Friday, February 20, 2009

More economic fix thoughts

We could have fixed the economy already if:

the almost $1T already (in direct recapitalization and guarantees to financial co’s) had been spent on buying mortgages directly(at avg of .50 on dollar), lowered interest rates to 4%, wrote down mrtgs where necessary, and sat on those loans for the 5-10 yrs it would have taken to clear up the mkts.

The govt could have done this with 10yr bonds at an avg rate of 4% so the interest write down would cost them nothing.

The principal write down would most likely avg out to "a wash" between the mrtgs that turned out to be worth less or more than the .50 they were bought for.

Net-Net this would have been MUCH less expensive in the long run IMO but too many people refuse to be willing to do what they see as helping "others" when in fact it "helps them" (and everyone else) as well.

If someone wants to argue this idea by saying "we had to re-capitalize the banks" please realize that buying the mrtgs from banks "would" (in and of itself) be recapitalizing them (twice, in fact). Once with the money used to buy the mrtgs and once by the fact that removing those assets from their books means they don't need as much offsetting capital (re-capitalizing them by default).

The only reason a majority of people tend to think it would be a mistake for the Govt to buy MBS's is that those "avg Joe's" have no idea how the economics of the situation plays out and they are simply basing their opinions on visceral responses (emboldened by many in the media) to the thought of someone, other than themselves, getting help they "may" or "may-not" deserve.

To think otherwise about the reasoning of the so called overwhelming majority is to give those "avg Joes" (people who don't follow the markets or economics "at all") far, far too much credit. For Pete's sake, even some of the "masters of the universe" don't understand the economics of the past or current situation (that many of them played a part in)...

--> Original Economic fix post

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