Politics aside (I know, tough to do here!), 0bama’s stimulus package doesn’t address the core global economic problems such as:
1. Global Manufacturing Overcapacity
2. Office Space, home/condo, and retail oversupply (e.g. too many shopping malls)
3. International trade and currency imbalances ala China’s Yuan
4. Complete Liquidity Drought
5. Massive credit and wealth destruction
His stimulus plan instead pumps money into Medicare/Medicaid...but that won’t stimulate the economy. People are going to be sick (or not), regardless of new money going in to Medicare.
The core problems are left untouched...hardly a recipe for a cure.
It all relates back to the price inflation of the home mortgages.
Due to the artificial inflation of home prices caused by the federal government forcing loans, a secondary market was created by banks that wanted to sell these bad mortgages at a discount in order to escape the government induced bad deal.
Banks KNEW the home sale was bad and were willing to forego a good chunk of the long term profits in order to avoid the liability of default. (high risk of default should say)
Eventually the banks realized if they inflated the home prices, the value of the home is meaningless because the SALE OF THE NOTE on the home became the real profit center. The actual house was just the popcorn surrounding the crackerjack prize.
Of course this had a side effect of creating a equity bubble. Suddenly home prices were skyroketing and people could borrow agains the faux equity to “get stuff to make them effemerally happy”. Of course the banks only saw, more notes to sell on the open market. Thus a house’s price inflation created an additional secondary market.
Of course now that prices have fallen to BELOW the value of the first mortgage, the second mortgages are UNSECURED DEBT and dischargable as any other usecured debt.