The Fed Shutdown Poll and Megathread

[grumbler]

I've given you several examples of people arguing that the solution to the deficit problem is to raise taxes on the wealthy.

You have given examples of people who have said that raising taxes on the wealthy was necessary.  That's not an argument that raising taxes on the wealthy was the only action necessary.

Of course, I only need a single example to refute your claim that "nobody" has made such an argument, but I am kind like that.

Yes, that's all you still need.  Someone here would be best, since this is a discussion taking place here, but anyone would be a start.

Showing people who make a complete argument, and claiming that they are making that argument is a pretty fool-proof refutation of a accusation of creating strawmen.

When you do that you won't be making a strawman argument.  Until then, though, you are putting words in their mouth (aka creating a strawman).

[grumbler]

Berkut got trolled.

I think you are right.

That's a better weasel than the others, anyway! 

[Sheilbh]

What are you referring to?   The only cost control measures I'm aware of are reducing the overall Medicare budget, computerizing medical records, and death panels.  Oh yeah, and the new proposal to appoint a commission to study it.

There's the death panels and computerising records - which has had huge efficiency impacts in the UK, actually, the US is the worst in the developed world for health IT.  The death panel could have a major impact:
http://www.kff.org/medicare/upload/8150.pdf

I believe the commission will be pushing local pilots of cost control.  Of the top of my head the ones explicitly in the bill are changing payment from per-procedure to bundled ones and charging hospitals for above average infection rates (our government's pushing a similar idea of paying by 'health outcomes').

But most important is changing the costs of healthcare generally.  Medicare's got a lot more expensive but it's actually the overall changes - such as taxing the 'cadillac plans' or, hopefully, the development of more of a market (Hewitt and Towers Watson both think the bill encourages high deductible insurance, which the right's long argued should make individuals more responsible) that will control costs.  But healthcare reform - like Medicare or public sector pension reform - is really a medium to long-term project that won't have an immediate impact on the budget but is essential.

[grumbler]

But most important is changing the costs of healthcare generally.  Medicare's got a lot more expensive but it's actually the overall changes - such as taxing the 'cadillac plans' or, hopefully, the development of more of a market (Hewitt and Towers Watson both think the bill encourages high deductible insurance, which the right's long argued should make individuals more responsible) that will control costs.  But healthcare reform - like Medicare or public sector pension reform - is really a medium to long-term project that won't have an immediate impact on the budget but is essential.

Agree with the last bit (and add social security to it).  Those aren't really budgetary issues.

But it will take a sea change to get costs under control in the US, since the US is where the major drug companies make the vast majority of their profits, and where everyone has been accustomed to seeing absolutely ludicrous price tags and ignoring them, because "nobody pays retail."  I have a CPAP machine for which the plastic mask costs $275 "retail."  The plastic "humidifier" which has an internal plastic water case but which contains no moving (or even metal) parts is $305.  I have a high-deductible ($1500 a year) health care plan that is basically wrecked if I have to replace anything on this CPAP machine at anything like retail prices (I am told to replace the mask every three months!)  And I have no way to appeal or to shop around, because this is the provider my plan allows for.  Not much scope here fr cost controls.

If everyone had a plan like mine, and the plan didn't mandate providers, then there would be market forces at work in health care.  As it is, I don't see anything changing unless the government gives itself the power to negotiate prices with providers, and I don't see that happening.

[DGuller]

This just shows that free market mechanisms are highly effective.  Give the free market perverse incentives, and you'll get one hell of a perversion in return.

[Ed Anger]

I liked the monthly wheelchair rental of 200+ bucks when you can buy one for 200. Nope, had to rent one before they would let me out.

[MadImmortalMan]

I liked the monthly wheelchair rental of 200+ bucks when you can buy one for 200. Nope, had to rent one before they would let me out.

Probably a rule required by their malpractice insurer.

[Sheilbh]

This just shows that free market mechanisms are highly effective.  Give the free market perverse incentives, and you'll get one hell of a perversion in return.

Yeah.  I remember reading a report that said in areas of healthcare where the US system is designed to be efficient it's one of the most cost-effectiv in the world; in everything else it's just massively expensive.

[The Minsky Moment]

Of course the whole cause of the crisis was that the gov't required banks to make mortgage loans to people who couldn't afford it as part of their idea of a social contract.  The whole subprime market was a symptom of the same disease.

We had this discussion before in 09 - the thread is around somewhere.  To the extent there is a conservative spin to put on the financial crisis that makes sense, the proper target is the role of Frannie and Freddie, not CRA which did not contribute significantly and is small potatoes anyway.  But that doesn't let the private actors off the hook b/c even the at the end of the day, the parastatals were only powerful facilitators; it took a fundamentally disfunctional banking culture to make it happen.

One thing that bothers me about the narrative that has taken hold about the 07-09 financial crisis is the tendency to describe it as crisis in subprime.  If subprime had the only problem, we wouldn't have had the crisis, or at least not that big of one.   Even at its height, subprime was not a big enough market in dollar numbers alone .

The IMF estimates that total US bank writeoffs from the financial crisis amounted to $885 billion.  Of this $370 billion can be traced to writedowns on residential mortgages or mortgage backed securities.  That includes all mortgages, whether subprime, alt-a or prime.  I don;t have the figures that break this down specifically, and there is probably no way to do that because of the way mortgages were sliced and combined into securities.  Deliquency rates for subprime reached 25-30% in subprime as compared to "only" 8+% in prime (ie more than triple), but then again prime mortgages were a much bigger piece of the overall market than prime in terms of dollar value -probably at least 3 times as much as subprime issurance.

