Is the Worst Over?

Martin Feldstein has a preposition for you:

Misleading growth statistics give false comfort, by Martin Feldstein, Commentary, Financial Times: Prepositions matter. The recent government report that US gross domestic product increased 0.6 per cent in the first quarter was very misleading. It implied that economic activity was rising in January, February and March. But the increase actually refers to the rise from the average level in the fourth quarter of 2007 to the average level in the first quarter. Monthly data since January indicate that economic activity and GDP have been declining since the start of this year.

Private sector payroll employment ... has fallen five months in a row... Industrial production was lower in March than in December and January. Real personal income net of taxes and transfers is also lower... Real retail sales have fallen since the start of the year. Private housing starts are down 13 per cent in just the two months since January...

Although the tax rebates now under way may provide some temporary help, the [outlook] ... suggests further falls in consumer spending and GDP. But the most serious risk is ... the rapid fall in house prices ... leading to widespread defaults and foreclosures. ... A downward spiral in house prices would ... potentially result... in a deeper and longer recession than any seen in the past several decades.

Now is the time for policy action... There is nothing more the Federal Reserve can do... The Treasury proposal for voluntary negotiations between creditors and negative-equity homeowners has had relatively little success.... Congressional proposals aim at ... negative-equity mortgages ... would at best help ... 10 per cent of that group.

What is missing is action to prevent positive-equity mortgages from becoming negative-equity mortgages. The federal government could achieve that by providing low-interest loans with full recourse that would allow any homeowner to pay down a significant fraction of his mortgage. Homeowners would be in effect giving up the potential to default on their mortgage loans in exchange for lower interest costs.

Although political tensions make it difficult to achieve such a policy, a mistakenly benign view of first-quarter growth contributes to this stalemate. Policymakers must recognise the real economic condition and act quickly.

I thought the play button for this video was particularly well placed:

The video is of Pinocchio opposing Democrat plans to limit foreclosures, a move that ought to play well in the general election - for Democrats.

Comments

[paine]

"What is missing is action to prevent positive-equity mortgages from becoming negative-equity mortgages"

this is why the big boys want to prop the lot values
extend the period of adjustment to long run trend
extend the period of stagnation in house production
and first home ownership

this is about wealth saving
not restarting the economy
and i don't mean
the wealth of the 'umble houselot owners

but the big hi fi ferris wheelers
holding the securities
or insuring em or ...
the party-counterparty labyrinth
of involuted paper trails leading to paper towers
the scare words
"lets jist walk away hun"

to wit :

"The federal government ...
by providing low-interest loans
with full recourse ..
would allow any homeowner
to pay down a significant fraction
of his mortgage."

get the gig ??

yup its a "full recourse" deal all right

" Homeowners would be in effect
giving up the potential to default
on their mortgage loans
in exchange for lower interest costs. "

translation
no recourse mortgage obligations would now be protected
by " full recourse "
uncle single lender loans
pinning em
to the debt full house lot

marty speaks for some very crafty bastards

says...

So it is not enough to bail out the idiots, we now have to bail out the possible idiots?

The nut job Michael Savage is right about one thing, liberalism is a mental disorder.

[POed in Portland]

Unfortunately , you are wrong Doctor Thoma. This is one very liberal democrat who has never, ever, voted for a Republican and who is seriously considering voting for John McCain simply because of this issue. I've spent the last several years responsibly saving money for a down payment to buy house just to see myself be priced out of the market due to the low interest rates, lax lending regulations that helped lead to the mass hysteria of the housing bubble. Not being eligible for the biggest tax giveaway of all, the mortgage interest deduction, it absolutely enrages me that Democrats are considering bailing out the irresponsible people who chose in the last few years to buy houses they obviously could not afford. If this leads to a deeper and longer recession than otherwise would occur (a prediction I consider speculative) than so be it. It will lodge a valuable lesson in the psyche of the average American that may actually lead to some real New Deal like reform of the corrupt free market economic system that the likes of Martin Feldstein and yourself have foisted on this Country over the last 30 years. And I don't think I am that unusual of a demographic. The conservative movement in this country has had the linchpin on the issue of "personal responsibility" for the last few decades and the proposed Democratic responses to the housing crisis will hand them this issue again on a silver platter. Fortunately, I heard your representative Peter Defazio (a liberal democrat if there ever was one) on the radio yesterday and he was very skeptical of the bailout bills. So maybe they won't pass and I won't have to at best abstain from the November election or at worst vote for Mr. McMain. One further note, if the Federal government were to send me a check tomorrow for say $100,000, I'd go out and buy a house tomorrow. How about that as an idea for propping up the cost of housing at a level above what even an MD or a JD can afford?

[Mark Thoma]

Nope, not wrong.

You contradict yourself. You say I am at fault for advocating free market ideology over the last 30 years (which is false, see my stance on Social Security, unemployment compensation, regulation, etc. for just a few counterexamples), then say that I am at fault for not allowing the free market to take care of the problem (and risk a downward spiral in prices that overshoots the long-run stable outcome, which is just fine and dandy with you - tough talk is easy, but you really don't want a deep, prolonged recession nor should you want to foist that much unemployment and misery and people who had absolutely nothing to do with creating this crisis - how does punishing people who didn't do anything wrong teach the correct lessons? Isn't than kind of what you are upset about? You've been such a responsible person over "the last several years...")

You say you want a New Deal to reemerge, yet you are upset when people advocate a New Deal solution to the housing crisis.

Make up your mind, learn about what I believe before casting me into an incorrect ideological frame, and keep those savings handy. If you get your way, housing will soon be a bargain - you'll be able to pick up a house really cheap - so long as you have a job, and so long as credit is available. Really, you should buy a house with all that saving.

And yep - you should definitely vote for McCain if you want a New-New Deal. That'll work. If you are upset about the free market ideology during the Bush years and before, voting for McCain will solve that. If you don't like free market ideology, and can't recognize "personal responsibility" as a code word for it, you should vote for McCain. I can see it's in your best interest.

I really think you should "just do it". Maybe wait a bit more for prices to hit bottom, then use your responsibly earned saving to buy a house. You'll be part of the "ownership society" and you'll feel better.

[reason]

POed...
One issue voters annoy me, they leave themselves open to exploitation. But unfortunately in a two party, first past the post system, they have nowhere else to go. Political reform in the US in unfortunately very difficult (it is hard to see how it can happen). But I will just point out that the Democrats are very diverse. You sound like you (like me) would be a fan of Dean Baker's.

[Bob]

>> Misleading growth statistics give false comfort

Thats what they are meant to do.

See my post in "a case for extending jobless benefits" on how the Bush admin has cooked the unemployment rate to be much more comfortable.

When raygun got in office he changed the unemployment rate so that those in the military would be counted as employed. So we have a pattern of cons cooking the number. They seem to be aware that they don't have what it takes to produce decent job creation (see link) so they are going to make up for it by covering their tracks.

http://en.wikipedia.org/wiki/Jobs_created_during_U.S._presidential_terms

So their paltry job creation is probably what yields the results in this other very informative article that appeared at this website.
____________________________

http://economistsview.typepad.com/economistsview/2008/04/the-presidents.html

On average, the real incomes of middle- class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working poor families have grown six times as fast under Democrats as they have under Republicans.
____________________________

I have been posting this article at various websites and it has gotten quite a reaction. The Dems should be mentioning this often.

[Avoid Foreclosure]

This site may be useful to some of you guys and gals.
It has some practical information on how to avoid foreclosure.

http://www.howtoavoidforeclosure.org/

Good Luck