do we just start over?

[RainDog]

I'm not an economist. I try to follow, as best I can, the events that are now unfolding but there are so many of them and the consequences seem to be so far-reaching that I am left wondering.

have our financial and economic institutions been so damaged by the actions of those in positions of power that we will have to declare a clean slate and start over?

how do people recover from an economy in which so many can no longer afford their mortgages, or in which those who can afford their mortgages have houses that are worth less than the purchase price?

how to people recover when financial managers have bankrupted non-profits, educational institutions, personal pensions and more?

I'm not posing this question to those whose usual answer is that we are headed for death valley and we'd all better head for the hills with gold and guns.

I'm asking this question with the assumption that our society will have to find a way to function IN SPITE OF the actions taken by the rich and powerful.

What are our options? What have others done in somewhat similar circumstances? What has worked? What has not worked?

[Common Sense Party]

1. Who cares that the house is worth less than the purchase price?

One only cares if one is planning to sell. All capital assets go up and down in value. If one buys at the top of the bubble, one shouldn't be surprised when the asset has lost a significant part of its "value" after the bubble bursts.

As to the rest of your posts, there is no practical, legal way to "start over." The unwinding of this will take time, will be painful, but it will eventually be resolved.

[RainDog]

2. the value of a house does matter

if your house is your greatest asset, which was traditionally the case for many americans, their houses were forms of "pensions." retirees could look forward to selling their houses and downsizing when their children were out of the house. the profit from the sale of their houses was part of the "formula" to create liquidity. the money would go into some form of investment instrument that would pay dividends.

so, it does matter that houses are devalued.

since many, many Americans do not live in the same place all of their lives, the price of their houses do matter.

when I say "start over" I am really asking how we recover from the current mess. what steps are possible to resolve these problems - what recourse do those who used an investment firm have when that firm has scammed them out of their life savings?

It seems to be like Enron - people are left with nothing while the assholes get away with a slap on the hand.

[Common Sense Party]

7. Stocks are assets, and fund pensions, too. When stock prices

go down, we don't ask to "start over."

Your home price ALWAYS fluctuates. Always has, always will. It only matters when you're planning on selling it. Most places, prices have gone down less than 20%. It will take a while for that to come back, but it won't take forever. If anyone needs to move, they can always try to rent out the house and pay the mortgage with the rental income. It's not easy being a long-distannce landlord, but it can be done.

As with stocks or any other capital asset--if you're getting close to retirement, you should not have all your wealth in one or two asset classes that can go down significantly in value before you need income. Diversify.

[RainDog]

9. you have missed the point

first of all - this isn't about me.

my remarks about homes was not about me.

go back and read about the history of the middle class - about the reality of housing as a form of investment as well as shelter at least since post ww2. the current housing meltdown is like nothing before - at least this is what I'm hearing from those who are well-versed in this sector of the economy.

you are wrong about the long-term view of the value of housing and you are wrong that this value only matters when you selling a home. when someone establishes his/her net worth, the value of a home minus the amt. owed toward that home is part of the way in which someone's net worth is evaluated.

yes, there have been times and places in which home values have changed - speculation and overbuilding in Houston in the 1980s is one example. nevertheless, a wholesale failure of the banking industry to protect those whose mtgs they financed is unique to this moment.

thank you for your input, but it really has nothing to do with the fact that home ownership was one part of the justification of homeownership as well as a way that people hoped to be able to retire with some dignity.

[Common Sense Party]

11. Well, I'm not wrong, and I am well-versed in this sector of the economy

But seeing as how you're being condescending and dismissive, I'll leave your thread to you and those who completely agree with you.

Merry Christmas.

[A HERETIC I AM]

13. That's gonna leave a mark.

But I doubt she'll notice it.

If she notices it, she won't know why or how it got there.

[RainDog]

16. you both still miss the point

I didn't say this to be condescending, but it was taken that way.

I didn't link to those who say this crisis is not like others b/c it's common currency among people like Krugman, Taleb, Roubini.. but dismiss it, I really don't care.

what I do know is that I this sort of confrontation that was not a confrontation at all is why trying to have a conversation on DU isn't worth the trouble.

[A HERETIC I AM]

14. Anyone who relied on their primary residence as the sole source of retirement income has made....

a serious mistake.

When opening an investment account, be it an IRA or otherwise, all brokerage firms will ask you what your "net worth" is excluding primary residence. This is not a new question. It is not prudent (and never has been) to rely on the value of ones home to be the entire source of funding for income needed during retirement.

go back and read about the history of the middle class - about the reality of housing as a form of investment as well as shelter at least since post ww2.

If you really want to be taken seriously, it's important to direct the reader to the specific historical document you are referring to. Otherwise your statement bears the same credibility as the canard "Some people say".

the current housing meltdown is like nothing before - at least this is what I'm hearing from those who are well-versed in this sector of the economy.

Who, exactly? Who are these that are "well-versed in this sector of the economy"? Perhaps you should do some reading on how housing values were affected in the 1930's.
http://www.thepeoplehistory.com/30s-homes.html

you are wrong about the long-term view of the value of housing and you are wrong that this value only matters when you selling a home. when someone establishes his/her net worth, the value of a home minus the amt. owed toward that home is part of the way in which someone's net worth is evaluated.

