[evilgenius]

In the midst of this current collapse I thought it would be a good idea to start a new thread that gave us a chance to talk about our ideas for how to solve this mess. I'll post an idea I have and everybody can either shoot me down or bring up their own ideas. I'm a natural born doomer, so I guess I don't mind a lot of talk about how this mess is unsolvable, but the nature of this thread is to bring up ideas to the contrary so too much of that would be counterproductive, really.

My idea is that instead of propping up the banks to the degree that the government is that effort should be scaled back some and the money applied to a mortgage supplement plan. I think that all mortgages across the country should be rolled into a plan where the payments are reduced to an arbitrary level, say 4%. The difference between the new payment rate and the actual rate on the face of the mortgage documents would be made up by the supplement plan. In this manner both those in trouble and those not in trouble with their mortgages would receive the reduction. Those that are not in trouble would be likely to save some and spend some, thus providing stimulus at an effective level of the economy. Those in trouble would get a break for the duration of the plan. During this break the troubled mortgages would be audited in order to determine whether they are usurious. If they are determined to be usurious they would be re-structured to be affordable.

In this manner the credit instruments that underlie the derivative crisis would also be brought to a controlled rate of collapse that could be taken into account and the rate of return on the derivatives reasonably adjusted. The investments concerned can probably not be saved at this juncture, but they can be brought to an understood point of loss wherein an effort to fix that problem can be better understood.

What, you think I'm crazy to believe that anything can be done? What suggestions do you have?

[nobodypanic]

maybe it's just me, but i'd say that all mortgages are usurious.

BTW, interesting idea.

[mos6507]

I agree with forcing the interest rates down. The rate resets are the major reason people started defaulting. But we're so far into it that even those who can make their payments want out because their houses are now worth considerably less than what they paid for them. Any attempt to artificially keep housing prices at inflated levels will keep new buyers on the sidelines. New lending practices may turn people with otherwise good credit away just because the only way they'd be able to buy starter houses would require too large a share of their monthly take-home pay. Or if such people are allowed to buy in, such people who are living hand to mouth will likely suffer a layoff and lose the house also, compounding the problem. So no matter what there has to be a blood-letting in order to bring house prices back down to fundamentals.

[Fishman]

What, you think I'm crazy to believe that anything can be done?"
Yes


"What suggestions do you have?"
None, enjoy the ride down, as has been stated before, it's better with lots of popcorn.

[jupiters_release]

$this->bbcode_second_pass_quote('nobodypanic', 'm')aybe it's just me, but i'd say the monetary system is usurious.

[Tanada]

My solution is much much simpler.

Make compound interest ill.

All debts can receive only simple interest over a fixed time period for the debt. If you have a 30 year house loan with simple interest you will pay the cost of the property plus the interest, which even at 10% is nominal compared to compound interest where you are paying far more than the cost of the property over the lifetime of the debt. In the old testament the followers of God were restricted to receiving 20% interest total on a debt. I borrowed $105,000.00 to purchase my home. Over the first five years I have paid $60,000.00 to my mortgage company. My debt for the home however is now $92,500.00. Taking out the taxes and insurance and other services that are lumped in with my mortgage I have paid approximately $40,000.00 in interest on my debt and only $12,500.00 on my principal.

While a Bank may consider this to be a fair system it was not always this way, at one time in America your loan was calculated in such a way that your interest was a small portion of each monthly payment, not the vast majority of it. For example when my parents bought the home I grew up in back in 1968 they got a simple interest 15 year loan. The amount of the debt plus 5% was divided up into 180 equal payments. There was no compounding of interest for the length of the loan. However if you missed a payment or were late there were substantial penalties. Now perhaps the fact that we lived in a small town where the bank President and Loan Officer were upstanding members of the community who were known on sight to everyone had something to do with it, but certainly you would be better off with a simple interest loan at 20% than the usury system of compound interest in common use today that resembles loan sharking more than lending.

