what do you think?  Is the world order really coming to an end?  Is there anyone who doesn't suspect that our real enemies (other than the *********s in charge of our country and financial system, of course) will try to hit us now?

What say you?

- Comrade Glynor

rjm:
There is something fishy going on given the unbelievable $ and urgency to approve it.

The American people should be very very suspicious, and should think about their children.

Here is one theory: http://europe.theoildrum.com/node/4563#more

rjm:
I am half way through the audiobook "The Trillion Dollar Meltdown" by Charles R. Morris. Anyone who wants to understand what is going on this week should get it. The author is very knowledable and he researched and wrote the book before the meltdown started. Scary thing is that the current "adjustment" is just phase one of a multi-phase economic meltdown.

He does not discuss the other 2 elephants in the room which I am even more concerned about: peak oil and climate change. Peak oil is here now and in the best case will constrain economic growth and prevent us from pulling out of this current downturn. In a worst case, we will see a collapse of our civilization and the death of 5 billlion people over the next 20 years.

The other elephant is climate change. This one won't hurt our generation too much but will really screw up our children's lives. We need to reduce absolute CO2 emissions now, not just slow down over the next 20 years. Today CO2 emmisions are continuing to increase, and I expect this trend to get worse as we use more coal because we will have no choice as oil/natural gas gets more expensive. And if you are counting on carbon sequestration to save our ass, check out how many coal plants in the world are using it now. Zero. I just about sh*t when I discovered this fact.

glynor:
You know what's amazing?

The current home mortgage default rate in the US is around 3%.  This is already vastly higher than normal (usually less than 1%), but even if you figure that it gets twice as bad as it is already, that only puts it at 6%.

Assuming it did manage to climb to 6%, and the congress authorized the treasury to outright buy every single foreclosed home it would only cost around $300 billion.  Even if we just bought them and tore them down and sold them for scrap, it wouldn't probably end up costing us more than $100-$150 billion or so net.

This $700b has nothing to do with the sub-prime housing bubble anymore.  It is because these banks tricked themselves into believing that these mortgage backed security pools were worth much, much more than any disaffected reasonable person viewing it from the outside ever could have.  And then, they made bets based on these imaginary valuations.  Bets in of 20 and 30 and 40 times the bank's entire net worth.  And now those bets are coming due and they can't pay up, and so they should fail.  You make a bet worth 40 times your company's net worth and you loose, you should go under.

jgreen:
The world must be ending, because I keep agreeing with Glynor.

IMO, this is the high and low irony of it all:  If mortgage defaults are the root problem, buy up all the empty homes and let unemployed bankers live in them.  As most know, there is a scarcity value to real estate, which worthless pieces of paper just don't have.  Yet the discussion has always centered on buying up worthless pieces of paper, the only questions have been how much and what kind.

I can't help thinking of Roger Smith restructuring GM to compete with Toyota, etc.  He spent more to close plants than it would have cost to buy Toyota outright.  He got rid of a lot of wasted capacity, but did nothing to prepare GM to compete.

Now that we're faced with a housing freefall, don't forget that housing has yet to fall as far or as fast as it rose--and nobody complained on the way up.  Well, spending $700 billion anywhere, even on "good" policy, means that there's $1400 billion less to drive housing prices back up where everybody (who already owns a house) wants them.

Funny, in all this discussion, nobody seems to mind that health care, college aid, new home buyer aid, etc, etc, etc, will all be drained to pay for this.

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