Bullshit. A persons primary residence is NOT considered when calculating Net Worth. The reason for this is that shelter is an absolute necessity from a financial planning perspective and it is a given that the value of a home WILL CHANGE OVER TIME and that change can not be guaranteed to always be positive. It's the same reason that your wardrobe is not considered as part of your net worth. You might have spent $25,000 on shoes, dresses, suits, jackets and other clothing, but these items are hardly liquid and the value of those items, while perhaps necessary, are never calculated as part of your net worth.

nevertheless, a wholesale failure of the banking industry to protect those whose mtgs they financed is unique to this moment.

How do you figure it was ever the duty of the Banking industry to "protect" their customers from a decline in home values? How on earth is that at all possible? The fact that there was impropriety and malfeasance in lending over the past few years is not in dispute, but the idea that the Banking industry as a whole is somehow obligated to protect the people they lend money to from a decline in the value of the collateral is absurd.

Your questioning CommonSenseParty's knowledge or credentials in this area is a serious mistake. The man KNOWS what he is talking about. He deals with retirement planning for a living. It's quite possible you might learn something from him if you are willing to carefully read what he has to say.

If not, then continue down the path of ignorance you seem to be set on.

[sendero]

18. Don't look now...

.. but home prices DO matter. You'd have to be either 1) stupid or 2) have a strange sense of "morality" to keep paying on a house when you are substantially underwater.

And guess what - people are mailing in the keys all over. The banks set the tone for this, all a homeowner has to do is ask "what would a banker in my situation do?". The answer is abundantly clear.

This is not some "fluctuation". This is a sea change. Ride the wave at your own peril.

[Common Sense Party]

20. God help us all if your attitude is in any way reflective of

conventional "wisdom."

[SlowDownFast]

21. Seems to be the conventional "wisdom" of financial institutions as of late.

And our gov't.

Just get a bailout from taxpayers for their failed investments.

edit: Oh, and use said bailout for bonuses and expensive parties and spa treatments, while hoarding the rest of the cash and shutting down credit.

[lxlxlxl]

3. 'Starting Over' means different things to different people

In the past 50 years, 'starting over' means giving finance institutions the money they need to keep their stranglehold on the country.

Basically, there has been cycles of economic collapse that short circuits progressive movements since the 50's -- UK, US Junk Bonds / S+L, Asian Financial Crises, Argentina, Mexico. What has happened everytime is that the people in charge of capital never run their economies fairly or efficiently, and everytime the economy is left in shambles, with poor countries begging for money, or wealthier countries emptying their treasuries or printing money to get big finance on their feet. This is nothing short of sabotage for profit. See this article --

Looting: The Economic Underworld of Bankruptcy for Profit
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=227162

( If you have time, I have been trying to get people to watch this documentary called Pandora's Box for sometime now. It goes over some economic stories in Africa/US/UK that are worth catching up on.)

The pattern has been to simply restablish the same structures of finance/capital that persisted before, under the message of "if these things collapse we are all done." This is exactly what was set into motion with the TARP funds, and other developments that happened before TARP fed discount window for banks.)

I don't think the deal has been sealed YET, but there is no significant social force mobilized to raise a ruckus. Face it, Sexual/Race/Cultural politics have widely more mobilization. We can count the number of "progressive economists" on one hand.

I can tie in 1917 if you are interested...this reply is long enough =)

[The_Commonist]

4. Yes, we will have to start over.

We will have no choice.
I don't know what it means, specifically.

[katanalori]

5. Think "Global Settlement" N/T

[Idealism]

6. There won't be a way to start over

Short of guaranteeing all mortgages in the United States and having the government (and by proxy the US taxpayers) pay for them, there is no way to start over. The best way to alleviate the problem of unemployment and stagnant wages is to create a new industry that Americans can get jobs in. Jobs that can't be outsourced and because it is a new industry it will pay well.

Many people feel that industry to be green technology and alternative fuels. Thomas Friedman calls it "energy technology" and if implemented in the right way, it could help pull us out of this global recession in the lead.

This field can grow by leaps and bounds due to the trillions in excess capital sitting on the sidelines. One month t-bills are returning a loss, and 3-month isn't faring much better. There is no good place to invest. If someone were to start a green hedge fund, divest 25% of the capital received into research and development of the industry in return for equity in these green companies, it could turn into what the industrial revolution was to the last century.

[Citizen Number 9]

8. "Start over" doing what, exactly?

It sorta depends on what your goal has been. For those whose only goal is to work as little as possible and get as much as possible, I think they would be in danger of ending up in the same crisis we see right now.

Maybe folks should consider living in a smaller house and learn to get along without all the toys and distractions that exist. If they could discipline themselves to not spend more than they earn they could effectively make a new start right there. More importantly, a person doing that would, presumably, feel better knowing that they aren't contributing to supporting an entire class of money managers. Not that I personally think that is evil in itself, but it does seem to upset many posters here.

