It's not actually an entirely horrible idea. They are going to take a hit on the values of the mortgages anyway in the long run. It eliminates a long list of uncertainties in the valuation of key components of the economy. I'm less optimistic about it doing anything other than creating jobs in china.
The one thing it does do that is problematic is that it takes a nice big bite out of the cash reserves of banks. Part of why they are built up was an attempt to get them back to 10:1 leverage rather than the 12:1 and higher they had bloated to trying to kick the can down the road another year. Without relaxing that, it might inhibit their ability to lend. You'd have to actually audit them to determine if they are holding on to enough cash to be below 10:1, and such an audit might reveal very bad things that have very bad repercussions.
OTOH, if homeowners are gun shy at this point, realized savings fro mortgage might jsut go right back into the banks as savings.
At any rate, it has no more downside than any other plan to date. They are all a variation on a recipe for a turd sandwich.
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raz-00
It's not actually an entirely horrible idea. They are going to take a hit on the values of the mortgages anyway in the long run. It eliminates a long list of uncertainties in the valuation of key components of the economy. I'm less optimistic about it doing anything other than creating jobs in china.
The one thing it does do that is problematic is that it takes a nice big bite out of the cash reserves of banks. Part of why they are built up was an attempt to get them back to 10:1 leverage rather than the 12:1 and higher they had bloated to trying to kick the can down the road another year. Without relaxing that, it might inhibit their ability to lend. You'd have to actually audit them to determine if they are holding on to enough cash to be below 10:1, and such an audit might reveal very bad things that have very bad repercussions.
OTOH, if homeowners are gun shy at this point, realized savings fro mortgage might jsut go right back into the banks as savings.
At any rate, it has no more downside than any other plan to date. They are all a variation on a recipe for a turd sandwich.