Tiffany B. Brown

a mish-mosh of stuff

A Lost Decade in the Making

But the Great Recession was different: It was triggered by a financial meltdown brought on by excessive lending, reckless risk taking, the implosion of an unregulated shadow banking system that assumed that short-term money would always be available — and ignorant and careless borrowing by people and institutions.

The key paragraph from Who can magically fix the economy? No one in Fortune.

This is why I am not upset with Obama for his handling of the economy. Bankers, financiers, crazy asset value-to-price ratios, and debt is what brought us here. Resetting asset valuations and becoming debt-free is what will get us out.

In a consumer spending-driven economy, I think there are only two ways to get out quickly. You either need to:

  • Create jobs; or
  • Forgive credit card debts and write down mortgage principal so that people have more room in their budgets to spend and invest, even if they have less income.

Notice my emphasis on or. But since neither of those things are going to happen,* we’ll have to:

  • Wait until people pay debts down or off;
  • Wait until those folks’ credit clears up and they become a low-risk borrower; and
  • Wait until banks are steady enough to lend again while also hoping that everyone else is both patient enough and able to ride out their underwater mortgages, pay their credit card debts, and keep their businesses afloat.

Notice my emphasis on and. In a best-case scenario, I think we will be in this ultra-low growth pattern for 8-12 more years. See: Japan.

Get used to it.

* Analysts keep insisting there’s a “moral hazard” in forgiving debts or in principal write-downs. And I might agree if we were talking about a single borrower. But we’re talking about an entire economy that was killed by an asset bubble. Many people are so far underwater that it will take more time to get even on their mortgage than it will for their credit to recover from a foreclosure or short sale. Let’s look at this another way: is it moral that we ask people to jeopardize their ability to build a nest-egg because they’ll have negative equity for the next 25 years? Would you take that risk?

  • http://swirlspice.com Erica M

    And in the mean time, at that rate of GDP growth, unemployment will continue to rise. And we want to kill folks by making them pay on mortgages that they can’t get ahead on (which we probably improperly incented folks to obtain) and not otherwise help them out with assistance programs, either during their working years or in their retirement?

  • tiffanybbrown

    Exactly. If you own a home, your choices right now are (1) stay in a losing situation that may not improve unless you sink more money into it or (2) get out of your current losing situation and into a potentially worse one.

  • MNewton

    My advise to anyone, especially disabled people who don’t have EARNED income as opposed to Disability Income, is to sell your home and Rent.

    If you are on disability and can’t file a tax return due to your status… you shouldn’t be in a mortgage. File for bankrupt protection and save your money… your credit will recover. But prepare well… make a plan and stick to it.

    The U.S. Government and many banks have sheared the sheep (people) with unfair fee schemes and services. Since the Obama overhaul bankers have just found a round-about way to still clean up on the American people.

    But, the Obama overhaul was really a move to keep the nation from a total financial meltdown (a dollar worth nothing)… which would have had repercussions all around the world… and our ability to obtain trade goods.

    Finally, remember this: Bush left Obama an economy that was in ruins. In an analogy, Bush gave Obama the keys to a car that was sitting on concrete blocks, that didn’t have tires or an engine.

    Anyone who considers the Republican solution to the economy (tax credits to the rich) is either a teddy bear or don’t know the basics of economics. Remember, they tried this under Reagan with his “Trickle Down” theory… and with Newt Gingrich and his “Contract with America.” Sadly, that “Contract” was broken by the Republicans.