by Tanada » Wed 10 May 2017, 16:42:29
$this->bbcode_second_pass_quote('onlooker', 'b')ecause the strategy of bailing out the big financial institutions did nothing to restore consumer buying power or confidence.--- under that logic, wouldn't oil price perturbations also dampen investment enthusiasm and consumer confidence?
Sure, but as I pointed out prices didn't get back up into the painful level for about 18 months after the peak in August 2008, first they dove deep and then over a period of months clawed their way back up. During that price respite in crude oil/fuel the consumer economy did not recover. Too many people were wiped out by the housing bubble and the government bailouts all went to the banks without passing through the consumers on the way. If as I have been saying for nearly a decade the government had specified that the bailout money would be credited to the mortgage balances of the consumers it would have still been in the bank accounts of the big investment banks, but it would have also rest the burden on the consumers like myself who found themselves holding mortgages for homes that were now worth less than half of the purchase price from just a few years earlier. I and many of my neighbors found ourselves in the classic 'underwater mortgage', I owed nearly 90,000 on my house and the best offer I could get for it was 35,000. True by mid 2012 the value had climbed back up to 69,000 but it was still substantially underwater.
Now picture this scenario, the Government instead of bailing out the banks directly deposits 20,000 into every mortgage account as a principal payment. That would have dropped my debt from 90,000 to 70,000 and in the process have cut my monthly interest payment by about 200. After that my monthly payments would have been paying down the principal much more quickly. As a result by 2012 when the house value had recovered to 69,000 I would have built up a bit of principal balance by having paid the house down to 50,000 over those four years. Then when I lost my job in 2012 I could have sold the house and still had a chunk of principal to use to survive while looking for other work instead of ending up having my house foreclosed upon and losing the entire 20 percent down payment plus all of the principal payments I had made in the eight years I owned that house. Also having that chunk of principal would have enabled me to buy a less decrepit used car and take other actions that would have stimulated the consumer economy.