Tue 17 Feb 2009
Got My Costco Rebate: $800 And No Way To Fix Housing Mess
Posted by RichSlick under John Galt, Observations
[2] Comments
I got my Costco rebate check in the mail today and it’s a cool $800 but I won’t be spending much of it as I continue to hoard cash and food while I watch the economic crisis continue to expand like the blob over every facet of American life.
I had another philosophical debate with a friend this weekend over the housing mess. The President’s plan to help stabilize the housing market is going to end in miserable failure no matter how you do it:
1. If the government helps pay people’s mortgage, an instant moral hazard will be created. Why should I pay my full mortgage when the government is partially paying someone else’s that made very bad decisions and choices?
2. If the government forces forgiveness on part of the loans and reduces the principle, how badly will investors get screwed? This is changing the underlying principles of contract law and if contracts won’t be honored then all hell will break loose.
3. If the government props up housing prices then how will consumers ever be able to get affordable housing when the government is artificially propping up housing prices? Is the new paradigm that you MUST pay inflated housing prices to live in a home?
No matter which way you look at the problem, there isn’t really a solution unless you consider issuing new currency and repricing all assets based on that new currency. It’s going to be very painful…..
February 17th, 2009 at 9:34 am
It certainly is a mess. It’s funny how all of a sudden economies are not allowed to contract even when they should? It’s called a market correction. If the market is overpriced then it should contract and stabilize. That’s what free-market economies are *supposed* to do. The alternative is a state-run economy and that seems to be where all the western powers are heading even though we’ve seen that doesn’t necessarily work either (see Soviet Union)
February 17th, 2009 at 1:47 pm
There is a solution that doesn’t involve a new currency. It’s simply to let the banks live with their bad loans and fail if necessary. This is the only free market approach. If FDIC fails, then cover the failure, but at least you know a specific amount to cover in that case instead of just throwing money around in random directions as they are doing now.