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Thread: US Congress taps (treasury secretary) Paulsen's helmet !

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    Banned Melonie's Avatar
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    Default US Congress taps (treasury secretary) Paulsen's helmet !

    (snip)"Peter Schiff
    Jul 28, 2008

    With President Bush no longer threatening a veto, the subprime mortgage and Fannie and Freddie "bailout" bill is now sailing through Congress. In anticipation of its enactment, Congress had the foresight to raise the national debt limit to $10.6 trillion. Who says that politicians don't plan ahead?

    Once signed into law, the budget busting legislation will hand the Administration a blank check to prop up the ailing home lenders. The ultimate cost is anybody's guess. I believe that the price tag will be higher than just about anyone imagines. Paulson's Bazooka will be locked and loaded with enough fire power to blow what's left of our economy into the dustbin of history. Though the government and Wall Street assure us that these bold moves will save the housing market, and the economy as a whole, from collapse, the reality is that the solution is far worse than the problem. As painful as the failure of Freddie and Fannie would have been, bailing them out will hurt even more. In other words, it's not the disease that will kill us but the cure.

    Ironically, while government is rightly criticizing mortgage lenders for ditching lending standards during the boom (well after the horses had left the barn) the new law will actually encourage lenders to be even more reckless then before. By taking all of the risks out of mortgage lending (provided of course that the loans are conforming), the government is telling lenders not to worry about the loans they make, because if borrowers do not repay, the government will.

    Since this bailout eliminates all market based deterrents to reckless lending for conforming loans, the only checks remaining will be those imposed by Freddie and Fannie themselves through the criteria they set for those loans. And although they have taken some steps over the past few months to tighten their minimal "standards", the political agenda behind the bailout will cause this nascent effort to lose steam. In essence, the government's main goal is to prop up home prices. Since American homes are still overvalued given the fundamentals, their prices can only be pushed up with reckless lending and inflation.

    As a result of this bailout bill, the share of mortgages owned or insured by Freddie and Fannie will likely swell from near 50% today to over 80% within a year or two, turning a $5 trillion problem into a $10 trillion fiasco. If the government succeeds in keeping real estate prices propped up, it will only do so at the cost of sending all other prices through the roof. More likely, real estate prices will continue to decline despite government efforts to levitate them, compounding the problems and the losses.

    The grim reality is that trillions of dollars were borrowed and spent that will never be repaid. No government program can alter that fact. Someone is going to have to pay the piper for all those granite counter tops and plasma TVs. The price tag is staggering and for all the bailouts and stimulus packages, all the government can do is exacerbate the losses and shift the burden through inflation.
    Nor can the government resurrect bubble home prices and the fantasy of real estate riches that went along with them. One way or another, rational home prices will be restored and the myths of our asset-based, consumption-dependent economy will be finally discredited."(snip)

    from

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    God/dess Deogol's Avatar
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    Default Re: US Congress taps (treasury secretary) Paulsen's helmet !

    In the end, RE must be paid for with wages.

    People don't pay for houses with dividends, stock sales, or bonds. If they are lucky they might get one from an inheritance though these days it probably comes with debt.

    They pay for them with wages.

    In fact, we pay for everything with wages.

    And in this economy, the powers that be have been doing everything they can to reduce wages.

    After all the hubbub, spreadsheets, analysis, and blathering on about "efficiencies," the answer is increasing wages.

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    Banned Melonie's Avatar
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    Default Re: US Congress taps (treasury secretary) Paulsen's helmet !

    ^^^ well, that's a scenario that has been discussed in some quarters. The problem is that in order to increase US wages without pushing US unemployment rates and US business bankruptcies to 1930's levels, it would be necessary to erect strict gov't tariffs and quotas to block the import of competing products from countries whose average wage is $2 a day. It would also be necessary to increase the price of every US product by 20-30-40% in order to cover the cost of higher wages while preserving a viable profit margin for US companies.

    The 'tin foil hat' crowd will tell you that the only true beneficiaries of such protectionism would be federal, state and local gov'ts ... who would enjoy a 'bracket creep' induced increase in tax revenues !

    A better permutation of your point should be that Americans should not be allowed to consume at a level beyond what their own 'productivity' can sustain. Fortunately or unfortunately, ever tighter creditworthiness standards is forcing this to be the case ... by the simple expedient that people who have low 'productivity' are now being turned down for new loans / credit at every turn.

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