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  1. #1

    Dec 2007
    Tierra del Fuego
    24 times


    Here's another finance blog clip... it's interesting!

    Let the Banks Go Under, Sell 10 Million Houses for $1 Each

    Today's target: the notion that the collapse of the insolvent U.S. banking system would be so terrible. Really? Terrible for who? Certainly not the nation at large. In fact the dissolution of the insolvent parts of the U.S. banking sector--yes, the investment banks, the money-center banks, the regional banks, and the savings and loans--would actually be an enormously positive development for the nation and indeed the world.

    Let's start with the fact that a huge number of these lenders are insolvent. If all their bad loans, bad derivative bets and off-balance sheet losses were forced to be marked to market/liquidated to raise capital, then major bank after major bank would fold/enter bankruptcy.

    And what exactly would be so bad about that? Businesses go under all the time. The truth is these banks will never ever recover the loans they wrote, so why try to prop them up with taxpayer funds? To bail out the ultra-wealthy owners of those banks, of course. Recall that 1% of the citizenry own the bulk of all stocks and bonds.

    Most of the banks have already lost half or more of their value. And has civilization fallen because the poor owners have lost half or more of their investment in the banking sector? No.

    Even at its peak of bubble hubris, the entire sector was less than 20% of the S&P stock index's value. Now it's under 10%, like it used to be. The world didn't collapse when the banking sector declined, and it won't fall when insolvent banks are ushered through the bankruptcy process.

    Look, WAMU has already fallen from $35/share to under $5/share. So what if it goes BK? Banks are businesses, and businesses go bankrupt all the time. United Airlines went BK and the next day employees showed up and the planes flew. When banks are liquidated/go BK, then the tellers will come to work and people will go in and do their normal banking.

    If a bunch of branches close, people will adapt. It will be tough on the employees let go, but how different is this than when millions of industrial and manufacturing jobs vanished over the past 20 years? It's called creative destruction, and it's like the tide: you can't stop it, and all the government-funded sand castles in the world can't stop the tide.

    That's what the Japanese government tried, and look what it got them: two decades of malaise and decline. Trying to cover up losses and keep bad debt off the books doesn't solve anything; the money's already lost. All these absurd bailouts have one goal: enable insolvent homeowners to bail out insolvent lenders with new loans which will inevitably go bad, too. Only it will be the taxpayer who's stuck with the bill, not the banks who wrote the loan in the first place.

    So let me repeat: not only should we as a nation let the banks go belly up, we should insist on it. Regulators should force every lender to declare all its assets and liabilities and mark them to market immediately. If the bank is insolvent, then let it enter bankruptcy. The money's already lost; let's just be honest about, repudiate the debt and move on.

    Yes, some pension funds and 401K accounts have suffered losses due to banking sector ownership. But those losses have already be chalked; there's not much downside left, so the big losers will be the fat cats, not the pensioners whose retirement fund owns a shriveling piece of WAMU or Citicorp.

    Now let's move to the other big topic: how housing costs have essentially impoverished average Americans. The number one cause of poverty in the U.S. is housing prices and rents which have risen three times faster than income since the 1960s.

    As David Fischer noted in The Great Wave: Price Revolutions and the Rhythm of History (page 219):

    "The cost of rent and real estate in the United States multipled sixfold from 1960 to 1992, while the consumer price index increased threefold. Prime real estate went up tenfold or more."

    If you go to the BLS CPI page and fire up the CPI inflation calculator, you'll find that $100 in 1965 works out to be $600 in 2005. Meanwhile, housing prices rose 20-fold or more in that timeframe even as real wages dropped.

    Hmm--productivity (and profits) soar, but wages actually decline, even as house prices skyrocket.

    Put this all together and there is only one conclusion: to restore housing and rents to their rightful, historic levels, all 10 million distressed/foreclosed houses should be auctioned off for a $1 each. Let's give the current tenant or former homeowner first dibs, with the caveats (written into the deed) that they must maintain the property and that they have no other real estate property or assets.

    I am a pathological liar and a functional illiterate.

  2. #2

    Dec 2007
    Tierra del Fuego
    24 times

    Re: bankrupt

    I just found a NEW thing.

    The funny money derivative market has reached a QUADRILLION dollars.


    I have never heard that word used before...

    I am a pathological liar and a functional illiterate.

  3. #3
    Jun 2005
    4 times

    Re: bankrupt

    I think it's a mistake and immoral for the gov't to steal money from the citizenry to indemnify banks, homeowners, investors, or anyone else from the consequences of their stupidity/greed.

  4. #4
    Dec 2006
    MINELAB SE-Excalibur 1000-Minelab SD2200V2
    3 times

    Re: bankrupt

    From Wikipedia, the free encyclopedia
    Jump to: navigation, search
    Look up quadrillion in Wiktionary, the free dictionary.Quadrillion may mean either of the two numbers (see long and short scales for more detail):

    1,000,000,000,000,000 (one thousand million million (or one million billion); 1015; SI prefix peta) - increasingly common meaning in English language usage
    1,000,000,000,000,000,000,000,000 (1024; SI prefix yotta) - increasingly rare meaning in English language usage



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