Feb. 17th, 2009 12:17 pm
kimatha: (opus)
[personal profile] kimatha
In today's paper there was an article about what Montana is going to get from the Stimulus Package.

I notice that one of the things is tax refunds of $400 for individuals (or $800 for couples, which works out to $400 a head, so i don't know why they distinguish it).

Anyway. I don't think pissy little refunds like that stimulate anything. To paraphrse Lewis Black, a little payment like that doesn't do anything except make you realize how totally fucked you are.

There's other stuff too, though - college aid, Head Start stuff, highway construction, etc.

I don't know though, if this is the right way to fix the economy. I sort of think that some of the bad debts just need to go bad and clear out of the system.

Since banks and other lenders seem to be too dumb to realize that lending money to people who can't pay them back is a Bad Idea, I think there ought to be some more regulation in lending.

If there's going to be spending, I would like to see it in ways that would actually create industry and real wealth. I'm not sure how to do that, but I definitely don't think giving every Joe Schmo $400 is going to do it.

What do YOU think needs to be done to fix the economy?

please, be mean and contentious and have flame wars! It will help divert me from my worrying about Freyja, so it's all for the good.

Date: 2009-02-17 07:33 pm (UTC)
From: [identity profile]
“I think there ought to be some more regulation in lending.”
that's pretty much it for me

Date: 2009-02-17 07:41 pm (UTC)
From: [identity profile]
No regulation, no bailouts. Let the ailing companies fail. If you and I opened a bank together, we'd only give loans to people we thought would repay us. If we made more bad loans than good ones, we'd fail, and that would be the consequence we deserved. I say that this should hold true no matter the scale.

Date: 2009-02-17 07:45 pm (UTC)

Date: 2009-02-17 09:36 pm (UTC)
From: [identity profile]
Buy a new toaster, get a free bank!

Date: 2009-02-17 09:42 pm (UTC)
From: [identity profile]
Coke and whores for all my friends!

Date: 2009-02-17 07:51 pm (UTC)
From: [identity profile]
One thing: people need to go back to the ideas of keeping a healthy amount of money in savings and living on less than they earn. Give up credit entirely, and live by the rule of never getting into more than a 15 year fixed mortgage with a payment more than 25% of their take home pay. If everybody did that, there'd be no need for all these other shenanigans.

Date: 2009-02-18 01:47 am (UTC)
From: [identity profile]
Problem is, this can't and won't happen as long as the incentives go the other way. Every dime of unfunded government spending amounts to either direct inflation or a potential for inflation, so dollars will continue to be worth less than real goods.

So I agree with you wholeheartedly about what should happen. (This is also the correct fix for our health care system that everybody seems to be looking for.) The first step is to provide them with incentives to do that, though: stop penalizing them for doing what they should. Reward them instead. Vote only for politicians who'll do that. I was happy to see you did.

Date: 2009-02-17 08:10 pm (UTC)
From: [identity profile]
I understand very little about this, so I'm just throwing this out for consideration. My impression has been that the government has had a big hand in what happened here, so I'm inclined to think we need far less regulation, not more.

One thing I keep hearing is that the government has been pressuring lenders (in the interest of "fairness", via the Community Reinvestment Act) to lend out money to risky customers where they ordinarily wouldn't, and that's where a lot of the bad debt comes from.

Here's a post with a graph showing how much more money was lent through the CRA in approximately the last 15 years versus its inception.

The language doesn't adequately show how huge the difference is: "$4.2 trillion in CRA dollars was committed from 1992 through 2005. In contrast, $8.8 billion was negotiated from 1977 through 1991."

That means, from 1977-1991 they spent $8.8 billion, and from 1992-2005 they spent $4.2 TRILLION, which is $4,200 billion, or 477 times as much money in about the same amount of time.

Obviously, not everybody who got a loan through the CRA ends up defaulting, but it seems like there's higher likelihood of defaulting if you're relaxing your standards and giving out more loans.

There also seems to be something fishy going on with people selling bad loans and transferring risk ... I don't know if I'll ever understand all of it.

Date: 2009-02-17 08:30 pm (UTC)
From: [identity profile]
$400 for sure isn't going to fix things. I agree that there needs to be more regulation in lending. Deregulation of the banking industry and Wall Street in the late 90s led to the abuses we all have to deal with now.

Date: 2009-02-17 09:55 pm (UTC)
From: [identity profile]
Doing nothing risks us getting into a nasty vicious circle: people don't have money so they don't spend so companies lose money so they lay people off so people have less money so they don't spend so...

Ideally, a stimulus will work like a shot of adrenaline and get the system back on line so it can then be rehabilitated into something self-sustaining. So the big thing, the biggest thing, that it needs to do is create jobs. I really like the infrastructure projects, because that needs to be done anyway, because we as a country have really been neglecting infrastructure maintenance for a long time, and we're only going to see more bridge collapses if we don't do something. And it puts people to work. Ditto, investing in green energy. Money to states and cities isn't a bad idea, because in a tax crunch these entities see declining revenues at the same time people need more services, and unlike the federal government they cannot run deficits.

Refunds/tax credits really have minimal effects, especially when they're distributed across the board. Money given to poor people is money that will be spent and circulated in the economy, because poor people can't afford to save shit. Money given to people who are not desperate is more likely to be saved, which ironically is not what we need in the short term. Crazy borrowing got us into this, but for right now spending is good (and what we're starting to see is that even people who are not making less money are spending less, because they're freaked out.)

The problem with scaling back our reliance on credit is that it's going to require a major readjustment of the economy, and that's going to be painful. That doesn't make it a bad idea, but I think we need to take steps to limit the collateral damage (if, for example, the demand for high-end electronics decreases, it's the people who assemble and sell them who take the biggest hit.)

I disagree that the CRA drove the foolish lending practices. People saw that there was money to be made and went for it and it turned into this sort of moebius house of cards.


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