William Buiter effectively explains, though a little long-winded, why the central banks are playing to an empty house. No economic ploy like quantitative easing, credit-easing, or enhanced credit will work without two conditions being served–both concurrently: 1) the lending institutions must make a higher Profit from the easing–at least the promise of higher Profit; and 2) the lending institutions must have the confidence to lend without extreme Charges or Conditions on the Applicant. The two factors work against each other in practice. Doubt has been introduced into the Collection process of lending. The higher Profits insist on the full Return of the funds, and the derived Interest. Before the Crisis in the midst of the Boom, loans were extended on a vague Promise and provision of a Rose; Now, if you are in need of the loan in the first place, you are likely to be too great a Risk. Banks have to be reassured of a Profit prior to lending; and under these Conditions, the Applicant would be better served finding investment partners–think of Public issuance of bonds. I once proposed a Store booth in retail outlets, offering bonds backed by company assets at 2% over the current Bank rates locally; evading bank regulations if issuing only their own company bonds at the outlets. A clearly written liability would likely receive a greater Subscription from a Consumer, than it would from a Banker; and will probably be of less Interest than the Borrower would have to pay a Bank.
Stan Liebowitz goes to the trouble of analyzing the Causes of the foreclosure rates in the Mortgage industry. He finds that walking away from negative equity mortgages was the greatest culprit, and he blames the insufficiency of Down Payment amount as responsible; a factor which I might suggest is doubtful in the Consumer decision. People were taught to live off their net equity, establishing their expenditure patterns from the amounts that Credit Cards would allow. These were effectively cut down and further taxed in Interest with the Crisis, and Mortgage holders dismissed the Mortgage payments in favor of paying the Consumer Debt; especially after cheaper commercial housing became available. Stan himself highlights a false Curative, as mortgage holders will walk away anytime the Mortgage turns into their enemy.
Only the diligently deceitful could ignore this charade. It shows the value of risking other peoples’ money, rather than your own. A year into the worst Recession since the Great Depression according to many economic sources, and the heavy Movers in Wall Street have deemed it necessary to almost double their Salaries and Bonuses. What was the major source of the sleazy economic practice which was the major cause of the financial crisis–Wall Street. Who was primarily responsible for the Sale of bad paper leading to the Crisis–Wall Street. Who forbade an early resolution of the Crisis by refusing to accept an reevaluation of the bad paper, which would have incurred Write Downs on which blame could be assigned–Wall Street. Who has been fired or Laid Off on Wall Street–Hundreds from the lower Ranks, Few of the major Movers. Who thinks that Wall Street should be paid more for the financial dislocation of the past months–only Wall Street. We should do something about this, but our new, modern News outlets owned by the major corporations rarely breathes a Word about the great hardship endured by the poor, underpaid Wall Street Kings. lgl