Dean Baker, one of the first economists to argue that the housing bubble was unsustainable, writes that the experts who missed the housing bubble (EMHB) "... already wrecked the economy once." And he asks: "how many more times will they get the opportunity?"
The article is worth reading and is linked here.
What I don't understand about Baker's suggested solution is the following. If the banks are bankrupt then how can they pay off their bond holders? The definition of bankruptcy is a lack of assets to pay off your liabilities (bond holders). He should also be clear as to how the taxpayer will lose. If the toxic assets cannot be resold at a high enough price to repay government loans, the government loans would be forgiven and in that case taxpayers lose. If the toxic asetts can be resold at a higher price won't the government loan be repaid with interest? Isn't there real collatoral behind these toxic assets (forclosed properties) and isn't it possible that the price of these properties could in fact rise just like they did in the S&L crises when the final prices of the properties when they were resold by speculators who bought them from the government were much higher than the value of the assets when they were on the books of the bankrupt S&L's? Please, Michael, shed light on this if you know or tell me who does. Jim Carpenter, carpejr1@matc.edu.
ReplyDelete