Quote
Down with Debt Weight
LONDON – Nearly four years after the start of the global financial crisis, many are wondering why economic recovery is taking so long. Indeed, its sluggishness has confounded even the experts. According to the International Monetary Fund, the world economy should have grown by 4.4% in 2011, and should grow by 4.5% in 2012. In fact, the latest figures from the World Bank indicate that growth reached just 2.7% in 2011, and will slow this year to 2.5% – a figure that may well need to be revised downwards.
There are two possible reasons for the discrepancy between forecast and outcome. Either the damage caused by the financial crisis was more serious than people realized, or the economic medicine prescribed was less efficacious than policymakers believed.
In fact, the gravity of the banking crisis was quickly grasped. Huge stimulus packages were implemented in 2008-9, led by the United States and China, coordinated by Britain, and with the reluctant support of Germany. Interest rates were slashed, insolvent banks were bailed out, the printing presses were turned on, taxes were cut, and public spending was boosted. Some countries devalued their currencies.
As a result, the slide was halted, and the rebound was faster than forecasters expected. But the stimulus measures transformed a banking crisis into a fiscal and sovereign-debt crisis. From 2010 onwards, governments started to raise taxes and cut spending in response to growing fears of sovereign default. At that point, the recovery went into reverse.
As Carmen Reinhart and Kenneth Rogoff tell it in their masterly book This Time is Different, there is no secure way of short-circuiting a deep banking crisis. The crisis originates with "excessive debt accumulation," which makes economies "vulnerable to crises of confidence." Commercial banks have to be bailed out by governments; then governments have to be bailed out by commercial banks. In the end, both have to be bailed out by central banks.
All of this, according to Reinhart and Rogoff, involves a "protracted and pronounced contraction in economic activity." They reckon that the average length of post-war crises has been 4.4 years – the time it takes for the necessary "de-leveraging" to occur – after which the crisis of confidence is over and economic growth revives.
However, there is something missing in the story. Recovery from the Great Depression took about 10 years, more than twice the post-war average. Reinhart and Rogoff offer a couple of reasons for the difference in recovery rates: the slow policy response to the Great Depression and the gold standard, which meant that individual countries could not export their way out of depression. In other words, fiscal policy and the monetary-policy regime have a decisive influence both on the depth of the collapse and how long before the economy recovers.
It is also significant that big financial collapses occurred again in the 1970's, after being virtually absent in the 1950's and 1960's, when the Keynesian system of managed economies and the Bretton Woods system of managed exchange rates was in place. The major post-war crises that Reinhart and Rogoff consider run from 1977 to 2001. They occurred because regulation of banks and controls on capital movements were lifted; they were shorter than in the 1930's because the policy responses were not idiotic.
Indonesian president Susilo Bambang Yudhoyono emphasized that point earlier this month, boasting to British Prime Minister David Cameron that Indonesia's successful recovery plan after the 1998 collapse was inspired by John Maynard Keynes. "We must ensure that the people can buy; we must ensure that industries can produce..."
Today, many governments, especially in the eurozone, seem to have run out of policy options. With fiscal austerity all the rage, they have given up ensuring that "people can buy" and "industries can produce." Central banks have been handed the job of keeping economies afloat, but most of the money that they print remains stuck in the banking system, unable to arrest stagnating consumption and falling investment.
Moreover, the eurozone itself is a mini-gold standard, with heavily indebted members unable to devalue their currencies, because they have no currencies to devalue. So, given that Chinese growth, too, is slowing, the world economy seems destined to crawl along the bottom for some time yet, with unemployment rising in some countries to 20% or more.
With fiscal, monetary, and exchange-rate policies blocked, is there a way out of prolonged recession? John Geanakoplos of Yale University has been arguing for big debt write-offs. Rather than waiting to get rid of debt through bankruptcies, governments should "mandate debt forgiveness." They could buy bad loans from lenders and forgive part of the principal payable by borrowers, simultaneously reducing lenders' collateral requirements and borrowers' debt overhang. In the US, the Term Asset-Backed Securities Loan Facility (TALF) program and the Public-Private Investment Program (PPIP) were in effect debt-forgiveness schemes aimed at sub-prime mortgage holders, but on too small a scale.
But the principle of debt forgiveness clearly has applications for public debt as well, especially in the eurozone. Those who fear excessive public debt are the banks that hold it. Junk public bonds are no safer for them than junk private bonds. Both lenders and borrowers would be better off from a comprehensive debt cancelation. So would citizens whose livelihoods are being destroyed by governments' desperate attempts to de-leverage.
Philosophically, the debt-forgiveness approach rests on the belief that creditors share culpability for defaults with debtors, since they made the bad loans in the first place. As long as the borrower has not misled the lender at the time of taking the loan, the lender bears at least some responsibility for the transaction.
In 1918, Keynes urged the cancelation of inter-Allied debts arising from World War I. "We shall never be able to move again, unless we can free our limbs from these paper shackles," he wrote. And, in 1923, his call became a warning that today's policymakers would do well to heed: "The absolutists of contract...are the real parents of revolution."
Appropriate number of Keynes quotes from his biographer :lol:
:rolleyes: Yes let's start a world war and not have to pay for it.
QuoteGive us this day our daily bread,
and forgive us our debts,
as we also have forgiven our debtors.
Jubilee! Wee! :yeah:
from wiki:Quote
The concept of the Jubilee is a special year of remission of sins and universal pardon. In the Biblical Book of Leviticus, a Jubilee year is mentioned to occur every fifty years, in which slaves and prisoners would be freed, debts would be forgiven and the mercies of God would be particularly manifest.
Yes.
Forgive my debts!!!!!!!!!!!!!!
