After all the excitement on Wall Street about rate cuts, more analysts are saying that maybe the cuts won’t help:
The problem, analysts, say, is that the rate cuts haven’t encouraged banks to start lending again. After billions of dollars of losses from subprime debt, banks are still reluctant to put money into the cash-starved economy. As a result, doubts are growing that the Fed can do much of anything to get the economy–and the markets–back on solid footing.
"This particular recession may be somewhat immune to monetary stimulus," says Barry James, president of Cincinnati-based James Advantage Funds. "It’s almost like pushing on a string."
Banks are essentially caught in a Catch 22. They’re being encouraged to tighten lending standards because of the subprime collapse, but those stricter policies are countering the effects of the Fed’s aggressive rate cuts.
Analysts acknowledge that there’s not much the Fed really can do to jump-start the economy beyond rate cuts.
So what can be done?
Perhaps the only solution to the credit crunch, analysts suggest, is time and patience.
Ya think?
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>> is time and patience
I take take “time and patience” to mean in other words that the banks, lenders, mortgage originators, investors (including flippers) all need to “pay the piper”, “take their lumps”, etc before this is all over.
eg. Did they double their money in two years, on the back of this housing ponzi scheme? If so, at the very least they need to lose half of their money (plus inflation) in order for us just get back to where we started.
MikeC-
“Time and patience” does sound deceptively pleasant, doesn’t it? Like waiting in the shade with a good book for the bus.
I’m afraid the “lump taking” won’t be that enjoyable.
I call LIQUIDITY TRAP!!
But I can’t be the first.
Link
http://en.wikipedia.org/wiki/Liquidity_trap
“Time and patience”
Wallstreet brokers,traders, and politicians ???
heh heh ..Hah Hah..HO HO..OH..HAH.. HAH ,HAH !!!
ROFLMHO
The reason rate cuts won’t work this time is that the whole financial system is unsound. No one knows who’s really solvent. So Ben can loosen the rate all he wants, even to 0% and it won’t create any more liquidity if no one trusts each other to lend. There’s a whole lot of sorting out left to be done. This guy explains it pretty well from one of my favorite websites (after Housing Doom of course)
Rate Cuts Don’t Calm Equity Markets:
Wall Street Gives Bernacke a Vote of No Confidence
http://www.counterpunch.org/morici02082008.html
So what can be done?
The problem is luck of trust – a lot banks were lying and cheating – but not all. Now, we need to find the real thieves. Only after that credit crunch will ease.
We need to FORCE that all banks take back of ALL off-balance sheet conduits and SIVs onto bank balance sheets, with all securities to be marked to the market immediately.
Check this: http://financialpetition.org/
Give me a 0% loan and I’ll buy a house …
nvattorney:
Even if you got a zero interest loan, you’d still be underwater in a year, if you bought a house today.
Prices are declining that fast. Yes, there’s still stupid money out there, but not much of it.
>>I call LIQUIDITY TRAP!!
…
>>No one knows whos really solvent.
..
>>The problem is luck of trust – a lot banks >>were lying and cheating – but not all. Now, >>we need to find the real thieves.
I agree with all of you.
I think the big problem is somebody MUST be blamed, tarred, and feathered (and lose their shirts in the process), if investors are going to trust the system again anytime soon.
What about this analogy….
Imagine that somebody in your workplace is stealing money from wallets and purses when nobody is looking, and getting away with it. Fingers are pointing all over the place as to who the culprit is, but nobody really knows. Until the guilty person(s) is CAUGHT, and the cause of the crisis is PUBLICLY announced to have been solved, how many of you are going to feel safe leaving your wallets and purses lying around the office?
Now, imagine that the building security guard, a Mr. Bernanke, announces that he is putting in some office measures to make it *harder* to steal from wallets and purses. BUT he cannot guarantee that it will stop the theft problem, nor is he planning to give back any lost money to past victims.
NOW how many of you of you are going to feel completely safe leaving your money lying around the office?
Likewise, until the ugly truth about the causes and culprits in the housing bubble are made obvious and public, and penalized accordingly, nobody is going to trust the system anytime soon.
I have already said, on many occasions on this site, what should be done and what will be done: ban housing evictions.
We are in a transitional period now between the scrutiny regime (see West Coast Hotel v. Parrish) and the maintenance regime, which I discuss in my book The Eminent Domain Revolt (New York: Algora 2006). One of the rights of the maintenance regime is an individually enforceable right to housing. That’s where the housing eviction ban comes from.
Contrast that with housing under the scrutiny regime, where it enjoys only “minimum scrutiny” (see Lindsey v. Normet). The scrutiny regime analogy to the protection afforded housing under the maintenance regime, is “strict scrutiny.”
Ask any lawyer you know to read this entry and she or he will tell you that if housing is to enjoy strict scrutiny, we are indeed in an entirely new Constitutional regime. And that is correct.
Well, I don’t know about banning housing evictions, but I do know this: the reason Fed cuts won’t work here is that HOUSING IS STILL VERY UNAFFORDABLE. As banks tighten (return to some sense of sanity in writing loans) housing gets less affordable because the vanilla loans that were the rule, and not the exception, before subprime, meant that only a certain percentage of your income could go to your mortgage payment each month. The higher that percentage, the more likely it is you will default, so banks capped that precentage at around 35-40%.
And even if the Fed cut rates to zero tomorrow, as long as banks view mortgages as risky (i.e. housing prices are falling), they will demand reward (interest) in return for their assumed risk (making the loan).
The simplest way to look at it is this: assume there was no such thing as a mortgage and everyone had to pay cash for their house. What do you think the median house price here in L.A. would be? Sure as hell wouldn’t be 450K, I can tell you that.
To me, banning housing evictions is basically approving of theft. If you bought something you can’t afford, you don’t get to keep it.
Foreclose, pack up, get a nice apartment/rental for 1/2 your old mortgage payment, and actually put some money away in a savings account while you rebuild your credit. It’s not like people being foreclosed on are forced out into the street.
Rentals are housing too.