Comments on: Why Treasury doesn’t like principal write-downs http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: klhoughton http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12598 Thu, 11 Mar 2010 00:56:26 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12598 “In any case, it was clear that Treasury is trying to sell a message that the economy is doing much better than anybody had dared to hope this time last year.”

That’s why the U-3 headline unemployment rate is well below 8%, right?

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By: crocodilechuck http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12545 Tue, 09 Mar 2010 21:04:51 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12545 Bullseye, Kid Dynamite!

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By: Felix Salmon http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12543 Tue, 09 Mar 2010 19:51:16 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12543 Beer_numbers, I actually thought for a while about renters who intend to buy a house in the future as natural buyers of house-price futures. But then I tried to think if I could imagine a single person who I’d advise to buy house-price futures rather than simply saving up for a down-payment the old-fashioned way, and I couldn’t. These kind of derivatives are for sophisticated investors, not for people scrounging up a down-payment.

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By: yr2009 http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12542 Tue, 09 Mar 2010 19:23:44 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12542 “In any case, it was clear that Treasury is trying to sell a message that the economy is doing much better than anybody had dared to hope this time last year.”

Yes, but it’s not, and we know that so far all attempts to prevent home prices from deflating resulted in delayed foreclosures, at best.
Does anyone remember that in the beginning, the support for the housing market was presented as ‘taking care of the growth engine of the US economy’?
Rather pathetic, in hindsight.

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By: KidDynamite http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12540 Tue, 09 Mar 2010 18:25:01 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12540 who paid for the dinner afterwards?

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By: UncleBillly1 http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12537 Tue, 09 Mar 2010 17:08:15 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12537 “We’re prosecuting a muddle-through strategy right now, where the government artificially props up house prices by providing substantially all of the mortgage finance in the country, in the hope that with economic recovery will come enough of a natural rebound in house prices to let the government slowly remove its support without them falling dramatically again.”

With economic recovery BASED ON WHAT?! What is the engine of the recovery? People are losing jobs. The folks that have mortgages will pretend and extend with their lenders, but at some point they will not be able to pay their mortgage. When people don’t have jobs, they don’t pay taxes. When people don’t have jobs, they don’t buy goods and services. This means businesses fail, which means that a stock market supported by hot air eventually crashes when this whole country is marked to market. Which means multiples more of people out of work. This is not “let’s tweak” time. This is “we need to vet and elect a group of people who can save this country” time. And by we, I don’t mean the sickos who got us here. What is about self-reinforcing feedback loops do they not understand? We are going down, and going down hard, and there is no magic Captain Sully at the wheel. Enough!

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By: silliness http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12536 Tue, 09 Mar 2010 17:07:14 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12536 “…where the government artificially props up house prices by providing substantially all of the mortgage finance in the country, in the hope that with economic recovery will come enough of a natural rebound in house prices to let the government slowly remove its support without them falling dramatically again.”

There is just simply not enough discussion about this “bailout” for every one with a home. As a renter, I resent it. Where’s my bailout? Oh wait – I don’t need one. Ha!

And yet, I am content to help out my fellow citizens even though everyone with a mortgage is… less than worthy of my help. What’s in it for me?

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By: Beer_numbers http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12533 Tue, 09 Mar 2010 16:12:36 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12533 “Because there’s no one who naturally would want to take the opposite side of the trade, house-price futures always look very pessimistic.”

Felix, this is silly. A large group of people would benefit from house-price futures: those who do not currently own a house, but expect to in the future. Just as some homeowners would want to buy downside protection (e.g., they may change jobs or retire or downsize after their kids leave), the very people who will take their place want protection from the opposite direction. If I’m a recent college grad starting my first job, I’m probably not going to buy a house right away, but I might expect to buy one in the future. I would benefit from buying futures. Just ask anyone who felt pressured to buy a house in 2005 because, at then-current rates of increases, they’d never be able to afford to buy one in the future.

You could argue that *current* participants are hard to find, but it seems pretty obvious that a liquid house-price futures market could benefit many people on both sides of the transaction.

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By: Greycap http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12532 Tue, 09 Mar 2010 16:09:13 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12532 I think you have nailed this one exactly. And here is the corollary: by betting heavily on a recovery, the Treasury will have made things much better if they are right, and much worse if they are wrong. The prudent regulator turns out to be difficult to distinguish from the prudent banker, and might as well double up and average down.

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By: voodoobunny http://blogs.reuters.com/felix-salmon/2010/03/09/why-treasury-doesnt-like-principal-write-downs/comment-page-1/#comment-12529 Tue, 09 Mar 2010 14:51:04 +0000 http://blogs.reuters.com/felix-salmon/?p=2891#comment-12529 Felix,

What if banks could write down the principal on a home but with a profit-sharing agreement if the home sells for more than the new principal in, say, ten years so there’s enough time for appreciation to kick in again (so they get a share of the write-up), and the chance to recognise the write-down gradually and to offset the write-up against the write-down – but then if they *decline* to write down the principal on a property, force them to write the loan down to foreclosure or market value *immediately*?

This would give the banks an incentive to reprice loans to keep people in their homes, and a strong incentive *not* to foreclose and be forced to take huge losses.

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