Ide likes it, so it can't be economically sound :P
Quote from: HVC on April 22, 2012, 12:05:08 AM
Ide likes it, so it can't be economically sound :P
Well, there might be some problems; we could run a pilot program, just to see if it works. :goodboy:
Quote from: Ideologue on April 22, 2012, 12:45:12 AM
Quote from: HVC on April 22, 2012, 12:05:08 AM
Ide likes it, so it can't be economically sound :P
Well, there might be some problems; we could run a pilot program, just to see if it works. :goodboy:
Deal*.
*No lawyers or law students allowed.
Normally I'm quite fond of keynes but
QuoteIn 1918, Keynes urged the cancelation of inter-Allied debts arising from World War I. "We shall never be able to move again, unless we can free our limbs from these paper shackles," he wrote. And, in 1923, his call became a warning that today's policymakers would do well to heed: "The absolutists of contract...are the real parents of revolution."
Was a mistake.
More on topic...it is shocking how governments veer away from such thinking these days. Back when the financial crisis was fresh everyone was saying that the days of letting the market do what it wants was over, the best thing to do was clearly to bring some regulation back, etc....
But...now...its business as usual. Despite it not being.
Lol. Insisting of keeping to contracts... The fools! I have never seen that Keynes quote before. What a douche.
That said, we might already be at the stage where defaults for important states are unavoidable. But, with the articles attitude, we can safely note in our schedule the next identical crisis in a few decades
Quote from: Tamas on April 22, 2012, 01:30:15 AM
Lol. Insisting of keeping to contracts... The fools! I have never seen that Keynes quote before. What a douche.
I don't think the guy arguing for debt forgiveness is right, but you are a fool to diss Keynes. He is right in that "no contract ever survives the encounter with business reality" - contracts are being renegotiated all the time and it would be a very idiotic businessman who would insist on the other party performing a contract it cannot.
Pacta sunt servanda has a flip side of rebus sic stantibus - one cannot function without the other without a revolution or an anarchy - so Keynes is right.
So the solution is to print a lot of money? Wow, what an innovative approach!
Quote from: Zanza on April 22, 2012, 02:33:57 AM
So the solution is to print a lot of money? Wow, what an innovative approach!
Where did you get that? I don't think what the author's suggesting or talking about.
QuoteI don't think the guy arguing for debt forgiveness is right, but you are a fool to diss Keynes. He is right in that "no contract ever survives the encounter with business reality" - contracts are being renegotiated all the time and it would be a very idiotic businessman who would insist on the other party performing a contract it cannot.
The actual quotes from a work of his on why countries should leave the gold standard. In context he's arguing that the state has a right to control vested interests and to balance the common good against things like contract. While the state should provide stability and security for private rights there are times when to stop a greater wrong they need to not worry about it - he then lists examples like income tax laws, slavery, feudal rights which have all received the same denunciations from 'the absolutists of contract' as his call to leave the gold standard was attracting.
It's a fair point and I don't see that absolutism on this point is any better than absolutism on other points.
Quote from: Tamas on April 22, 2012, 01:30:15 AM
That said, we might already be at the stage where defaults for important states are unavoidable. But, with the articles attitude, we can safely note in our schedule the next identical crisis in a few decades
I think the article's point is that actually some measure of debt forgiveness would be better for creditor and debtor than no debt forgiveness and possible eventual default.
And the point about creditors being somewhat culpable is, I think, entirely fair.
Quote from: Sheilbh on April 22, 2012, 03:20:09 AMWhere did you get that? I don't think what the author's suggesting or talking about.
How do you think this part works?
Quote[...]governments should "mandate debt forgiveness." They could buy bad loans from lenders[...]
Quote from: Zanza on April 22, 2012, 03:27:36 AM
Quote from: Sheilbh on April 22, 2012, 03:20:09 AMWhere did you get that? I don't think what the author's suggesting or talking about.
How do you think this part works?
Quote[...]governments should "mandate debt forgiveness." They could buy bad loans from lenders[...]
I think through normal government spending. The IMF recently did a report on household debt and suggested that governments like Ireland, the UK and the US should look at policies FDR had on this in the 30s - and I believe that Iceland's done recently.
It would need to be targeted but by the time FDR's program was wound up it had turned a profit. My view would be that it'd be like TARP for households.
How do you think this "normal" government spending can be financed?
The Lannisters disapprove of this thread. This isn't fair to those of us who pay our debts. Moral Hazard and whatnot.
Quote from: Sheilbh on April 22, 2012, 03:22:21 AM
Quote from: Tamas on April 22, 2012, 01:30:15 AM
That said, we might already be at the stage where defaults for important states are unavoidable. But, with the articles attitude, we can safely note in our schedule the next identical crisis in a few decades
I think the article's point is that actually some measure of debt forgiveness would be better for creditor and debtor than no debt forgiveness and possible eventual default.
And the point about creditors being somewhat culpable is, I think, entirely fair.
What is stopping them from making deals on that? What shouldn't happen is government deciding which contract is gospel, which is toilet paper. Because, you know, government consists humans driven by their indidivual needs and interests.
Quote from: Zanza on April 22, 2012, 03:45:25 AM
How do you think this "normal" government spending can be financed?
Exactly. If the governemnt buys up debt and forgives it, it's Keynesian stimulus under a different name. If government mandates private sector foregiveness of public debt, that's called default.
Quote from: Viking on April 22, 2012, 04:08:07 AM
The Lannisters disapprove of this thread. This isn't fair to those of us who pay our debts. Moral Hazard and whatnot.
What is your view on Bankruptcy laws which also function to forgive the debtor?
Quote from: Zanza on April 22, 2012, 03:45:25 AM
How do you think this "normal" government spending can be financed?
Sorry I thought by printing money you meant it was monetary not fiscal policy.
