Back in October of last year we posted on the demise of Gourmet Magazine. Well, it’s back. Sort of.
Is this the first sign that the iPad may live up to the promise of revitalizing the magazine industry?
For folks who just can’t get their head around what’s going on with the current economic downturn:
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
While it’s pretty simple (it sort of had to be) I think this is nice piece of work and does an admirable job of taking the worst economic situation most of us have faced in our lifetimes and presenting in just over eleven minutes.
Okay, I think it is pretty safe to say that I have never agreed with anything that any of the aforementioned nitwit CNBC analysts have ever said. While we are a pack of tempermental bastards, they are a collection of immature, short-sighted, opportunistic, conservative, well, nitwits pretty well names them perfectly.
However, I guess that like monkeys with typewriters and infinite time, one of them gets it right once in a blue moon. Today, CNBC’s Rick Santelli had a brilliant take
This subject has been boiling in my brain for a few weeks. My wife and I are lucky to have a very nice upper income. Hoever, we choose to live beneath our means. If you go to one of those sites that helps you calculate how much house you can afford, we can afford about 3 times the value of our current home. Why should those who live within their means bail out those who don’t? Further, what about the renters? Why should they bail out (through taxpaying) those who shouldn’t be homeowners but somehow are? Now, some of those homeowners who are in trouble got in trouble through no fault of their own. But I don’t see a realistic way of sorting out the wheat from the chaff. And, unlike Mr. Santelli, I do see the danger to the 92% of homeowners who pay their mortgages on time that the collapsing housing market presents.
All that said, the bottom line is the Obama administration’s first stab at this is completely wrong. Santelli (and sadly, Rush) get this one right. It is the government rewarding bad behavior. Here is how to solve this. A bailout now with a built in pay back later. The current plan would reduce the mortgage payments of homeowners in trouble to no more than 31% of their monthly income. My plan is as follows. Suppose this means that the mortgage has to be reduced from $200,000 to $150,000. The federal government would take a lien on the house for $50,000. Eventually, the housing markets across the country will recover and begin appreciating again. When the property was eventually sold, the government would receive 1/2 of any appreciation from the $150,000 figure. In about 5 or 6 years, I would also start charging a 1% annual interest rate to preserve some of the value of the government’s lien. Each time the house was sold, 1/2 the equity of any amount of the previous lien would go to the government until the lien was fully paid off.
In my example, the lien would be $50,000. The family lives there another 5 years and then sells the house for $170,000. Normally, they would realize a profit of $20,000 over the the $150,000 value of the home at its government-backed refinancing. Instead, the homeowner would keep $10,000 and $10,000 would go to the government. The new property owner would have a house worth $170,000 that had an additional $40,000 lien on it. When that homeowner eventually sold, half of that homeowner’s profit would go towards the lien. The lien could be paid off early with no penalty.
I am aware that this is rather simplistic solution and that I don’t know enough of the mechanics of the real estate market to get all the details right. You have to figure out how to get the second and third buyer to be will to by a house at the value of the home and accept the continued lien. Still, I think you could create a reasonable fair system along this basis that wouldn’t leave the responsible folks feeling like they’ve been suckers.
The Financial Times carried an article this week that suggests tracking tick-by-tick stock market transactions for the purpose of predicting financial bubbles. I suspect that if this is done with elegant simplicity (for example, just putting all the data out there on the web in real time and letting investors and academics manipulate the data) it could possibly work. I also suspect it would change the dynamics of the market. A more transparent market should tend towards less volatility, and over a long period of time that should mean fewer recessions.
I would love to apply the same analytical strategy to figuring out how governments can apply inverse financial pressure to the economy without relying solely on the federal funds rate or a central bank. It is obvious today that in a recession the demand for government services goes up at exactly the same time that revenues go down. Furthermore, while additional public spending is exactly what is needed, most governments below the federal level can’t run a deficit or print money. This leads to a vicious cycle and constant downward pressure on the economy.
How about these ideas to get rid of this cycle once and for all?
- Bongo Bucks: In a recession, have state and local governments print their own money, legal tender within their borders. It has been done before. Unemployment benefits, tax refunds and other government remittances can be paid partially in local currency. People will spend a higher percentage of their disposable income locally (big box stores don’t count) and stimulate the economy on a more local scale, which can have a multiplier effect.
- Hedge Nationalization: If governments were to enter the markets (including stocks, real estate, commodities) and trade in quantities invesely proportional to the changing price of the instrument, it would have the effect of smoothing out the markets. This would be a kindof strategic petroleum reserve, but for other types of commodities. Obviously dedicated capitalists don’t want the markets smoothed out when they are going up, but wouldn’t that be better in the long run? Or maybe the government just starts kicking in a buying when the market trends down? I see lots of problems with this idea of course, but I wanted to throw it out there for a discussion starter.