Posted on 08/25/2007 12:09:28 AM PDT by 2ndDivisionVet
Edited on 08/25/2007 10:13:31 AM PDT by Admin Moderator. [history]
The last politician who took advice from the bond market was Bill Clinton. When he pushed for a tax hike back in 1993 to cut the budget deficit, it was under the assumption that bond investors would respond by bringing down interest rates. (The theory here is that deficits are inflationary. Inflation is bad for bonds.) Yet long-term interest rates surged from 6.45 percent when Clinton signed his tax-hike bill on Aug. 10, 1993, to 8.16 percent on Nov. 7, 1994, the day before the midterm congressional election where Republicans won back the House and Senate.
Now PIMCO's Bill Gross, perhaps the most well-known bond fund manager in the world, is giving President Bush and the GOP some advice. He wants the government to start cutting checks to struggling homeowners, as both good policy and smart politics. (Bush has already ruled out any direct payments.) As Gross wrote in his recent letter to clients:
"The ultimate solution, it seems to me, must not emanate from the bowels of Fed headquarters on Constitution Avenue, but from the West Wing of 1600 Pennsylvania Avenue. Fiscal, not monetary policy should be the preferred remedy, one scaling Rooseveltian proportions emblematic of the RFC, or perhaps to be more current, the RTC in the early 1990s when the government absorbed the bad debts of the failing savings and loan industry...This rescue, which admittedly might bail out speculators who deserve much worse, would support millions of hardworking Americans whose recent hours have become ones of frantic desperation...And if you're a Republican office holder, you'd win a new constituency of voters—"almost homeless homeowners"—for generations to come. Get with it, Mr. President and Mr. Treasury Secretary. This is your moment to one-up Barney Frank and the Democrats. Re-establish not the RFC or the RTC, but create an RMC—Reconstruction Mortgage Corporation...Write some checks, bail 'em out, prevent a destructive housing deflation that Ben Bernanke is unable to do. After all, "W," you're "the Decider," aren't you?"
My take on this:
1) This would totally alienate conservatives, many of whom were pretty disgusted heading into the 2006 election with what they perceived as the free-spending ways of the White House and the GOP-led Congress. Here are three pretty typical responses to the Gross bailout idea posted on the conservative Free Republic message board: "Using whose money? Mine? In a pig's eye. I work for MY home, not yours." "Why is it that I, who [watch] what I spend, put 20% down on my home, got a conventional 30-year loan and make my payments on time get nothing while some want the government to bail out stupid people?" "I hope every home squatter that signed those mortgages gets put out on the street!"
2) Talk about playing on someone else's home turf. Any Bush bailout idea, if he should propose one, would inevitably start a bidding war with Democrats. Hillary Clinton, for instance, has already proposed a billion-dollar fund to boost state programs that help at-risk borrowers avoid foreclosure. I don't see why the Republicans would get more credit than the Dems.
3) We're not talking about a very big constituency here. Research firm First American CoreLogic projects 1.1 million subprime-related foreclosures, spread out over a total period of six to seven years. And it's blue state California—which Democrat John Kerry won by 11 points in 2004—where most of the trouble is, with a reported 39,013 foreclosure filings in July, the most of any state for the seventh month in a row and up 289 percent from July 2006, according to RealtyTrac.
4) Not that politicians necessarily care, but the economics of a bailout are pretty iffy. As U.S. Appeals Court Judge Richard Posner, a guy who specialized in the effect of economics on law, notes in the blog he shares with Nobel Prize-winning University of Chicago economist Gary Becker:
"The only justification for bailing out risk takers is to avoid a depression (or as it is politely called nowadays, a "recession," but, oddly, the worse the macroeconomic consequences of a speculative boom and bust, the stronger the argument for punishing the risk takers (which include both borrowers and lenders) by not bailing them out. ... If the government relieves risk takers of the consequences of their risks, there is a divergence between social and private risk. An example is subsidized flood insurance, which leads to excessive building in floodplains. ... Moreover, government intervention to help lenders and borrowers invites further government regulation—for example, limits on subprime lending. There is no more reason to discourage risk taking than to bail out the risk takers when the risks they have voluntarily assumed materialize."