For countries with high household debt that's holding back the recovery this is a relatively cheap way to address the problem.
QuoteWhat is stopping them from making deals on that?
The IMF cite the example of Iceland - this was the other side of their letting the banks fail. They had an IMF supported program to deal with household debt because it was so large a problem. So to begin with there were temporary measures like the rescheduling of certain mortgages (CPI and foreign currency) and a moratorium on foreclosure. Then people were allowed to try restructure their loans entirely out of court with an ombudsman - this was done on a case-by-case basis so it preserves some moral hazard. That was very slow, so 'To speed things up, a debt forgiveness plan was introduced, which writes down deeply underwater mortgages to 110 percent of the household's pledgeable assets. In addition, a large share of mortgage holders receives a sizable interest rate subsidy over a two-year period, financed through temporary levies on the financial sector'. They estimate that between 15-20% of mortgages are in some stage of being written down. It's still early but this probably part of the reason Iceland's recovery is doing well is because a way out. They avoided a short-term spike in foreclosures and have allowed debt restructuring that stops household debt acting as a drag on the economy.
QuoteWhat shouldn't happen is government deciding which contract is gospel, which is toilet paper.
I don't think that's an accurate description of the idea here. But of course the government does decide which contract is valid and which isn't, it's done through legislation or the courts and it does change in the face of other considerations.
QuoteThis isn't fair to those of us who pay our debts. Moral Hazard and whatnot.
If we'd not already had to bailout or nationalise the creditors I'd have a lot more sympathy with this argument.
But the IMF suggest that some problems of moral hazard can be avoided to some extent by steps like limiting to people with debt greater than 110% of household's assets, or in previous US programs to households already in default. So those households were only going to leave the lender with a total loss and default while the bargain collapsed. One option they suggest is having a general speedy process for cases in which a write down or default's inevitable and a more lengthy case-by-case system for more complex or dubious cases.
I think this is like the opposite of Obama's suggestion (cribbed from Romney's advisor) about helping households who are in negative equity but still paying the mortgage.
QuoteWhat is your view on Bankruptcy laws which also function to forgive the debtor?
I don't know about this but my impression is that European bankruptcy laws tend to be far more punitive and slow than American ones. I've read a few articles about the government wanting to move towards a more American system.
Edit: This speech by the head of the NY Fed seems interesting and a bit more specific to the US than the IMF can be:
http://www.newyorkfed.org/newsevents/speeches/2012/dud120106.html
They didn't "have" to bail out the creditors, they just chose to.
Moral hazard is a song that's been overplayed. Sure, that's what people do, buy houses and cars and law degrees and just walk away laughing to the BK court. Have most economists ever moved a couch?
Quote from: Ideologue on April 22, 2012, 10:37:42 AM
Moral hazard is a song that's been overplayed. Sure, that's what people do, buy houses and cars and law degrees and just walk away laughing to the BK court. Have most economists ever moved a couch?
If you want ground-level stories on moral hazard, take the mortgagers in Hungary. A vast majority took their loans in foreign currency. Enjoyed very-very low payments for years, compared to the Hungarian forint rates. A minority was worried about owning in a currency they don't have income in, so they took the high interest on their chin and payed the forint rates.
There came 2008 and whatnot, a lot of foreign-currency debt holders were in big trouble. The government have gone out of it's way arm-wrestle the banks into a lot of easings, in part by tax-money support. But even during the worst days of the crisis, the foreign-currency holders faced no worse rates than they would had, had they taken the same amount of loan in forints.
So there you go, careful, risk-averse planning punished, reckless irresponsible gambling rewarded. That is what apparent throughout the entire world economy, and I can spell the reason for it very easily:
state interventionalism
Quote from: Tamas on April 22, 2012, 10:34:42 AM
They didn't "have" to bail out the creditors, they just chose to.
Fair point. But that doesn't change the point that moral hazard flew out the window when we bailed out the bad creditors.
QuoteThat is what apparent throughout the entire world economy, and I can spell the reason for it very easily:
state interventionalism
Two questions immediately spring to mind. Why were there significantly fewer financial crises before deregulation in the 80s - during the Keynesian heyday of the short post-war? Why is it that the interventionist, heavily statist countries of Northern Europe had a better recession and are having a better recovery than the swashbuckling free marketeers of the UK, the US and Ireland - just a few years ago all held up as admirable models for countries like Germany, the sick man of Europe?
Chreon apokope! Ges anadesmos! Panem et circenses! A chicken in every pot, and a car in every garage!
I didn't include forty acres and a mule, because, well, let's face it, the Freedmen's Bureau fucked up a lot of shit.
Quote from: Sheilbh on April 22, 2012, 10:52:49 AM
Fair point. But that doesn't change the point that moral hazard flew out the window when we bailed out the bad creditors.
Indeed. I can't believe that people are talking about moral hazard as if it was a real concern anymore. Laissez-faire is long dead, and it's not going to be coming back so long as there is still civilization.
Quote from: Sheilbh on April 22, 2012, 10:00:08 AM
Quote from: Zanza on April 22, 2012, 03:45:25 AM
How do you think this "normal" government spending can be financed?
Sorry I thought by printing money you meant it was monetary not fiscal policy.
For countries with high household debt that's holding back the recovery this is a relatively cheap way to address the problem.
Maybe. But if the proposed solution is to print money, I would prefer that spelled out.
Quote from: Sheilbh on April 22, 2012, 10:52:49 AM
Quote from: Tamas on April 22, 2012, 10:34:42 AM
They didn't "have" to bail out the creditors, they just chose to.
Fair point. But that doesn't change the point that moral hazard flew out the window when we bailed out the bad creditors.
