Decius wrote: I thought that this observation was valuable: The first thing to bear in mind here is that the origin of the crisis is a ‘benevolent’ one: after the dotcom bubble burst in 2001, the decision reached across party lines was to facilitate real estate investments in order to keep the economy going and prevent recession – today’s meltdown is the price for the US having avoided a recession seven years ago.
I think the housing bubble was intentionally blown to soften the crash. We've essentially been having an economic depression for 8 years, but it hasn't felt like it, because we've been running a bubble. The gig is now, certainly, up ... I don't think we're going to blow another bubble. I think we're going to take it in the chin for about 8 years, and that it will be about 8 years before the economy is really growing again. There is not much that can be done about that.
This morning I watched the Steve Kroft interview with Obama, and I was struck by this exchange: Kroft: Once you become president, are there things that you'll change? Mr. Obama: Well, you know I think we still have to see how this thing unfolds over the next couple of months. One area that I'm concerned about, and I've said this publicly, is we have not focused on foreclosures and what's happening to homeowners as much as I would like. We have the tools to do it. We've gotta set up a negotiation between banks and borrowers so that people can stay in their homes. That is gonna have an impact on the economy as a whole. And, you know, one thing I'm determined is that if we don't have a clear focused program for homeowners by the time I take office, we will after I take office.
So he aims to prevent foreclosures by renegotiating loans. Notwithstanding your complaints about iTulip's forward-looking views on the energy business, I will again quote from Janszen's article: Because all asset hyperinflations revert to the mean, we can expect housing prices to decline roughly 38 percent from their peak as they return to something closer to the historical rate of monetary inflation. If the rate of decline stabilizes at between 6 and 7 percent each year, the correction has about six years to go before things stabilize, leaving the FIRE economy in need of $12 trillion. Where will that money come from?
If the market declines slowly over the next six years, how do you structure the sort of "help" that Obama aims to provide? Who gets the help, and when? According to The Frugal Future slide deck, as of August 2008, 29% of homeowners who purchased in the last five years are upside down. Suppose you're one of these people with negative net equity on a recent 30-year fixed mortgage, and your property is losing value at 7 percent annually. You are not making forward progress. You are not even treading water. We could "help" you now so you're (only just) right-side up, but by next year you'll be back upside down. So we have to rinse and repeat this process for six years. Alternatively, we could "help" you in one fell swoop, but wouldn't this be a major shock to the market? It could sharply and immediately reduce the equity of all homeowners. This seems deeply unfair to people who own their homes outright; you've taken their equity and transferred it to the people who were recently upside down but are now (relatively speaking) way, way up, because you've advanced them six years' worth of market decline. People are unhappy about this year's $750B "bailout". What few seem willing to say is that "taking it on the chain" could require twice-annual $750B bailouts for the next eight years. Going back to Juan Enriquez, from six weeks ago: What about austerity? RE: Use Your Illusions | 