[AlexdeLarge]

I'm not one of Karl Denninger's sycophants, but he has one of the best plans out there for the moment.

http://www.denninger.net/letters/genesis.pdf

I think if the bozo's in Washington proceed with bankrutpting the dollar, they should at least spend the "borrowed" money on something that will keep us warm and the lights on........

[Mominator]

It's interesting that it seems that most of the suggestions are that the banks take a hit. I'd agree, only I'd hedge it that it's not a crucial hit.

I think, yes, something needs to bleed. I think this blood letting could come from cutting banks amazing profits to a less amazing level. I could be wrong.


There needs to be a better identification system for mortgages at risk. People marginally at risk should have their interest lowered--like from 6.5 to 4 %
People at immediate risk should be evaluated for a 40 cent on the dollar reduction in debt load. Hey, this is what the bank would sell their bad debt for anyway. The bank takes that maximum loss (really, they might have recieved the entire loan's worth through interest & payments that were recived anyway). If the 60% reduction is enough to prevent foreclosure the house stays off the market which will prevent even more people from being upside down on their house AND the bank continues to get money.

I've never considered myself an expert in finance, but these are the two things that have come to mind in the last weeks.

[thor]

$this->bbcode_second_pass_quote('Tanada', 'M')y solution is much much simpler.

Make compound interest ill.

[Cid_Yama]

The Govt needs to nationalize all those mortgages then use the stimulus money to hire people to rent out those properties at levels people are able to afford to pay and to hire people to maintain those properties.

That way you sweep up the toxic mortgages by grabing the properties and using them to make the money back, and you re-house, and re-employ millions of Americans.

If the banks fail or are nationalized in the process, boo-hoo. Let the banks make the ultimate sacrifice, they are the ones that got us into this mess. It's only fitting they pay for their transgressions.

[jdmartin]

I'm of the firm belief that until you bring real jobs back to the citizens (I'm talking America here), the problem is unsolvable. The huge trade deficit that exists is like a vacuum cleaner sucking wealth out of the country without anything coming in to take its place. Nature abhors a vacuum, and obviously economics does as well, so something fills it - namely massive unemployment, underemployment, and asset devaluation. As far as I see it, it really doesn't matter if your mortgage is $2500 or $1500 or $500 if you don't have a job, or if your job kicks you $10 an hour.

Bottom line is we're all going to have to get used to a much lowered standard of living, unless we enact trade barriers that send the Chinese & Vietnamese back to the fields. If we're not willing to do that (I'm betting we're not), then we will have to exist on a much smaller scale - not everyone can be employed for money, so some people will stay home and raise kids or vegetables or both. TV's will be purchased when the old one dies, not when the new model comes out. Cars will rust around us before they're traded in for a new model.

I'm not convinced that this scenario won't be good for us anyway. If nothing else, it will send a bunch of the people out of the material world (why else do most people work if not to buy things?) and into some other world, which is hopefully spiritually and emotionally fulfilling. I think there's problems that will be difficult to deal with - for example, the spread-out nature of suburbs - but I'm unsure that the downsizing of the American consumer is TEOTWAWKI.

[lawnchair]

$this->bbcode_second_pass_quote('jdmartin', 'A')s far as I see it, it really doesn't matter if your mortgage is $2500 or $1500 or $500 if you don't have a job, or if your job kicks you $10 an hour.

Bottom line is we're all going to have to get used to a much lowered standard of living, unless we enact trade barriers that send the Chinese & Vietnamese back to the fields.

I think there's problems that will be difficult to deal with - for example, the spread-out nature of suburbs - but I'm unsure that the downsizing of the American consumer is TEOTWAWKI.

[rangerone314]

I believe in the US personal debt is about 14 trillion which is about same as GDP. I think it is the same in the UK.

The last time this was true was 1929.

Giving the banks more money to loan out (create more debt) is pointless since we are currently suffering from TOO MUCH debt.