QuoteThat is what apparent throughout the entire world economy, and I can spell the reason for it very easily:
state interventionalism
Two questions immediately spring to mind. Why were there significantly fewer financial crises before deregulation in the 80s - during the Keynesian heyday of the short post-war? Why is it that the interventionist, heavily statist countries of Northern Europe had a better recession and are having a better recovery than the swashbuckling free marketeers of the UK, the US and Ireland - just a few years ago all held up as admirable models for countries like Germany, the sick man of Europe?
Let's not call the US a swashbuckling free market, with their gian bailouts and QEs. Hell, haven't they been almost constantly bailing out smaller or bigger banks since like, the 60s or 70s?
Also, I am not sure how relevant is a period immediately following humanity's biggest cataclysm, but I don't really know that much about that era in the western world. But if throwing historical periods around, I could come back with two things: what would have happened to the keynesian model if there was no world war, and, more importantly, is it a coincidence, that the lower the weight of bearucracy (too lazy to check the spelling :P), the better for development? The USA in the 19th century and early 20th century, or, as a global example, the greed-driven expansion of Europe, and the stagnation of the well-administrated Chinese Empire?
As for Northern Euros - they were I guess less stupid and careless, plus, let's not underestimate the economic dominance the EU and euro gave for Germany. Or strengthened their dominance. At any rate, you might say that the most significant de-regulation of the region (removal of borders, tariffs, limits on foreign investment), profited the model regulators in a lot of ways.
Quote from: Zanza on April 22, 2012, 12:17:41 PM
Quote from: Sheilbh on April 22, 2012, 10:00:08 AM
Quote from: Zanza on April 22, 2012, 03:45:25 AM
How do you think this "normal" government spending can be financed?
Sorry I thought by printing money you meant it was monetary not fiscal policy.
For countries with high household debt that's holding back the recovery this is a relatively cheap way to address the problem.
Maybe. But if the proposed solution is to print money, I would prefer that spelled out.
You will never hear that spelled out. It sounds bad.
Quote from: crazy canuck on April 22, 2012, 09:03:10 AM
Quote from: Viking on April 22, 2012, 04:08:07 AM
The Lannisters disapprove of this thread. This isn't fair to those of us who pay our debts. Moral Hazard and whatnot.
What is your view on Bankruptcy laws which also function to forgive the debtor?
Not all Bankrupcy Laws function to forgive the debtor, e.g. Norway. Which has the unfortunate consequence of either forcing the bankrupt to never again have property or to exist completely in the black economy. Basically if you owe the bank a billion dollars you get X thousand crowns per month to live on and the rest goes to the bank. This is a very very bad law imho though.
Bankrupcy laws are not about forgiving the debtor they are about the vampires divvying up the remaining blood in the corpse with Dracula (the government) getting his full share before the others have to divide the rest up.
The issue is really if you write down the debt of the bankrupt or not. What Sheilbh is suggesting is mandating a write down of debt before bankrupcy.
Quote from: Sheilbh on April 22, 2012, 10:00:08 AM
QuoteThis isn't fair to those of us who pay our debts. Moral Hazard and whatnot.
If we'd not already had to bailout or nationalise the creditors I'd have a lot more sympathy with this argument.
But the IMF suggest that some problems of moral hazard can be avoided to some extent by steps like limiting to people with debt greater than 110% of household's assets, or in previous US programs to households already in default. So those households were only going to leave the lender with a total loss and default while the bargain collapsed. One option they suggest is having a general speedy process for cases in which a write down or default's inevitable and a more lengthy case-by-case system for more complex or dubious cases.
I think this is like the opposite of Obama's suggestion (cribbed from Romney's advisor) about helping households who are in negative equity but still paying the mortgage.
Nationalizing the Institutions /= Bailing out the creditors.
Thought your argument here is that the bottleneck in handling so many bankrupcies is a problem is a serious one.
Quote from: Viking on April 22, 2012, 12:45:07 PM
Not all Bankrupcy Laws function to forgive the debtor, e.g. Norway. Which has the unfortunate consequence of either forcing the bankrupt to never again have property or to exist completely in the black economy. Basically if you owe the bank a billion dollars you get X thousand crowns per month to live on and the rest goes to the bank. This is a very very bad law imho though.
Bankrupcy laws are not about forgiving the debtor they are about the vampires divvying up the remaining blood in the corpse with Dracula (the government) getting his full share before the others have to divide the rest up.
The issue is really if you write down the debt of the bankrupt or not. What Sheilbh is suggesting is mandating a write down of debt before bankrupcy.
Are you talking about corporate bankruptcy or personal bankruptcy? I would guess you are talking about the latter, whereas the real economic function of bankruptcy is in the corporate set up (and protection of shareholders). Personal bankruptcy is not such a widespread concept, and indeed it does not really allow for "debt forgiveness" in most cases.
Quote from: Tamas on April 22, 2012, 12:22:16 PM
Let's not call the US a swashbuckling free market, with their gian bailouts and QEs. Hell, haven't they been almost constantly bailing out smaller or bigger banks since like, the 60s or 70s?
That's my point though. The period of state intervention until the 70s was one of general stable growth. There weren't any financial crises that I can think of since then we've deregulated and there have been financial crises and a couple of bailouts. But it's not been that common, QE was unprecedented when it first happened and the scale of the crisis and the response to it was similarly unprecedented. It was the biggest since the Great Depression. That it's economic effects were controlled is, in large part, due to state intervention and that it's social effects were mitigated is due automatic stabilisers of the welfare state.
Which isn't to say deregulation was wrong in the 80s.
