I thought this was an interesting video. You have the classic arrogant Keynesian ivy league economist in Dr. Sachs trading blows with noted hedge fund manager Hugh Hendry.
I don't think I need to tell you whose side I am on. Sitting and doing nothing like Dr. Sachs suggests is nothing more than additional can kicking. Hugh says let the banks die that took on too much risk and purge all of the bad debts out of the system.
Note: Hit the play button below:
We have been taking the "head in the sand" Dr. Sachs route for about 4 years now which is when the credit markets first seized up.
How's that route been working out?
Need I answer? Foreclosures and unemployment are hitting new highs on a quarterly basis. The government continues to hide the losses hoping that the economy will recover. Things are getting worse on a daily basis despite what the stock market does.
WHEN ARE THESE KEYNESIANS THAT ARE RUNNING THIS COUNTRY GOING TO REALIZE THAT THIS IS NOT WORKING?
Hugh Hendry's answer is the only route out of this mess. We have been trying the "hide the trillions" game for four years now and things continue to get worse.
Wakeup America! The only people that are thriving right now are the oligarchs of this country.
I think this chart says it all:
This graph is a little dated but the trend is the same. The wealthy are thriving at the cost of the taxpayer. The bailouts are benefitting only those with wealth while we sit here and losr our jobs and default on our homes.
Remember back in 2008 when the banks were bailed out with TARP money and then had a very profitable 2009? You would have thought that this was a good thing because the banks could now work on fixing their balance sheets with the extra profits.
This would be the prudent thing to do when you are insolvent right?
So what did the bankers decide to do? Instead of fixing their balance sheets they pocketed half of the money in the form of bonuses. I mean I am sure they said why take the losses if the goverment isn't going to force us to?
Wall St literally makes me want to vomit. They are consumed with greed and they don't care who they have to destroy in order make a buck including you.
Bubble machines do not fix bad economies. Look at the char tabove: Housing prices are up 300% or more in the bubble areas and yet average incomes have only risen 13%.
This is insane! I see people come on here claiming that the housing correction is over after a 30% reduction in areas like DC. How can that be when prices rose 300% or more in a decade where wages were basically flat?
The only way we got here was through fraudulent lending. Sadly we have decided to continue and lend improperly via FHA because the goverment sees no solution other than to keep the party going. this will only lead to more bad loans and more losses.
Housing is still a bubble that still has not corrected. The problem is EXACTLY what Hugh says above: The bad debts need to be purged. What we have attempted to do so far is to ignore the losses which is not a solution.
Whats happening right now in markets like DC is people CANNOT afford to sell because they don't have enough equity in the house. They are basically "stuck".
The sellers don't have the cash to short sell so they either stop paying their mortgage and start squatting or they continue to be debt slaves and pray that prices come back. The banks aren't forcing them to do anything because they don't want to take the loss on a foreclosure.
I have had bankers tell me they would rather have someone sit in the house and take care of it versus foreclosing and leaving it empty. They are in no rush to fix the housing problem. Why would they be in a rush when the fraudulent accounting rules allow them to keep these garbage loans on the books without a penalty?
As a result, housing has turned ino a total cluster****. The prices you see you see on the MLS are nothing but a pipedream. There has been no real price discovery in most housing markets other than Vegas and a few others. Prices are flat or only slightly declining because the banks and home owners remain in a stalemate waiting to see who will blink first.
Meanwhile the bad debt just sits there rotting like roadkill on the side of the highway.
The same thing is happening on the commercial side of lending.
I have a banking source who just recently came back from a large finance convention. They have a commercial loan modification program that they are marketing to all of the large banks.
The banks basically told them they want nothing to do with the program because they don't believe their customers can afford even a modified loan! This is how bad this situation is!
For now we have chosen to continue and keep our heads in the sand and pretend that everythings ok. We more of that today in the markets when China said they will continue to support the European debt markets. Stocks took off and caught a lot of people short(including me...got pipped..oh well) which then created a large short covering rally which exacerbated the move higher.
The reality here is all we did today was successfully rearranged the deck chairs on the Titanic once again. The central banks are running around in a panic trying to keep everyone on the same page. China was taken care of...For now!
Here's the bottom line:
When REAL price discovery is seen in both housing/financial markets it's going to make the fall of 2008 look like a birthday party. The bad debts are still there rotting and they aren't going anywhere until they are cleared via getting paid off or default.
The longer we ignore the debt problem the longer we will suffer with a bad economy. There will be no recovery without exposing the debt skeletons that were created by the housing mania.
Sadly, the elites like the one above really don't care because they aren't the ones suffering.