Where is the Fear?

Ben Bernanke easily expresses the degree of his submission to Bankers, by his reflection of the fears of financial institutions. Foreclosures are the central Topic of Discussion throughout the Banking sphere, and reactions are extreme. The amount of Money at Risk is overly large, but is fear for the Money the real driving force behind the rhetoric? The underlying fright is that Americans will get into the habit of Walking Away from their Mortgages. It has been an oppressive fear ever since Consumer Credit has been increasing since the Reagan years. These individuals worked hard to tighten the Bankruptcy rules to forestall financial escape by Debtors, then find that the number of Bankruptcy filings just keep on increasing. Now, there are literally millions of Mortgage-holders posed to send the House keys to the Bank, and Move to a high-end Apartment of which there is an abundance, due to an oversupply of Funds to the Construction sector. Bankers truly fear this newest form of Bank Robbery, which lacks strict Restraints, and is almost Socially-Acceptable to engage. Here resides the true Panic of the Banking industry.

Pete Davis explains it well, but fail to emphasize the main point: High Capital Gains taxation impels greater investment, because Investors do not want to take the penalty of high taxation of their Gains; Profits-Taking always follows a reduction of Capital Gains taxation. The Whole has connection, but few are Those who will admit it. The real Smoothing of economic performance to eliminate Booms and Busts will only be realized under two Conditions: persistent high Capital Gains taxation, or persistent low Capital Gains taxation; variance of Tax rates will introduce the specter of Profits-Taking with vast flux of Investment funds (not really–simply switch from High-Risk to highly-secure Capital ventures). This may translate for the Reader as stating it is best to project a high degree of Risk in Tax rate placement, inciting Investor desires to take added Risk in Investment procedures; coupled with the Understanding that low Capital Gains Tax rates not only provide a sense of security to Investors, but inhibit the desire to acquire any Risk. Both Investors and Bankers prefer absorbing their Risk sitting on a beach towel in Florida, rather than chained to their desks; but Economists should not be worried about their Degree of Comfort.

Read this Piece by Mark Thoma, which does not justify my assertions Above, but does present the balanced assessments available, as to the motivations of the Fed, the Investors, and the Banking community in general. I don’t agree with the Sensitivity of the American economy which Mark espouses, knowing that Americans will continue to go to Work, at least until their Jobs are Downsized; a highly doubtful Outcome, considering that American Business Management is already pressed for sufficient Labor to meet their Production needs. The American economy is still on the Move, and the Age of Downsizing is now primarily focused on the High-Skills labor which Mark has advocated in successive Posts; it is a fact that specialized advancement brings its own special Risk. lgl