Ben Bernanke as Solon
With his latest, rather forlorn call for banks to help solve the mortgage crisis by 'forgiving' just enough of their loans to keep people's inability to service their full contractual obligations from triggering foreclosure proceedings, he truly has gone all the way back to Solon and his 6th century answer to Athen's very own sub-prime crisis, the 'seisachtheia' - or 'shaking off of debts'
Mind you, given that Solon also devalued the currency by 42% (from 70 drachma per silver mina to 100) as part of the stimulus package, our esteemed Chairman may have some way to go to match his predecessor: though already 35% off its 2002 trade-weighted highs, this latest woe has 'only' seen the greenback decline by around 14% so far.
He and his pal Donald Kohn are not doing much to support beleagured bank stocks either: waive loans, cut dividends, and raise capital - yessir! that's the way to boost your cartel members' share price, boys!
Still, as Solon boasted:-
I removed her many boundary-posts implanted:
Ere then she was a slave, but now is free.
And many sold away did I bring home
To god-built Athens, this one sold unjustly,
That other justly; others that had fled
From dire constraint of need, uttering no more
Their Attic tongue, so widely had they wandered
And others suffering base slavery
Even here, trembling before their masters' humours
I did set free.
Comments (8)
baxter
>devalued the currency by 42% (from 70 drachma per silver mina to 100)
I think your math is a bit off. If he devalued the currency from 1 drachma = 0.01428... silver mina down to 0.01 silver mina, that is a devaluation of (0.01428-0.01)/0.01428 = roughly 29% with respect to the silver mina.
Published: March 4, 2008 12:16 PM
GasmanPete
Will will these state sanctioned gifts be taxable one wonders.
Published: March 4, 2008 3:03 PM
John_Galt
Yet, another socialist investment strategy, unveiled by the Federal Reserve. First, wait for the state to expand the money supply so a bubble is created. Buy (I do not think "buy" is the right word...um, what is it called when you are given the opportunity to take possession? of property you cannot afford and then are allowed to keep that property at a reduced price) at the height of an over priced market, then have the state renegotiate your carrying cost when you can no longer fulfill your obligation.
You know what, I just thought of something, maybe we at the Mises Institute have been taking this "economy" "money" thing to seriously. Since most of the mortgages are given back to the government through Freddie Mac and Fannie Mae, who in turn spread the risk through the whole productive class (those people, excluding government workers, who actually create wealth and prosperity by taking human action in the market place) maybe we should view this "mortgage crisis" not as a monetary issue affecting the money supply, but rather a fiscal issue affecting tax revenue. Mortgage payments are reclassified and called occupancy tax payments (OTP's). The tax rate being established by Federal Reserve action, congressional mandates, and executive orders, which drive Freddie Mac, Fannie Mae and Treasury policy.
The role of the banks in this scenario is to give the housing sector the appearance of operating in a market economy to entice foreign investors and sell schlock paper assets to pension funds; to insulate the politician from the appearance of affecting the cost of housing. The banks get their cut of the tax revenue through "servicing fees" and other arcane government largesse.
It can now be considered a patriotic duty to buy houses at inflated prices that one cannot afford so as to provide the government with a temporary tax increase. Then when one can no longer afford the occupancy tax the state can reduce the patriot’s tax burden, temporarily, by reducing the base upon which the tax rate (interest rate to the unwashed) is applied - in vulgar terms: reduce the amount of the mortgage.
This model works well with Keynesianism. Its advantages are great. No more sticky moral questions about contract obligations; no more fuss about being responsible for your financial decisions; no psychological damage from thinking about being a deadbeat. In a crisis, the mortgagor simply becomes a claimant for tax relief. In addition, the occupancy tax is progressive, because the more money you have the bigger the house upon which you can pay occupancy tax. Under this new model we change the current underwriting criteria of how much house one can afford. The new criteria will be how long you can pay the most occupancy tax before claiming tax relief. Therefore, applicants with the most money will be able to pay the most tax for the greatest period of time.
All that is left to do is figure out where to get the money to do this. Oh, well, I guess we are back to inflating the money supply, but that is better than a mortgage crisis.
Published: March 4, 2008 4:36 PM
Robert
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
-- Ben Bernanke
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm
Please join us for the April Fool's Day Federal Reserve Protest!
http:www.jokeonamerica.com
Published: March 4, 2008 10:15 PM
Robert
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
-- Ben Bernanke
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm
Yeah, sure Ben.
Please join us for the April Fool's Day Federal Reserve Protest!
http:www.jokeonamerica.com
Published: March 4, 2008 10:15 PM
corrigan
Baxter, you are, of course correct. I had a feeling I had that calculation upside own when I wrote it.
Good job I don't work anywhere near the foreign exchange desk any longer!
Published: March 5, 2008 1:42 AM
art poirier
Here is an American island in the tropics with an advanced-stage, multi-year mortgage crisis. I am thinking though...Would the Baron Rothschild be buying in a place with no property tax.... or just gazing at the grenadine in a tequila sunrise?
http://www.saipantribune.com/newsstory.aspx?newsID=77748&cat=1
What do you Big Boys think? Sean? Gold? Or real estate priced below replacement commodity value of concrete and rebar?
Published: March 7, 2008 7:38 AM
Mark Ryan
John Galt, I love your post! I am not able to often have this type of debate since grad school... nobody want to get that "deep"...
I am in real estate in the Dayton Ohio area and we are number 15 in the nation for foreclosures for 2007. I struggle with this topic all the time. Right now we are working with about a dozen homeowners in foreclosure working on a short sale. I blog on topics around this subject on my Dayton Ohio Real Estate site. My wife and I both try to help others understand the economics of the mortgage crisis and the reactions of the government... I will bookmark this site for future reference.
Thanks and I will keep reading...
Published: March 9, 2008 8:29 PM