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re: BigBoyTiger's proposed US Stimulus
Posted on 2/1/09 at 3:10 pm to kfizzle85
Posted on 2/1/09 at 3:10 pm to kfizzle85
fair enough. You bring up a good point. My math is busted, but you get my point. You have to cleanse the banks of these assets and that was my main point.
What are your thoughts. How would you go about it? What would you do as an alternative to my plan?
What are your thoughts. How would you go about it? What would you do as an alternative to my plan?
1
Posted on 2/1/09 at 3:45 pm to BigBoyTiger
You need to get the banks to either write down the assets, or get them off of their balance sheets. No matter how go about doing this, it will require some level of loss on someone's part. Until you solve that (enormous) issue, anything else is moot.
Posted on 2/1/09 at 8:14 pm to kfizzle85
) Infrastructure:
I would propose a limited infrastructure spending plan from about $100 billion to $250 billion for some of the things we really need repaired in this country: roads and bridges. Especially the bridges.
This is really a straightforward plan. Roads and bridges. Roads and bridges. We need it.
Definitely needs to be done. This kind of plan is what got us out of the Great Depression. The pork barrel spending will be there either way, especially with the Dems. I don't understand why they want to send out stimulus checks again. It didn't work the first time. I believe the definition of insanity was doing the same thing over and over and expecting a different result.
I would propose a limited infrastructure spending plan from about $100 billion to $250 billion for some of the things we really need repaired in this country: roads and bridges. Especially the bridges.
This is really a straightforward plan. Roads and bridges. Roads and bridges. We need it.
Definitely needs to be done. This kind of plan is what got us out of the Great Depression. The pork barrel spending will be there either way, especially with the Dems. I don't understand why they want to send out stimulus checks again. It didn't work the first time. I believe the definition of insanity was doing the same thing over and over and expecting a different result.
Posted on 2/1/09 at 10:50 pm to BigBoyTiger
I think your heart's in the right place, but the specifics you give are completely unworkable.
This would be about $3 trillion alone in lost government revenues. Plus, the last thing you want to do with taxes is create unpredictable whipsaw effects that confuse investors in long-term projects. Even supply-siders like to say that tax cuts work best when they are at the margins and permanent.
Not that I think a little payroll tax relief is a bad idea when unemployment is skyrocketing, nor a reduction of our very high corporate tax rate (accompanied by a Byzantine code), but in the short-run, tax cuts are't go to solve our immediate problems.
George Soros and others have cited other countries (like Denmark, I think) with more reasonable mortgage contracts that allow for reduction of principal when the market tanks, which simply reflects reality. Still, 50% is unworkable, and would be extremely unfair. There would be rioting in the streets if you did this.
Plus, the 20 cents thing might not work because banks would run afoul of regulators and/or be subject to short-seller attacks and runs on their debt if assets were sold this cheap. I think if the government is going to act to help the banks, it would be best to discard the fiction of trying to do it without costs to the taxpayers. We can buy assets at inflated prices, or have government-subsidized insurance for the totality of the bank's balance sheets, or have more capital infusions, or some mix of the three, but it makes no sense to promise profits on this for the government.
Also, keep in mind that the toxic assets are so hard to quantify because so many of them are derivatives. According to Wikipedia, "The value of USA subprime mortgages was estimated at $1.3 trillion as of March 2007" LINK), which is why it was so hard to believe at first that a so-called "subprime" crisis could ever cause this much trouble. But the notional value of mortgage-backed assets was multiplied by derivatives contracts, so nobody really has a good grip on what anything is worth ... still.
Chuck Schumer's recent statements about a "bad bank" plan costing several trillion dollars raised a lot of eyebrows, but there have been some interesting articles in response to this. One has come from an editorial in the Los Angeles Times, of all places, where a government-backed insurance plan is advocated: " 'Bad bank' is a bad idea."
In the past, I was always in favor of the original TARP plan to buy bad assets, but I suppose some mix might be better. The fear of just doing capital infusions or insurance is that we would then go the "Japanese route" of continually propping up "zombie" corporations. But one important distinction, is that we will definitely continue to need banks as a going concern, whereas in Japan, the banks were simply government tools that were used to keep pushing out money to ordinary businesses in dying industries that just needed to be liquidated permanently. China today does the same thing, but then again, what works for a developing/managed economy is not always what works for a developed/free economy.
quote:
1) One-year tax holiday for all individuals and businesses
This would be about $3 trillion alone in lost government revenues. Plus, the last thing you want to do with taxes is create unpredictable whipsaw effects that confuse investors in long-term projects. Even supply-siders like to say that tax cuts work best when they are at the margins and permanent.
Not that I think a little payroll tax relief is a bad idea when unemployment is skyrocketing, nor a reduction of our very high corporate tax rate (accompanied by a Byzantine code), but in the short-run, tax cuts are't go to solve our immediate problems.
quote:
2) 20/50: Government buys bad mortgage assets off Bank's balance sheets at 20 cents of its original value and slashes half of the original principal for those borrowers.