QuoteAlso, I am not sure how relevant is a period immediately following humanity's biggest cataclysm, but I don't really know that much about that era in the western world. But if throwing historical periods around, I could come back with two things: what would have happened to the keynesian model if there was no world war, and, more importantly, is it a coincidence, that the lower the weight of bearucracy (too lazy to check the spelling :P), the better for development? The USA in the 19th century and early 20th century, or, as a global example, the greed-driven expansion of Europe, and the stagnation of the well-administrated Chinese Empire?
I don't understand your second point of historical analogies mixed with moralism.
My understanding is that the second world war was needed to create Keynesian state - the world economy was shattered and there was a desire to create international controls through the Bretton Woods system and local controls to the economy so that the extremes of economic fluctuation in the 30s wouldn't happen again. Those extremes were, after all, to some extent responsible for the war. But this was the era when the US, Germany, France, Italy and, to an extent, Britain enjoyed economic golden ages of full unemployment, low inflation, stable growth. My understanding, though, is that actually Keynes's inter-war analyses are really interesting and pretty accurate.
But obviously we can't go back to that and it's a bit like yearning for the guild system. It was however a good period economically and not just because of rebuilding and there are lessons for us. But I think your monocausal view that everything is due to the state is somewhat shaped by Eastern European experiences of government as a almost solely force for oppression in most of the last century and to the current seeming slide of Hungary into a sort-of Putinist autocracy. I don't generally agree with Raz on this but I think your extreme cynicism about the government seems merited when you read about Fidesz, but maybe not other countries. There are problems with the government and it should never be over mighty, but it's not an evil in itself - especially not as experienced in countries in different parts of the Western world with different political traditions.
QuoteAs for Northern Euros - they were I guess less stupid and careless, plus, let's not underestimate the economic dominance the EU and euro gave for Germany. Or strengthened their dominance. At any rate, you might say that the most significant de-regulation of the region (removal of borders, tariffs, limits on foreign investment), profited the model regulators in a lot of ways.
Okay but another example would be Canada. My understanding is that like the Swedes they had a financial crisis in the 90s. After that they instituted stronger financial regulation and in 2008 their banks didn't collapse.
Obviously there's other things going on but it does seem striking that the worst of this crisis seems to have hit countries with traditions of light touch regulation (UK, US, Ireland) or inefficient and often ignored over-regulation (Italy) more than countries with a relatively active economic role for the state (Germany, Scandis) or with a strong regulatory framework (Canada, NZ, Australia). Again it's not the only issue but I think it's part of it and it does argue against state intervention being the root of all evil.
QuoteYou will never hear that spelled out. It sounds bad.
I'll spell it out. At the moment, during the hangover of this crisis, I wouldn't turn the printing press off.
Quote from: Martinus on April 22, 2012, 03:21:04 PM
Quote from: Viking on April 22, 2012, 12:45:07 PM
Not all Bankrupcy Laws function to forgive the debtor, e.g. Norway. Which has the unfortunate consequence of either forcing the bankrupt to never again have property or to exist completely in the black economy. Basically if you owe the bank a billion dollars you get X thousand crowns per month to live on and the rest goes to the bank. This is a very very bad law imho though.
Bankrupcy laws are not about forgiving the debtor they are about the vampires divvying up the remaining blood in the corpse with Dracula (the government) getting his full share before the others have to divide the rest up.
The issue is really if you write down the debt of the bankrupt or not. What Sheilbh is suggesting is mandating a write down of debt before bankrupcy.
Are you talking about corporate bankruptcy or personal bankruptcy? I would guess you are talking about the latter, whereas the real economic function of bankruptcy is in the corporate set up (and protection of shareholders). Personal bankruptcy is not such a widespread concept, and indeed it does not really allow for "debt forgiveness" in most cases.
With corporate bankrupcy here in norway the law basically liquidates companies. There is no Chapter 11 style restructuring. In both cases a debtor can petition for bankrupcy but usually the creditor petitions the court to have the debtor declared bankrupt or delinquent, in either case the court basically liquidates all property. The Norwegian process starts where Chapter 11 is declared a failure.
Updating the law comes up routinely and routinely the norwegian people are usually very disapproving.
Quote from: Tamas on April 22, 2012, 12:22:16 PM
Let's not call the US a swashbuckling free market, with their gian bailouts and QEs. Hell, haven't they been almost constantly bailing out smaller or bigger banks since like, the 60s or 70s?
No. Large numbers of Savings & Loans (credit unions) failed in 1989. They were not bailed out. They were shut down and sold off. That's what you're supposed to do if you have a system of public deposit insurance.
I don't see why all debt can't be forgiven; after all, it benefits the debtor, and it's not like the lenders--who aren't being paid at the moment anyway--aren't making payroll.
It's all make-believe money.
Quote from: Tamas on April 22, 2012, 12:22:16 PM
But if throwing historical periods around, I could come back with two things: what would have happened to the keynesian model if there was no world war, and, more importantly, is it a coincidence, that the lower the weight of bearucracy (too lazy to check the spelling :P), the better for development? The USA in the 19th century and early 20th century, or, as a global example, the greed-driven expansion of Europe, and the stagnation of the well-administrated Chinese Empire?
Tam, I might have something more substantial in a minute, but are you out your mind?
The Qing Empire--and China generally throughout its history--has been one of the most, if not the most ineptly governed, major nations outside of the Islamic countries.
I mostly referred to their state apparatus managing stunts like having the Emperor strangle their foreign trade expeditions and the like.
And Sheilbh, state is a necessary evil. How much of it is necessary is open to debate of course, but ideally, when facing a problem, the main question for society should be: how can we resolve this without throwing taxpayer money at it (in the form of grants, additional red tape or whatever). Yes, I would frown less on the state if I was living under the reign of one which actually works, and it's not like a "minarchism or death!" issue of mine - I have no illusion about the aristocracy relinquishing power to the middle class on their own accord, that never happened.