Meanwhile, banks additionally wrote down:
$180 billion in consumer credit
$135 billion in commercial RE loans or commercial RE backed securities
$72 billion in corporate loans and loan securities
$118 billion on exposures to foreign entity loans ans securities.

Put simply this was a full-fledged finance-asset bubble meltdown, with the problems arising and the consequences felt across all the asset classes.  As a weak asset class, subprime was one of the first to experience troubles.  And because the asset bubble was more pronounces in residential RE than elsewhere, it is fair to say that subprime was more than just the canary in the coal mine - it was a significant contributor in its own right, probably about 25% overall if I had to put a number on it.  But the retrospective focus on subprime misses the bigger picture.

[Admiral Yi]

When you talk about "banks" are you including the losses of nonbanks like Merryl, AIG, Countrywide, etc?

[The Minsky Moment]

When you talk about "banks" are you including the losses of nonbanks like Merryl, AIG, Countrywide, etc?

It's not totally clear but it appears they are including everything except insurance, hedge funds, PE, etc.  So yes to Countrywide and Merrill but no to AIG.  However, AIG's problems went well beyond specific problems with subprime.

[KRonn]

http://money.cnn.com/2011/04/26/real_estate/february_case_shiller/index.htm?hpt=T2

Home prices in 'double dip'

NEW YORK (CNNMoney) -- Home prices in February sank 3.3% to just above the post-crisis lows reached in April 2009. It was the eighth straight month of declines.

Home values are down 32% from their peak set in May of 2006, according to the S&P/Case-Shiller index of home prices in 20 cities.
   
"There is very little, if any, good news about housing," said David Blitzer, spokesman for S&P. "Prices continue to weaken, trends in sales and construction are disappointing."

The drop has come in two stages. First, the index recorded 36 months of nearly uninterrupted declines after reaching the spring 2006 peak. Then came a 13-month upswing during which the index recorded a 5% gain. That rebound ended last June.

Since then, the index has recorded losses every month and it has now edged closer to a new bottom -- the dreaded double-dip. (8 best shrinking places to live)

The index now stands at 139.27, just a whisker above the first low, which came in April of 2009, when the index was at 139.26.

Of the 20 housing markets covered by the index, only Washington recorded a price increase from last year -- 2.7%.

In Phoenix, where prices are off a whopping 56% from their peak, prices fell 8.4% over the past 12 months, more than any other metro area. Minneapolis was close behind with a 8.3% drop and Chicago prices plunged 7.6%.
Price rebound a distant memory

Economists say the initial rebound after the financial crisis was artificially inflated by government initiatives.

Lawmakers implemented a tax credit for home buyers. And the Federal Reserve helped keep mortgage rates low.

Also artificially supporting prices at the time was a decrease in the supply of foreclosed properties. That was the result of government loan modification programs, but many foreclosed properties have again come back to market.

Distressed properties -- bank repossessions and short sales -- now account for more than 30% of sales, and they've been selling at about a 34% discount to conventional sales. ('10 foreclosure hotspots')

Peter Morici, who teaches finances at the Smith School of Business at the University of Maryland, is one pessimist. He thinks homebuyers are hunkering down, unconvinced that conditions will improve.

"There is deep pessimism about the economy," Morici said, "and people are reluctant to make the commitment to buy homes."

On the other hand, according to Mark Fleming, chief economist for CoreLogic, housing markets may not really be as bad as the data indicate.

Fleming thinks you have to discount the impact of foreclosed properties. Exclude them, he said, and you see more stability.

When home prices decline, it can lead to more foreclosures. Price drops force mortgage borrowers underwater. They then owe more on their loan balances than their homes are worth. That, in itself, leads to more foreclosures.

Underwater borrowers have no home equity to tap should they run into financial hot water. Being underwater can also freeze them out potential mortgage refinancings because banks won't approve new loans for homes whose values have dropped below old loan balances.

"That puts more homeowners at risk of foreclosure," said Anthony Sanders, director of Real Estate Entrepreneurship at George Mason University. "Refinance credit has evaporated for many borrowers."

It's a vicious cycle of home price decreases, which cause more foreclosure, which depress prices and so on and on.

"Now you know why Mr. Bernanke has been trying to inflate home prices," said Sanders, referring to the Federal Reserve chairman.

Prices will likely continue to fall for a while, according to Chen. Conditions will start to improve once the economic recovery gains traction and job growth improves.

[Berkut]

Am I just kind of stupid to think that while this may be painful, trying to stop it from happening has and will continue to have more negative long term consequences than positive?

The market needs to correct - right? Trying to artificially inflate housing prices - how is that a good thing?

[MadImmortalMan]

Yeah, but are they overcorrecting...










It looks on the surface like we've hit the rational historical price points again. I don't know though.

[Berkut]

Well, perhaps - but isn't that also the nature of bubbles? Hence the reason why to NOT artificially infalte housing prices in the first place, because the adjustment is always rather nasty?

I don't think saying "Gee, artifically increasing housing prices was a bad thing, and cause the mess we are in now, but now that we are in the mess, the way to combat the over-correction is more of what got us all screwed up to begin with!"

Perhaps if there was some kind of possible short term way of dampening the over-correction, that would make sense. Of course, the reality is that anything that is done won't go away even after the need for it has, so we are almost certainly just better off taking our lumps and letting the market get back on track, as painful as that might be...

We won't do that, of course. To much political hay to be made propping up housing prices - the same hay that got us into this mess to begin with.