After all, even bankruptcy is just a forced start over. If people who have been through one don't change their ways (and many don't) I don't think it bodes well for folks, even if they have gotten a scare during this crisis.

[RainDog]

10. I am referring to our economic life - on a national scale

I do not live in an area in which housing has been decimated. there have been foreclosures here, but nothing like places like Nevada, for instance, in which flipping houses was a big biz.

I'm looking at a long process. I'm thinking about the ways in which manufacturers have moved jobs from the northeast to the south to mexico, all in search of cheaper wages, for at least 20 years. when this offshoring started to hit white collar jobs, it was suddenly "important." but for those who were in labor (again, this isn't about me, beyond the ways in which all of us are impacted by the loss of a middle class) the loss of middle-class wages has been a big deal for a while.

as it stands at this moment. every person in the U.S. owes 9,000.00 to a foreign country (the holders of our national debt.) - this is from Stieglitz' latest article in Harpers Mag about the current economic mess)

according to Taleb (and others) we have not seen the bottom of all the ponzi scheme investment paper fall out.

my question in the header was rhetorical. what do we do in a situation like the one we are facing at present. do we look to Argentina to see how they told the IMF to go to hell or do we acquiesce to the bad deals Paulson, et al have set up? - if we do not accept this, we would have to take some form of direct action. since this does not even seem remotely possible because of Americans' refusal to engage in mass action for the good of all, I suppose I think we just go along with the powers that be.

I'm worried about Larry Summers in the position he holds. Beyond being a total pig, he made a point of criticizing those who predicted this very moment. He was totally wrong AND he tried to disparage those who were right.

he does not give me any confidence in the idea that this administration will be able to read the tea leaves since he has a long record of being wrong. -- and being an asshole toward those who did see the present situation unfolding.

[Nay]

12. You should google it for details, but Sweden in the 90's nationalized its

banks and did various other things when its economy took a similar dive. The difference here is that there is a much more rapacious rich class, and a very weakened labor movement. Sweden, with a govt that already was used to evaluating actions based on how it would help the largest number of its citizens (rather than just the bigshots) were ahead of the game from the beginning.

Japan, in similar circumstances, had a 10-yr period of stagflation/deflation. I have no idea how they are doing now.

Here, unfortunately, economists are going around asking, "How can we get the consumer spending again? How can we raise consumers' confidence?" in one breath, and in the next breath they are saying everybody has to take pay cuts, the unions cost too much and have to go, no more overtime, don't count on full time pay, we're gonna do forced unpaid vacations, we have to cut retirees off, etc., etc. Why no one seems to see, or question, this crazy dichotomy is beyond me. The unwillingness to see reality is the major roadblock to any solutions to this mess.

Car sales are down 40% across the board, even among car companies not being bailed out. Why is that? Because citizens: have lost buying power through credit tightening; can't get home refis even if their home isn't losing value, and all homes are; are losing their jobs or taking cuts in pay or losing overtime; are losing benefits like 401K matches or health insurance, so their payck has to cover that too; have watched their 401Ks be decimated; have seen gas go to $4.50 a gallon; and are now watching rich guys GET AWAY WITH BILLIONS OF THEIR TAX MONEY after ruining everything they touched with toxic financial instruments. Would you go buy a car, or anything else you did not absolutely need, in an atmosphere like this? Of course not. No one would.

There are people who say that this sort of financial meltdown cannot be "fixed" in any way that will bring us back to business as usual. I am in that crowd. Google James Howard Kunstler (especially his "Clustefuck Nation" essays) for essays on that.

[CoffeeCat]

17. This is why we pulled out of the stock market...

We pulled all of our 401k funds out of the stock market and into a MM fund--and the
reason we did is because, as you said, "this sort of financial meltdown cannot be 'fixed' in a
way that will bring us back to business as usual".

Normal market fluctuations bring highs, lows and everything in between. However, this go-'round feels different. The market is doing down, and many say, "Oh, it will return...it will come back".

Sure, the market will 'come back'. However, it won't come back intact. It will bottom out, crash
and many businesses will not survive. So, yes, I have faith in American and in our ability to
rise from the ashes. I just don't think our current model will survive.

What will emerge, and ultimately flourish, is not the mix of businesses and behaviors that we see
today.

[sarcasmo]

15. Those you owe will come and take what you have in order to recoup their money.

The U.K is starting this lovely program.

[Warpy]

19. I think people who bankrupt over the next couple of years

will be judged less harshly than they are in boom times.

I think bankruptcy protection will be restored, that credit card companies won't be first in line ahead of child support payments and other life or death needs. It will take a massive fight, but it will eventually happen.

I think a new generation will finally realize you can't run an economy on debt forever, that while jobs and income come and go, that debt has to be paid no matter what and no, they don't care if your kids cry themselves to sleep because they didn't get any supper.

We doom and gloomers on the left warned about all this stuff for decades as we saw the New Deal protections dismantled, the social safety net shredded, unions crushed, and paychecks depressed.

The new economy will have to be built from the ground up because this country can't survive without a manufacturing base.

The new economy will have to be completely different from the supply side economy or this country will simply not survive.