BUT, one of the thing which also stems from my Hungarian POV, is that I have seen what reliance on the state eventually turns a nation into. And however well a strong state works in a given country, the danger of screwing it all up always lurks there, for the simple reason of entrusting a few people with huge power.
But I don't think the size or ability of the state matters so much as its nature. The state in my view is broadly neutral. Its qualities are determined by the institutions, the respect and the policies. With the right institutions, political culture and all the rest a healthy democracy can sustain a very strong state or not.
Also 'the state' is a terribly abstract phrase but I mean everything from the Parish Council up.
QuoteI have no illusion about the aristocracy relinquishing power to the middle class on their own accord, that never happened.
It did in some places. Generally though it does come with guillotines in central squares.
QuoteAnd however well a strong state works in a given country, the danger of screwing it all up always lurks there, for the simple reason of entrusting a few people with huge power.
Oh absolutely. But that's why you need independent institutions that carry respect enough to counter-weight a few dangerous people. If there's no respect for the institutions that make up the state then it's only a matter of time before someone abuses them and no-one really cares.
Quote from: Sheilbh on April 23, 2012, 02:39:17 AM
If there's no respect for the institutions that make up the state then it's only a matter of time before someone abuses them and no-one really cares.
Good point. Altough, the more practical influence the state/government has on people's life (and you can either have that via brute force or tax and economic policies), the easier it is to abuse the power, and, often, the harder to notice that from the populace.
Also, regarding the economy, I think that the middle class was the driving force behind all democratization processes, as well as economic developments. And redistribution hurts the middle class. It benefits the rch and the poor, while locking them both in their strata, at the expense of the middle, and due to the historical importance of the middle class, this hinders progress.
Quote from: Tamas on April 23, 2012, 02:57:50 AMAlso, regarding the economy, I think that the middle class was the driving force behind all democratization processes, as well as economic developments. And redistribution hurts the middle class. It benefits the rch and the poor, while locking them both in their strata, at the expense of the middle, and due to the historical importance of the middle class, this hinders progress.
I don't quite lionise the middle class so much. But I also disagree. I frankly find this idea just weird. The creation of the mass middle class is an achievement, certainly in Britain, of the post-war era. It happened in part because of redistribution.
I think the experience is similar in Europe and the US that the emergence of the mass middle class is something that's really happened over the last 60 years or so.
We can easily be back to a regular theme here: definition of middle class. Rising living standards does not necessary equal rise in middle class as a political group.
It is hard to for me to get a defintion on it... But it is a slice of society which was present in the West for centuries, and missing from the East, like, even now, and many historians attribute this as the chief reason of much slower political development in East Europe, altough I am not exactly sure how much this is a chicken-egg question.
Quote from: Tamas on April 23, 2012, 02:57:50 AM
Also, regarding the economy, I think that the middle class was the driving force behind all democratization processes, as well as economic developments. And redistribution hurts the middle class. It benefits the rch and the poor, while locking them both in their strata, at the expense of the middle, and due to the historical importance of the middle class, this hinders progress.
You got it all wrong. Middle class is not a class that is closed off to fluctuations - the idea behind supporting middle class is not that one should make the life better for the existing middle class per se, but making sure that it's the middle class (and not the rich or the poor) that represents a significant majority of the people in any society.
Hence helping the poor to become the middle class is how one helps the middle class.
And no, it is also not about raising the standard of living, at least not per se - that's a side effect of this.
Middle class is not defined as much by what it owns, but about the opportunities it has - it's a class of people who have sustainable income, access to education and to social and professional mobility. That is why redistribution through education or safety nets for people who fall out of the loop is how you support the growth of the middle class.
Seriously, you make me despondent sometimes. You are a smart guy (certainly smarter than most people who come out of the Eastern Bloc) and you are young enough not to be raised under communism - but yet you often have these boneheaded, totally anti-social, anti-community ideas that are the telltale signs of
homo sovieticus.
I am fine with you disagreeing with me.
What is bollocks is to say that my anti-socialism views are because I am a typical eastern bloc-er
I am sorry but that is backwards, and you of all people should know that best. I mean, over here, heavy state inverventionalism is a given in every party's agenda, except for the ones who never go above 1%.
And my views are not anti-community. Quite the contrary. I wish for a self-sustaining community, where the state guards the status quo via laws, and as little steering as necessary.
If anything, these views think more of a community, of society, than your socialism.
It might not work precisely because of that. People may indeed be sheep.
So I am quite content seeing various interest groups taking the uniforms of various ideologies, then duking it out under those banners for the huge power the taxpayers' money, and their rather free hand in spending it, gives them. All the while maintaining the shady parts of the status quo, since while they appear enemies, they are in fact the same leadership caste, and any meaningful change on how things go would see their power decline. Look at the shit the US parties are doing, if you want a western-enough example.
I am growing too old to be idealistic. I now just seek to exploit the system, not change it.
But, to go back more on topic, all, all that does not mean that we are living under ideal economic theories. The global economy is an organic thing, it is not "something", it is the mirage you see on the wall, made by the combined desires and actions of all the individuals on the planet. Reyling on a few central bankers and politicans to micromanage how it develops is crazy and hopeless, and this is now more evident in Europe than it ever was.
Quote from: Tamas on April 22, 2012, 12:22:16 PM
more importantly, is it a coincidence, that the lower the weight of bearucracy (too lazy to check the spelling :P), the better for development?
Japan, Singapore, China . . .
The Singaporean bureaucracy seemed to be very efficient and streamlined when I was there. Certainly more efficient that American immigration & work permit procedures. ;) No idea about redtape for corporations.
Quote from: CountDeMoney on April 22, 2012, 09:29:00 PM
I don't see why all debt can't be forgiven; after all, it benefits the debtor, and it's not like the lenders--who aren't being paid at the moment anyway--aren't making payroll.