B U M P
Not just bad, but terrible...
Why should the federal government bail out people who cannot afford their homes? Who bails them out next year and the next and the...
Look, people who can afford mortgage payments will pay them. Those who can’t won’t be able today, next month, next year or ten years from now.
Face the music. Get on with your life. Don’t be so gullible next time. Chalk it up to life experience.
Bill Gross is self-identified “lib”-ertarian, who wants a bailout not for homeowners but for himself, as he is sitting on largest stockpile of US bonds - if interest rates are lowered by Fed, their value goes up and he stands to make a bundle in a very short period of time.
EXTREMELY bad Idea.
Dang. I don’t think I can highlight just one of those issues.
Nobody seems to be responsible for anything, anymore.
However, I’m responsible for my commas. ;o)
B.S. panic alert from a dubious source; U.S. “liberal”
News and Socialist Report.
Bad timing as the July report shows a 2.8% jump
in new home starts. The sub-prime sector is nominal.
Sorry, Mr. Zuckerman. The pro-Clinton Article is hogwash!
F#$% that.
The people that bought these homes with nothing down have little to lose. That have little invested. On the other hand we have stupid lenders that lent money where they shouldn’t have and created this mess to begin with. They should pay the consequences. After all they did it in the first place to make more money. Their greed got them where they are. Now comes reality. To erase the consequences for their greed only invites more of the same at others expense. A big fat NO!
thank you!
Also, raises a spectre of chain reaction. If one is scraping to make payments and pay the mortgage, and his neighbor is at risk of default and gets a check from the government - what’s one to do, but apply for the same treatment or feel like a fool.
This is just a lame-brain idea, and since Bill Gross is not at all dumb and understands this will not happen, it’s simply designed to raise the noise level and sense of panic to try and make Fed lower the Fed funds rate, so he can make money on his bonds.
Yes...some of us peons are watching. ;o)
Thank you!
Good grief! Is this assclown Gross serious?
He wants the GOP to be more socialist than the rats and pander to society's losers in order to buy their votes??
(rubbing eyes) This HAS to be a joke.
Fred Thomspon v Obama or Hilary puts California in play, but trying to buy it is as useless as trying to ‘reach out to the Latino vote’ through amnesty.
Meanwhile, wages and the cost of goods and services go up. This means that homeowners are now paying their mortgages with much cheaper dollars, which ain't so bad. Those sitting on money today are forced to invest in order to (hopefully) compensate for the ravages of inflation.
If I'm Bill Gates I don't care for it a bit. If I'm on a fixed income I feel vulnerable to the government's largess. If I'm Joe Sixpack I hate it - but only because I haven't thought it all the way through and hate watching prices go up. If I'm a business owner I just raise my prices (the very definition of inflation) - besides, it's great having all these rich investors looking good business opportunities.
Whether one should be concerned is simply a function of their circumstances.
???
Did you read the article?
Notice the ruse and the bait :
After all, "W," you're "the Decider," aren't you?"
Can skip the rest, anybody who does something like that doesn't have your best interests in mind.
Seriously is this being illustrated as Bush winning/bailing out all the young voters involved in construction/mortgage/speculation business?
More so this is an argument on what level of risk the Government (ie/you and me) will back/buy.
Mae and Mac were well done. They are not the argument to add Curly in this market.
My advice to Bush: Jawbone the Fed to lower rates to give the economy a period to adjust - give it a soft landing - there are a lot of "innocents" that would be hurt as well in a crash.
Nite. ;-)
I’m sorry however I voted for W twice
He (GW) needs to distance himself from the GOP and try to let us rebuild what he destroyed.
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