75% off would make homes quite affordable. Those who have been renting could now buy, and that would make room for owners who just got foreclosed on who need a place to rent.
My best guess as to choices: (1) Instant writedowns would indeed be shock therapy. If investors (pensions) get hit with losses all at once, a lot of pensioners would become extremely angry. (2) Phase it out over time (take systematic writedowns--historically banks do those with bad loans, writing them off quarter by quarter) while trying to stimulate the economy. (3) Right now they want to have zero writedowns while trying to jumpstart consumption. Problem is that would seem to take a very long time (Japan seems to be still trying to do that: http://en.wikipedia.org/wiki/Lost_Decade_(Japan) I don't have much faith in our ability to moderate cycles.
US and crony capitalism? go to Europe and Third World and find what crony capitalism is. There is only a limit to what market place can do to meet the greater good and that is why government type instituitions are there. Only thing is to clean up the government and keep it ethical. Pure market is taking it too far.
Which reminds me of the old punchline "We've established what you are, now we're haggling over price." LOL
When Bill Clinton was running he claimed he was just a governor from a poor state and his net worth was only 160k. When he left office eight years later his net worth was listed at 2.2 mil. Of course, his wife was one hell of a cattle trader.
Not so sure, because we'd also have 50% down, 5 year balloon mortgages. And that would be for the 700+ FICO crowd... At some point we will get there whether we want to or not, of that I'm quite sure.
if I had 20k saved up for a down on a 100k house and that house dropped to 25k, I could put 5k on the credit card and pay the 20 in cash. wouldn't need a mortgage
Yes, but you and I are old dudes, unlike the kids today we actually know of this Old English word called "saving". Like I said, it's where we need to go, I just don't expect it to be anything but a rough ride.
The general level of housing is priced off the income you can make by living in a particular place, which accounts for why housing in and near big cities costs a lot more than stuff out in the boonies. Getting rid of the tax advantage and the secondary market the GSE's maintain would knock a certain percent off the price, but I doubt it would exceed much more than 10 or 20% unless something else happens to bring incomes down over the entire nation, which of course is what 2008 did. Also, the secondary market would come back anyway, except generated by the private markets. Bonds that securitize house loans will always be a popular investment vehicle just because of the income. You just have to find a way to get around the infinite callability of them - otherwise known as the right of a homeowner to refinance or sell at any time. These general discussions aren't going to get us anywhere. The root of the current crisis is the US's friendliness to financial innovation. We idolized the rocket scientists who invented all these new ways to slice & dice mortgages. We gave them free rein via a massively deregulated financial sector, thinking that because deregulation worked so well everywhere else it would also work well in finance. It doesn't. Regulation of finance is absolutely necessary to a stable economy. We have to face that, and bring back the strict regulation of the financial sector that was incorporated into Glass-Steagall. As has been pointed out many times, from its creation in 1933 to its repeal in 1998, nothing like the early thirties happened. It only took ten years from its repeal for us to repeat the early thirties. The banks and insurance companies and real estate need to be tied down and made a minor part of the economy again, as they were before. Allow state usury laws to operate again, eliminate interstate banking, strictly break up investment, retail, and commercial banking, gradually end the massive subsidization of residential real estate, and eliminate the Fed and let the Treasury perform its mechanical functions, and fold its regulatory functions into the FDIC (including the setting of the discount rate for banks that find themselves short of overnight cash; there should be a simple rule for its level, something like some spread over the 30 year Treasury, so that using it for overnight money is highly unattractive), thereby giving ourselves a single lender of last resort for crises like 2008 with a clear, well-defined mandate that would exclude the arbitrary mess whereby one unregulated lender is saved while another is allowed to die: let 'em all die. The consequences, to the money markets or whatever else, can be handled via the lender of last resort as an explicit part of its function. The remaining assets, such as they are, can be auctioned off. And ALL of the cost of this lender of last resort function would be borne by the banks that benefit from that function via the FDIC's already existing insurance premium, which could simply be raised until it fully covers even the biggest and stupidest bank. To quote from Galbraith: "In the twenty years before the founding of the [Federal Reserve] System there were 1748 bank suspensions; in the twenty years after it ended the anarchy of unstable private banking, there were 15,502." I don't think there's ever been a more unsuccessful institution than the Fed, or a more successful one than the FDIC. Why we haven't killed the first and put all those useless (or worse) economists on unemployment compensation (which would be way way way cheaper than letting it stumble along crushing stuff as it trips over itself) and given most of its functions to the second is an enduring mystery. Yes, I'm drunk & drowsy & about to hit the hay hard.