It's all make-believe money.
This would wipe out the very savers who society should want to encourage, and reward the very over-spenders who should be punished for their over-spending.
It would be great for those holding real estate and stocks, I suppose.
Quote from: grumbler on April 23, 2012, 11:28:11 AM
Quote from: CountDeMoney on April 22, 2012, 09:29:00 PM
I don't see why all debt can't be forgiven; after all, it benefits the debtor, and it's not like the lenders--who aren't being paid at the moment anyway--aren't making payroll.
It's all make-believe money.
This would wipe out the very savers who society should want to encourage, and reward the very over-spenders who should be punished for their over-spending.
It would be great for those holding real estate and stocks, I suppose.
I dunno...I mean, say you're hard up for lunch, and I loan you $20. You needed it, but say you wind up not paying me back. Now, not repaying me back doesn't impact my ability to go on with life. If it did, I wouldn't have loaned it to you.
Of course, welshing on a loan is a different matter, but that doesn't impact my ability to live without that $20. It just makes you a dick, and me a sucker. But that's got nothing to do with the existence ( or non-existence) of the money.
But would you keep loaning 20 bucks to other people if you knew the occurances of you not getting paid back was going to increase?
Quote from: HVC on April 23, 2012, 11:42:53 AM
But would you keep loaning 20 bucks to other people if you knew the occurances of you not getting paid back was going to increase?
I don't know; is she hot?
Quote from: CountDeMoney on April 23, 2012, 11:43:35 AM
Quote from: HVC on April 23, 2012, 11:42:53 AM
But would you keep loaning 20 bucks to other people if you knew the occurances of you not getting paid back was going to increase?
I don't know; is she hot?
lol I said loan, not pay by the hour
But she's working her way through school.
Quote from: CountDeMoney on April 23, 2012, 11:45:38 AM
But she's working her way through school.
I knew (know still I guess) a few strippers working for school. Funny how they never finish school. Cokes a bad thing. Shame too, one was the sister of a friend (awkward story of how I found out she was a stripper). Smart, hot, and could have done well for herself.
Quote from: HVC on April 23, 2012, 11:50:03 AM
Quote from: CountDeMoney on April 23, 2012, 11:45:38 AM
But she's working her way through school.
I knew (know still I guess) a few strippers working for school. Funny how they never finish school.
It is funny because it's true. :lol:
Quote from: CountDeMoney on April 23, 2012, 11:40:49 AM
I dunno...I mean, say you're hard up for lunch, and I loan you $20. You needed it, but say you wind up not paying me back. Now, not repaying me back doesn't impact my ability to go on with life. If it did, I wouldn't have loaned it to you.
Of course, welshing on a loan is a different matter, but that doesn't impact my ability to live without that $20. It just makes you a dick, and me a sucker. But that's got nothing to do with the existence ( or non-existence) of the money.
But you are arguing for the forgiveness of all loans. Money you have in the bank is money you have loaned the bank (and they have, in turn, loaned others). If all debts are forgiven, all those loans are wiped out, including the loan of your money to the bank.
The people hurt by this are the people who have saved against the day they need money. The beneficiaries are those who spent other people's money. Which behavior do we want to reward?
Only on Languish would a loan and deposit be mixed up so that Grumber could argue a semantic point.
Well, if you forgive all the loans the bank makes, how is the bank going to pay the "deposits" then? Grumbler's point is valid.
Quote from: crazy canuck on April 23, 2012, 12:59:23 PM
Only on Languish would a loan and deposit be mixed up so that Grumber could argue a semantic point.
If a deposit isn't a loan, what is it?
Deposits are only loans in the most theoretical way. You guys are buying Grumblespeak. The thread is clearly about forgiving loans not deposits.
But if you want to get technical, loans are secured by collateral. Deposits are generally secured by government regulation (largely in the form of depositors insurance). So no, Grumber's point is not valid.
Quote from: crazy canuck on April 23, 2012, 01:12:05 PM
But if you want to get technical, loans are secured by collateral. Deposits are generally secured by government regulation (largely in the form of depositors insurance). So no, Grumber's point is not valid.
Grumbler's point was not that deposits are loans...
Quote from: crazy canuck on April 23, 2012, 01:12:05 PM
But if you want to get technical, loans are secured by collateral.
Nonsense. Some loans, certainly, are secured by collateral, but plenty of loans are secured by insurance as well. Plenty of people getting a mortgage loan are required to get insurance for the loan, for instance, rather than provide collateral.
Quote from: Habbaku on April 23, 2012, 01:32:03 PM
Quote from: crazy canuck on April 23, 2012, 01:12:05 PM
But if you want to get technical, loans are secured by collateral.
Nonsense. Some loans, certainly, are secured by collateral, but plenty of loans are secured by insurance as well. Plenty of people getting a mortgage loan are required to get insurance for the loan, for instance, rather than provide collateral.
Don't argue with Cranky Canuck when he starts into his interminable semantic arguments! :lol:
Trust me, that's a rat hole down which even Alice would fear to go.
My point that forgiving all debts is a bad idea stands, because debts aren't "imaginary money" at all, in the long run.
Quote from: Habbaku on April 23, 2012, 01:32:03 PM
Quote from: crazy canuck on April 23, 2012, 01:12:05 PM
But if you want to get technical, loans are secured by collateral.
Nonsense. Some loans, certainly, are secured by collateral, but plenty of loans are secured by insurance as well. Plenty of people getting a mortgage loan are required to get insurance for the loan, for instance, rather than provide collateral.
Next bailout: Insurance companies.