Sometimes if you eat something really bad, there is no cure except to go through the whole nasty episode of diarhhea and puking. That is what our economy is doing essentially... a huge economic purge.

The gov is trying all kinds of medicines on something that can't be cured, simply has to run its course.

[Snowrunner]

$this->bbcode_second_pass_quote('evilgenius', 'W')hat, you think I'm crazy to believe that anything can be done? What suggestions do you have?

[outcast]

The problem with our economy is solvency. Banks are insolvent, financial institutions are insolvent, and more and more families are insolvent. Fix that problem and the rest will attend to itself.

[Tanada]

$this->bbcode_second_pass_quote('outcast', 'T')he problem with our economy is solvency. Banks are insolvent, financial institutions are insolvent, and more and more families are insolvent. Fix that problem and the rest will attend to itself.

[sjn]

I find it incredible the number of posters on this site who believe it's simply a matter of "fixing" the banking system and we'll be back to growth and all will be well!?! I'm at peakoil.com, right???

Seriously, the entire paradigm this civilisation has been operating in was never sustainable, the system itself is severely flawed and not reality based. Money is not what makes the world go around, it's an abstraction, a creation through fiat by the authority of, belief in, and consent to (government) power and faith in the system.

Financial capital is a proxy for the available energy and resource flows through the entire system, the availability of credit is premised on future flows, but that can only be realised through actual real productivity (energy/resource flows that support the system). Bailing out the financial system is non-productive, in fact it subverts the available resources, leaching capital from everything else. Currencies represent capital, but they are not themselves intrinsically worth any more than ability to perform that function, as actual capital declines, any attempt to prop up currencies divorces them from the underlying capital and makes them meaningless.

The only "fix" is for us to determine what is worth saving of this civilisation, and redirect capital to triage. We need to be concentrating on what will follow the EOTWAWKI, ensuring those who survive have the best chance to live a decent life and an opportunity to learn the lessons from our failure. Inflating fiat currencies and bailing out financial institutions really isn't helpful.

[SeaGypsy]

Ok, this will hurt. An American may not dare say these things in public but here goes:

1/ respond to the writing on the wall for banking& insurance by immediately nationalizing them. This will involve trusting the Government

2 tax the hell out of cars. Exempt only the disabled. Make small motorbikes/scooters cost $5 a year to register& cars $50,000
Spend the difference on getting buses into where they will be needed in the short term; light rail in the longer.

3 do a buy back for a year like Howard did with guns in Australia.

4 let the auto industry die. Buy up the plants& retool for ultralight public transit& 2& 3 wheeled vehicles with maximum 200cc engine.

5 have a full hard look at reality. Get everyone around the telly for the speech of a lifetime by Mr O. "Folks, we are screwed....."

Get the best of what's left in the American Psyche and rebuild a much more robust society. Come on America; LEAD!!!

[shady28]

$this->bbcode_second_pass_quote('SeaGypsy', 'O')k, this will hurt. An American may not dare say these things in public but here goes:

1/ respond to the writing on the wall for banking& insurance by immediately nationalizing them. This will involve trusting the Government

2 tax the hell out of cars. Exempt only the disabled. Make small motorbikes/scooters cost $5 a year to register& cars $50,000
Spend the difference on getting buses into where they will be needed in the short term; light rail in the longer.

3 do a buy back for a year like Howard did with guns in Australia.

4 let the auto industry die. Buy up the plants& retool for ultralight public transit& 2& 3 wheeled vehicles with maximum 200cc engine.

5 have a full hard look at reality. Get everyone around the telly for the speech of a lifetime by Mr O. "Folks, we are screwed....."

Get the best of what's left in the American Psyche and rebuild a much more robust society. Come on America; LEAD!!!

[dorlomin]

$this->bbcode_second_pass_quote('evilgenius', 'I')n the midst of this current collapse I thought it would be a good idea to start a new thread that gave us a chance to talk about our ideas for how to solve this mess.