George Soros and others have cited other countries (like Denmark, I think) with more reasonable mortgage contracts that allow for reduction of principal when the market tanks, which simply reflects reality. Still, 50% is unworkable, and would be extremely unfair. There would be rioting in the streets if you did this.
Plus, the 20 cents thing might not work because banks would run afoul of regulators and/or be subject to short-seller attacks and runs on their debt if assets were sold this cheap. I think if the government is going to act to help the banks, it would be best to discard the fiction of trying to do it without costs to the taxpayers. We can buy assets at inflated prices, or have government-subsidized insurance for the totality of the bank's balance sheets, or have more capital infusions, or some mix of the three, but it makes no sense to promise profits on this for the government.
Also, keep in mind that the toxic assets are so hard to quantify because so many of them are derivatives. According to Wikipedia, "The value of USA subprime mortgages was estimated at $1.3 trillion as of March 2007" LINK), which is why it was so hard to believe at first that a so-called "subprime" crisis could ever cause this much trouble. But the notional value of mortgage-backed assets was multiplied by derivatives contracts, so nobody really has a good grip on what anything is worth ... still.
Chuck Schumer's recent statements about a "bad bank" plan costing several trillion dollars raised a lot of eyebrows, but there have been some interesting articles in response to this. One has come from an editorial in the Los Angeles Times, of all places, where a government-backed insurance plan is advocated: " 'Bad bank' is a bad idea."
In the past, I was always in favor of the original TARP plan to buy bad assets, but I suppose some mix might be better. The fear of just doing capital infusions or insurance is that we would then go the "Japanese route" of continually propping up "zombie" corporations. But one important distinction, is that we will definitely continue to need banks as a going concern, whereas in Japan, the banks were simply government tools that were used to keep pushing out money to ordinary businesses in dying industries that just needed to be liquidated permanently. China today does the same thing, but then again, what works for a developing/managed economy is not always what works for a developed/free economy.
Posted on 2/1/09 at 10:54 pm to BigBoyTiger
quote:
that probably would cost around $2 trillion
thanks, but no thanks.
Posted on 2/1/09 at 11:04 pm to Colonel Hapablap
quote:
thanks, but no thanks.
Well what is your plan...I am just looking for feedback here. We're about to waste $1 trillion in Washington...
Posted on 2/1/09 at 11:14 pm to BigBoyTiger
my plan is to have an army of regulators go into each and every bank in America to determine solvency. Insolvent banks are seized, equity written to zero, non-depositor debt is haircut, new stock is issued to compensate debt holders. Cost to taxpayers: Zero.
I'm going to do a blog on this in the next few days. It's nothing close to an original idea, but everyone seems to have forgotten about good old bankruptcy.
I'm going to do a blog on this in the next few days. It's nothing close to an original idea, but everyone seems to have forgotten about good old bankruptcy.
Posted on 2/2/09 at 7:01 am to BigBoyTiger
quote:
Simple...to give the banks a fresh start and provide liquidity and shore up the capital base.
? If you are saying they are already written down by 80% and the govt should buy them at 20%... exactly how does that change the capital base or any ratio to allow them to lend?
Posted on 2/2/09 at 7:30 am to BigBoyTiger
quote:
This will inject a significant amount into each working American's paycheck and give people some discretionary income.
Of which they would have plenty if we have not lived beyond our means with a negative savings rate for the past decade. This is a problem of spending excess and thus there is no magic 'spend more' cure.
quote:
Now I know you're asking...but isn't this the same as the government spending $1.5 trillion?
Tax receipts are more in the $2.8 trillion range (if you are including FICA and such).
quote:
The government needs to set up a bad bank to buy the bad mortgage assets in all banks and cleanse these banks of the bad assets on their balance sheets so they can start lending again.
Uh no, Government needs to wipe out the equity holders and convert the bondholders into equity position.
quote:
The government buys these assets for 20 cents on the dollar. But how would the government make money on this? Simple. It would slash the original value of these assets (whatever this value was at initiation) in half to 50 cents of its original value.
If the banks have already written down to 20 cents on the dollar and simply cutting the face value in half would solve the problem... why dont the banks do this themselves... why do they need Washington?
quote:
The simple fact is that most of these assets have already been written off to zero by the banks.
MOST? If that is the case, they are not on the balance sheet and thus no 'cleansing is required'. As we all know as every Q rolls in, this is not the case.
Your heart is in the right place, but you have bought into the government must save the world solution and your plan (like most) does not address how and why we got here (housing decline is only one example of the crisis of excess we have had and all solutions seem to be around continuing this excess in other areas).
The bottom line is a sharp contraction is inevitable and actually needed. Any additional financing by government simply delays this inevitable and leaves us in a more tenuous position as time moves forward. The Gap between aggregate demand (sans the excess credit) and potential productivity is just too big to be temporarily plugged.
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