Quote from: Habbaku on April 23, 2012, 01:07:37 PM
Quote from: crazy canuck on April 23, 2012, 12:59:23 PM
Only on Languish would a loan and deposit be mixed up so that Grumber could argue a semantic point.
If a deposit isn't a loan, what is it?
It's mine.
Quote from: CountDeMoney on April 23, 2012, 02:15:56 PM
Quote from: Habbaku on April 23, 2012, 01:07:37 PM
If a deposit isn't a loan, what is it?
It's mine.
Yeah like your social security account is. lol
Posession is 9/10th and all that.
Quote from: Habbaku on April 23, 2012, 01:32:03 PM
Quote from: crazy canuck on April 23, 2012, 01:12:05 PM
But if you want to get technical, loans are secured by collateral.
Nonsense. Some loans, certainly, are secured by collateral, but plenty of loans are secured by insurance as well. Plenty of people getting a mortgage loan are required to get insurance for the loan, for instance, rather than provide collateral.
No wonder your country's real estate market went for shit. No collateral. Not even the property itself. That is some messed up system you got there.
Quote from: MadImmortalMan on April 23, 2012, 02:14:36 PM
Quote from: Habbaku on April 23, 2012, 01:32:03 PM
Quote from: crazy canuck on April 23, 2012, 01:12:05 PM
But if you want to get technical, loans are secured by collateral.
Nonsense. Some loans, certainly, are secured by collateral, but plenty of loans are secured by insurance as well. Plenty of people getting a mortgage loan are required to get insurance for the loan, for instance, rather than provide collateral.
Next bailout: Insurance companies.
I cant believe banks, even banks in the US, wont take at least the property as collateral.
Quote from: crazy canuck on April 23, 2012, 03:19:20 PM
Quote from: Habbaku on April 23, 2012, 01:32:03 PM
Quote from: crazy canuck on April 23, 2012, 01:12:05 PM
But if you want to get technical, loans are secured by collateral.
Nonsense. Some loans, certainly, are secured by collateral, but plenty of loans are secured by insurance as well. Plenty of people getting a mortgage loan are required to get insurance for the loan, for instance, rather than provide collateral.
No wonder your country's real estate market went for shit. No collateral. Not even the property itself. That is some messed up system you got there.
:huh: Who said anything about them not seizing the property after a failure to pay? The mortgage insurance is there to cover the lender in case of default. The property is still going to be seized.
Regardless, this still doesn't change the my initial comment.
Quote from: Zanza on April 23, 2012, 09:52:49 AM
The Singaporean bureaucracy seemed to be very efficient and streamlined when I was there. Certainly more efficient that American immigration & work permit procedures. ;) No idea about redtape for corporations.
My old job was researching different government policies and in the developed world the US had the most unfriendly and seemingly bureaucratic systems.
QuoteWe can easily be back to a regular theme here: definition of middle class. Rising living standards does not necessary equal rise in middle class as a political group.
I'm British, believe me I get that there's more to class than living standards and wealth :P
But the truth is there's always only been a tiny upper class - remember 'the rich' aren't necessarily upper class and 'the poor' aren't always working class - but I think a majority of people both objectively and subjectively are middle class now. In the immediate post-war that wasn't the case.
Quote from: Habbaku on April 23, 2012, 03:36:36 PM
:huh: Who said anything about them not seizing the property after a failure to pay? The mortgage insurance is there to cover the lender in case of default. The property is still going to be seized.
So the banks do take the property as collateral...
Quote from: crazy canuck on April 23, 2012, 04:02:32 PM
Quote from: Habbaku on April 23, 2012, 03:36:36 PM
:huh: Who said anything about them not seizing the property after a failure to pay? The mortgage insurance is there to cover the lender in case of default. The property is still going to be seized.
So the banks do take the property as collateral...
Yes, and then they cash in the insurance policy on the loss as well.
Quote from: crazy canuck on April 23, 2012, 03:19:20 PM
No wonder your country's real estate market went for shit. No collateral. Not even the property itself. That is some messed up system you got there.
I've read about the mortgages that it's easy to get out of, my land law lecturer mentioned them (horrified) in passing too. That has been described as a problem with the US real estate market, I think many states have now legislated against it.
Quote from: MadImmortalMan on April 23, 2012, 04:06:00 PM
Quote from: crazy canuck on April 23, 2012, 04:02:32 PM
Quote from: Habbaku on April 23, 2012, 03:36:36 PM
:huh: Who said anything about them not seizing the property after a failure to pay? The mortgage insurance is there to cover the lender in case of default. The property is still going to be seized.
So the banks do take the property as collateral...
Yes, and then they cash in the insurance policy on the loss as well.
Yeah, that makes sense.
Credit cards, student loans, personal lines of credit... there are plenty of unsecured loans.
Sovereign debt is all unsecured Corporate bonds aren't collateralized; they just give you first dibs on the office furniture.
Quote from: Admiral Yi on April 23, 2012, 05:52:46 PM
Credit cards, student loans, personal lines of credit... there are plenty of unsecured loans.
Sovereign debt is all unsecured Corporate bonds aren't collateralized; they just give you first dibs on the office furniture.
Credit cards are a different animal. The user gets access to a credit facility and if they miss a payment they get charged large amounts of interest until the balance is paid. The sad fact that many people treat them as loans does not make them loans.
Student loans are again another animal - I dont know how it works in the US but here much of it is guarranteed by the government so there is no need for the lender to obtain collateral.
Corporate bonds are, as you say, collateralized by the assets of the company.
Quote from: Ideologue on April 23, 2012, 07:30:04 PM
Is it? :hmm:
Of course.
There are exceptions like the Confederate bonds which were collateralized by an option to buy cotton at a fixed price after hostilities terminated.
Well, unless the debt is owed to another sovereign with a more powerful army and a fleet of gunboats. :bowler: