Dean Baker, famous for having called the housing bubble in 2002, reports this morning that the Fed is going to lend directly to non-financial corporations that can't get loans though the usual channels. I guess it's because I'm a bit of a control freak that I didn't think giving money to banks (I mean, buying bad securities for high prices isn't exactly "purchasing") would solve our credit problems. What, I thought, if the banks just pocketed the money? The Paulson Plan (PP) doesn't require much of the banks or their officers, after all.
So I'm feeling a bit cocky this morning, and will therefore make some more suggestions, in no particular order or priority:
1. Can the $700 billion to the banks. It's throwing good money after bad. If the banks are insolvent, and it appears that they are, nationalize them. We can keep them, sell them, whatever, later on. Just get control and find out what's going on.
2. Make grants to state and local governments where necessary. State and local governments are losing revenue even as we speak, since they're dependent on tax revenue that is declining with dispatch. This won't increase spending; it will just keep spending even.
3. Freeze foreclosures. We have no handle on who owns what, who owes what, who can be saved, who can't. Just put everything on hold through the end of the year. That way, the government has time to figure this out and work out an orderly sell-off. (Yes, we're going to end of selling off a bunch of property for much less than the face value of the mortgages. Get over it.) And no one gets evicted before the holidays.
4. We're going to have a lot of unemployment. In addition to the collapse of construction and housing-related industries, retail is going to be in bad trouble and retail employs a whole lot of low-paid (and therefore precarious) workers. So dump a lot of money into unemployment insurance, so that these workers can survive. And because unemployment insurance doesn't cover a lot of workers, create a new fund to cover those workers.
5. Create new jobs--useful jobs. In addition to the army of financial regulators we'll need, every state has public projects that need to be done. Set priorities to employ the unemployed.
6. Provide funds to buy up foreclosed houses for use as permanent affordable housing. But insure that local governments don't just bail out the real estate industry by purchasing the abandonment-grade stuff that should be torn down.
J and I will be working in the garden today, so I'll come up with more ideas in future posts.
Showing posts with label credit crunch. Show all posts
Showing posts with label credit crunch. Show all posts
Tuesday, October 7, 2008
Thursday, October 2, 2008
Is It Extortion?
I try not to think of the current credit crunch as a conspiracy to extract free money from the taxpayers. But the problems the State of California is having arranging bridge loans makes me wonder. Governments are generally very good credit risks; after all, they have an ability to raise money from a nearly bottomless pit. (Yeah, us.) So I wonder if the threat not to lend to the state government doesn't indicate that the banks are overplaying their hand here.
There's a lot in the credit crunch that's bad. But there's some common sense in it too. As real estate prices have fallen, people find it more difficult to borrow against their houses. Well, they should find it more difficult. They don't have as much equity in their houses and the banks look at that in deciding how much to lend. And if the banks believe that prices may fall some more, they're going to be a lot more conservative in their lending decisions.
And cars. People are having trouble getting car loans, but if you read down into the articles, it's because they can't come up with the down payment from their home equity. See above. When they have to finance a car without that down payment source, they have to buy smaller, cheaper and, hopefully more fuel-efficient, cars.
Particularly in the big bubble areas, we can expect that all sorts of retail will go out of business. These businesses were subsidized with home equity extractions. Without that, there's a lot less money around and at least some, if not a lot, of retail establishments won't make it. So the housing bubble won't just bring us empty houses, but empty storefronts as well.
There's a lot in the credit crunch that's bad. But there's some common sense in it too. As real estate prices have fallen, people find it more difficult to borrow against their houses. Well, they should find it more difficult. They don't have as much equity in their houses and the banks look at that in deciding how much to lend. And if the banks believe that prices may fall some more, they're going to be a lot more conservative in their lending decisions.
And cars. People are having trouble getting car loans, but if you read down into the articles, it's because they can't come up with the down payment from their home equity. See above. When they have to finance a car without that down payment source, they have to buy smaller, cheaper and, hopefully more fuel-efficient, cars.
Particularly in the big bubble areas, we can expect that all sorts of retail will go out of business. These businesses were subsidized with home equity extractions. Without that, there's a lot less money around and at least some, if not a lot, of retail establishments won't make it. So the housing bubble won't just bring us empty houses, but empty storefronts as well.
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