Peter Schiff: The Humpty Dumpty Economy
Peter Schiff: The Humpty Dumpty Economy
Before the current economic crisis became apparent to all, the most popular fable used to describe America’s uncanny economic resiliency was the story of Goldilocks. It was argued that our economy was skipping down a sunny path of moderate growth, low inflation and rising asset prices. However, a much better parable for our economy over the last decade would have been the story of Humpty Dumpty: a bloated, fragile shell perched on the top of a dangerously high stone wall. This week, all the government’s horses and all of its men scrambled to put Humpty Dumpty back together again. Here is a look at some of this week’s highlights:
The Mother of all Moral Hazards
No doubt prodded by the administration, Fannie Mae and Freddie Mac announced a new attempt to stop the fall in home prices and foreclosures through a loan modification program that would cap mortgage payments so that a homeowner’s total housing expenses would not exceed 38% of household income for home owners who are 90 days delinquent.
In a classic case of unintended consequences, the plan will encourage a massive new round of delinquencies and household income reduction as homeowners will jump through hoops to qualify for the program and maximize their benefit. Those who could conceivably economize to meet their existing obligations will now have a strong reason to forego such sacrifices. Those who are not 90 days past due will intentionally become so. In many cases, dual income families may decide to eliminate one job altogether as reduced mortgage payments combined with lower child care and other work related expenses will likely exceed the after-tax value of the lost paycheck.
Unfortunately, the last thing our economy needs is falling household incomes and even more bad debt. But that is precisely what this plan will give us.
Peter Schiff Schooling everyone, kind of like I do, out at night, swooping girls:
Peter Schiff Was Right 2006 – 2007 (2nd Edition)
The Rest is Up to You…
Michael Porfirio Mason
AKA The Peoples Champ
The Guide to Getting More out of Life
http://www.thegmanifesto.com
James Brown – Mother Popcorn (1969)
18/11/2008 at 11:04 am Permalink
MPM,
A must read from Michael Lewis.
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?tid=true
http://www.youtube.com/watch?v=GH9htrQp0ks
Guru-the way it iz
18/11/2008 at 11:51 am Permalink
Chris R,
Yep. Read that article last week. Was going to post it soon.
I have always been a huge fan of Liar’s Poker.
Good looking out.
– MPM