16 thoughts on “Public Perception about the Stimulus”

  1. For me, the issue isn’t so much that TARP didn’t work, but that if saving the economy required giving hundreds of billions to the people who screwed-up the worst with virtually no strings, then the economy, as presently constructed, is not worth saving.

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  2. “For me, the issue isn’t so much that TARP didn’t work, but that if saving the economy required giving hundreds of billions to the people who screwed-up the worst with virtually no strings, then the economy, as presently constructed, is not worth saving.”
    That’s a pretty extreme position to take for real, as opposed to theoretically. What economic disasters would you be willing to suffer (and inflict on others) in order to avoid the moral hazard of rewarding the evil doers?

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  3. The “disaster” scenarios if we didn’t do TARP were talking about economic declines that would undo 10, 20, maybe 25 years of economic growth. So, 1983 was apparently so horrible we can’t go back*.
    Also, TARP hasn’t “fixed” anything. The global economic system is still horribly unbalanced, the banking system is not that stable, joblessness is about the same, and household finances has improved to the extent that debt has been written off. There is some evidence to suggest that the kind of economic collapse people feared has been avoided, there is also a great deal of evidence to suggest that it has been kicked down the road a ways.
    The cost of not-TARP wasn’t an economic disaster, but a political disaster for the current two parties.
    *It was, but not for economic reasons.

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  4. So, is 1983 what you’d be willing to suffer in exchange?
    There’s a cute discussion of that at http://minnesota.publicradio.org/collections/special/columns/news_cut/archive/2008/08/the_unemployment_rate_its_not.shtml
    (a minnesota public radio blog)
    How ’bout 1981 & 1982? Or 1932?
    I do see your point in the next comment — that you believe that we may have gained benefits in 2009-2010 at the expense significant damage to the economy in 2015, or 2020, or whatever. (and, I believe, the argument is that 1981-1983 was the pain we paid for future economic improvements.
    But, I’m unconvinced of that — I believe that a number of the TARP requiring behavior was the result of 1980 era reforms that produced the disasters that TARP had to rescue us from.

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  5. I believe that a number of the TARP requiring behavior was the result of 1980 era reforms that produced the disasters that TARP had to rescue us from.
    Which would make much more sense if they’d tried to introduce any reforms before or during TARP. Instead, they tossed all of their leverage by giving the money first.

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  6. But they passed the credit card bill. And, haven’t there been changes in mortgages, too? And there are new SEC compliance filings, and haven’t they changed the “reserve” amounts, and added stress tests?. I don’t believe the TARP money has been given with *no* financial reforms, though not as many as I’d like.

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  7. They changed the “reserve” amounts, but now pay interest on the reserves. That isn’t a reform. That’s part of the bailout. There have been changes to mortgages to tighten lending standards, but those standards are still far looser than they were in 2000. And the biggest change in the mortgage market is a huge shift of risk from private banks to the public sector.
    There have been stress tests and new reporting requirement, but that hasn’t actually increased transparency. They changed the law to allow the banks to ignore the collapse of various housing markets when they assess the value of their loan portfolio. If they didn’t do that, most of them would be insolvent by the standards of a few years ago.
    Lastly, if the bailout was needed because these banks were “too big to fail” it would seem to me that anybody actually interested in fixing things would do the bailout in ways that would make banks smaller. Again, all movement is in the other direction.
    The credit card fees thing is important*, but not part of the main playing field.
    *Not because of the fees themselves, but because it kicks away at part of the old credit card business model where you don’t worry so much about whether the borrower can pay you back.

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  8. “Instead, they tossed all of their leverage by giving the money first.”
    Right.
    “There have been changes to mortgages to tighten lending standards, but those standards are still far looser than they were in 2000. And the biggest change in the mortgage market is a huge shift of risk from private banks to the public sector.”
    Right. This high finance stuff is a bit much for me, but the FHA and Fannie and Freddie stuff bothers me a lot, because it’s simple enough that I do understand it. Can you imagine lending out your personal money for 30 years at even 5% interest? That’s crazy. Nobody knows what the economy is going to be like in 10 years–that deal might be a complete disaster for the lender if inflation is allowed to go up. We’ve already been through that particular disaster, actually, during the Savings and Loan days, which was why banks got so enthusiastic about adjustable rate mortgages, since adjustable mortgages can keep lenders out of situations where their loans pay out peanuts and their depositors are expecting substantial interest. They didn’t just go over to adjustable rate mortgages because they were big greedy meanies–even if the loans themselves are perfectly sound, it’s dangerous to loan out money at low interest rates over several decades.
    “They changed the law to allow the banks to ignore the collapse of various housing markets when they assess the value of their loan portfolio.”
    Oh, dear.
    “Lastly, if the bailout was needed because these banks were “too big to fail” it would seem to me that anybody actually interested in fixing things would do the bailout in ways that would make banks smaller. Again, all movement is in the other direction.”
    Indeed. Just guessing here, but the guys who pass banking legislation aren’t nearly as smart as the bankers.

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  9. Here’s a Bloomberg on shadow inventory in US real estate:
    http://www.bloomberg.com/news/2010-09-15/u-s-home-prices-face-three-year-drop-as-inventory-surge-looms.html
    Apparently, lenders (abetted by the feds) are trying to limit the number of foreclosures that hit the market, in an attempt to prevent housing prices from collapsing (they’ve got millions of houses that they will eventually need to sell).
    “Defaulted mortgages as of July took an average 469 days to reach foreclosure, up from 319 days in January 2009. That’s an indication lenders — with the help of the government loan modification programs — are delaying resolutions and preventing the market from flooding with distressed properties, said Herb Blecher, senior vice president for analytics at LPS.”
    Unfortunately, the longer houses sit abandoned to freezes and thaws, humidity, and heat, vandals, copper thieves and squatters, the less the houses will ultimately be worth when the banks get round to selling them. (Although some homeowners do stay put until the sheriff comes, Ben Jones of the Housing Bubble Blog (who does preservation work for lenders) says that most houses he deals with are empty.)

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  10. I’m not sure how far you can take the arguement about deliberate delays in foreclosures if you also think house prices will drop much further. In that circumstance, the incentive to sell first is big.

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  11. “I’m not sure how far you can take the arguement about deliberate delays in foreclosures if you also think house prices will drop much further. In that circumstance, the incentive to sell first is big.”
    1) A company may think they can’t sell all their foreclosures before prices collapse from the volume.
    2) There may be hope of another bailout, another program, another tax credit, inflation that will enable borrowers to keep paying, etc.

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  13. Anyway, if a bunch of banks can maintain a cartel while the FDIC folds two or more of them every week and a couple of the big ones are being pilloried for not paying back TARP, then we’d all better hope whoever coördinates this doesn’t go looking for work with OPEC. I suppose some are saying that the government is somehow forcing the delay, but I think if they had the power to do that, they could just fix the economy. There is obviously government pressure to drag things out (i.e. modifications that are unlikely to work), but that wouldn’t explain why sales of houses already foreclosed are also slowing down.

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  15. The broad outline is very clear. There is a structural imbalance in the global economy and nobody knows how to fix it without causing losing elections, so they keep pitching money at symptoms.

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  16. MH,
    Speaking of structural problems, I’ve recently been struck by one oddity of the situation.
    1. Americans overconsume. Bad, bad Americans, wiping out forests, building a subdivision of McMansions on Bambi’s meadow, using up fossil fuels, filling up landfills with barely-used stuff.
    2. Uh oh, Americans stopped spending!!! Turn on the money spigots!
    I’m having a hard time squaring those two positions. I expect the issue is a contradiction between the old-time Keynesian gospel (#2) and 21st century liberalism (#1).

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