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Monday, March 03, 2008
Waste not, want not
This is an expression I vaguely recall hearing as a child, although I'm pretty sure that my parents were decent enough to spare me hearing it from them. I don't know where I heard it, but I know it's an old expression. It sounds old, like some Puritan maxim, because everything is a sin, after all.
But I get it's meaning: Reasonable consumption now, avoid starving to death later. This is something I can really get behind, because if there's one thing that just bugs the hell out of me, it's waste. It irritates me when someone orders food that they barely touch. It strikes me as stupid for someone to purchase a four-wheel drive vehicle that will be used for nothing more harrowing than getting back and forth to work, or taking kids to school. It's overdoing it, just because you can.
Even with the looming recession, people can still live better in many ways than ever before. During the last real recession this country had in the late 70s until about 1982, people's standard of living took a noticeable step back. There would have been no point in the president going on television and using phrases like "mixed economic indicators" or "some slowing of growth." He would have been hooted down.
A woman I work with tried to tell me that there is no recession because when she went out last weekend, there were long waits at restaurants, and parking lots were crowded. I responded by pointing out that there are still plenty of people who are doing just fine (just not most of us), and that more importantly, because it has been a full generation since the last serious economic downturn, people really don't realize the magnitude of what is happening to them, and they won't slow down their consumption until their credit cards stop working.
The housing crisis is really only just beginning, and the fallout is going to poison many and varied sectors of the economy before it really plays out. Some studies I've seen indicate that, without another bubble (possibly in the alt energy sector) it may be as long as 2011 before the slide in the real estate and financial sectors bottoms out and is fully corrected.
The US Secretary of the Treasury has decided that consumers now living in homes that are worth less than the loans outstanding, in so many words, can go fuck themselves. You should have read the fine print, you should have believed what the lenders told you, and we're not going to reward bad behavior. And you definitely shouldn't have lost your job or gotten sick.
The reasons sound good, but the upshot is still a lot of people living in their cars. The new Middle Class Homeless. I like that. I may go on Nightline with that one.
But on the other hand, at least the Old School Homeless are benefiting in some cases, as many foreclosed homes are being squatted in by those affectionately named Urban Campers. Nature abhors a vacuum.
Waste not, want not.
Stimulus checks will be in the mail in 60 days, and the money will make a vague dent in the downturn, but it's not going to solve the housing crisis. $160 billion dollars, handed out, and most of it will be pissed away. A waste.
I've already speculated on the good that money of that type could do for infrastructure in the US, but I'll allow that people are probably more concerned about saving the roof over their heads than they are about some bridge over the Mississippi River.
At some point, as small banks, and eventually larger ones begin to fail, the government will realize that a bailout is inevitable. It's going to be gargantuan in scale, just like the recession caused by the lending crisis.
I'm going to propose some government waste.
The government will not bail out the banks. The government will assume these trillions in bad loans, people will remain in their homes with all loans converted to 30 year fixed-rate mortgages at 5%, paid to the government directly. The government will make commensurate monthly payments to the lender institutions at a rate of 4%.
Will the banks lose some money? Yeah, probably. Less than you might think though. The target lending rate will be no higher than 2.5% by March 18th, and possibly a quarter point less than that. The banks will manage, they just may have to cut back on the marble fixtures, and will likely put chains on all the pens again.
The government will also open the program to first-time home buyers by offering them 30 year fixed rate loans at rates from 3.5-5%, based on the banks' target lending rate. People will start snapping up homes that have been sitting on the market for months and years, and then they'll also do crazy stuff like buy things to put inside them. There's your fucking stimulus.
At some point, if the banks don't like being frozen out of the mortgage business, they can buy the loans back from the government, but with a transaction fee of 10% of the remaining value of the loan. The banks can piss and moan, but they understand compound interest, and will take the deal. The conditions of these loans will be unalterable by the institution that buys them back from the government. The bank will make a nice, slow, long-term profit, homeowners will make their payments, and this economic rollercoaster shit will end for awhile.
Who will pay for it? All of us. Will there be waste? Have you ever seen a government program that didn't have plenty of it?
I still hate waste. But I'll take it over want any day of the week.
posted at 7:38 PM
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