The second question is that a country should not fear its currency being weak or strong. It is what it is. There's no magic bullet to prevent a recession, other than creating an environment attractive to investment. I believe that in our case, we had an infection of toxic loans and right now we have to let them get out of our system, so to speak, we have a cold so we need chicken noodle soup and rest. I'd work on promoting exports (which a weak currency encourages as its now cheaper for others to buy our goods) and setting up rules/regs to ****** further problems with the CDO sector.
Too much is made of the Fed raising and lowering its funds rate. It's not a magic bullet.
What concerns me is that our interest rates are already low and inflation is already a concern. Thus, we can't continue to lower interest rates because that will speed up inflation. Inflation erodes wealth worse than a recession.
Thanks for your answer, I just have two more at the moment. First, what would you do to make inflation less of a concern? Should interest rates be raised, or government spending lessened (Or the unpopular increase in taxes) or something else that I'm missing entirely?
Second, as a takeoff from the other thread: do you think the situation in the next few years is going to be similar to the downturn in the 70's?
No, that isn't it. He hardly watches TV what I know of, despises it.
Problem with this all and why I actually went and asked from you about it is that he works in the same field as you do...
I mean, if the US economy completely fell apart 1929 style, then the world's gonna be messy. But I don't see that in the cards or anywhere close to it. Neither do most economists...here...and abroad.
Is your friend an economist? Or works in a similiar field? Non-economists will often think fields are similar, but they're not.
It's not that economists have fail-safes, its just that we much better understand what not to do. Plus, the world's change alot since, so we'll probably be caught off guard by something we don't know to look for.
Basically, the US is going to have a recession. I doubt it significantly affects the livelihood of anyone who's nowhere near retirement. Might hurt a few folks retiring with a little less money than they had a few years ago.
But quite honestly, we need a correction. Our market mispriced risk, so here's our consequence.
Well, I'm rather certain he knows his economics and is also older chap, kind of old family friend like.
The fail-safe part was of course a joke, which you missed.
You know economists are like the weatherman.
So it's going to be more like small bump in the road in the US rather than real slump that will effect everybody?
Ok, I have no problem with that. Just wanted to know since I don't trust that much TV either and since this quite acknowlable source claimed this probably might be the case I took it maybe too seriously. I have to talk him a bit more probably.
BTW, as a side question...how often economists in general find some kind of clear joint sight what is in store for next couple of years or is it constant juggle between collageous that who is right about their predictions? I mean do they always agree where the economy will be going or is it more like 50-50 situation how it will turn out? And what issues (about the background of economists) usually affect how they see the future of economy?
And do you think that example europeans might be more reserved and even pessimistic with their predictions than those from US? Does political background affect this whole lot?
I think it's quite interesting issue when it comes to predicting this phenomena.
We know that under competitive market conditions, a mandated minumum wage in excess of the market wage will cause unemployment. That's sorta trivial.
We also know that under monopsony conditions, firms will hire until MP(l) = MC(l) and will offer a wage lower than market conditions. I assume that this is analogous to the monopoly condition, where a monopolist will supply fewer goods at a higher price than the market outcome. In this case, a minimum wage will increase employment and increase wages.
So, how does the effect of a minimum wage differ between local, state, and federal mandates? Across the country, the low-skill labor market looks like the market outcome - many workers with similar (low) skill sets and many firms. However, at the state and local level, the labor market is more likely to be dominated by fewer firms. This leads to the somewhat paradoxical conclusion that a federal minimum wage will tend to increase unemployment while a state minimum wage will tend to decrease unemployment.
or, since that was somewhat long and rambling, what are your thoughts on the minimum wage at the federal, state, and local levels?
Hi Mr Jericho. I was about to start another thread for this but I figure your thread gets enough press for the right reasons.
I'm not sure of your stance on global warming and fossil fuel scarcity. But I figure these two areas can be rolled together into a similar policy framework. So what I'm trying to get at is this, If global warming is a real threat to near term economic growth, and energy prices continue to rise eating into people's pocket books. Would you condone government action in remedying the problem?
Myself, I would favour government investment in firms that show promise in generating non fossil fuel alternatives to our energy demand. And tax breaks to those who take measures to use energy from sources other than fossil fuel. Do you think this would distort the market too much?? Personally I think it would give a head start to and economy in harnessing new forms of energy as the old supplies become more and more expensive.
Plus what's your take on the carbon credits and the trading of such? Assuming GW will have near term negative externalities that is. Is an effective method of reducing emissions or another overly complex financial instrument that will end up in failure?
Sorry for the long post. And this isn't a question just for Jericho, but for others as well.
You know economists are like the weatherman. Nah, we get things right 5% more.
So it's going to be more like small bump in the road in the US rather than real slump that will effect everybody? I'm not saying it'll be a small bump, the US is entering a recession no doubt. The problem that is causing this has been identified, so we know the extend of this particular problem. Whomp cited the financial figures earlier. Previous US downturns affected the world's economy more so than I predict with this one because the US's econmy was the driver of the world's economy then..today, the drivers are developing countries. So there's no reason to, today, expect a worldwide calamity. Alot of if's would have to happen, and while I can construct such a scenario, the chances of it are about the same chances I have of winning the powerball lottery.
Ok, I have no problem with that. Just wanted to know since I don't trust that much TV either and since this quite acknowlable source claimed this probably might be the case I took it maybe too seriously. I have to talk him a bit more probably. I don't watch much TV either. What I do is either history or BBC.
BTW, as a side question...how often economists in general find some kind of clear joint sight what is in store for next couple of years or is it constant juggle between collageous that who is right about their predictions? I don't think a clear specific consensus ever gets created, but its pretty normal to see general forecasts agree on a general target (like, the US economy will grow this year).
I mean do they always agree where the economy will be going or is it more like 50-50 situation how it will turn out? And what issues (about the background of economists) usually affect how they see the future of economy? Well, in 2004 very few economist were worried about the housing market. I was, and I was definitely a minority. But as the event (the collapse) got closer, more and more folks changed sides, so about a year out I'd say it was 50/50 split. As for how economists would see the future, that's probably going to depend on where they were taught, and how reliant they are on models. If I had to blindly believe an applied economist or an academic, I'd take the applied perspective anyday.
And do you think that example europeans might be more reserved and even pessimistic with their predictions than those from US? Does political background affect this whole lot? I don't know enough about Europe.
@@Integral
This is about the minimum wage. Hey, someone listened to me!
We know that under competitive market conditions, a mandated minumum wage in excess of the market wage will cause unemployment. That's sorta trivial. Yep, because that's theory telling us that.
We also know that under monopsony conditions, firms will hire until MP(l) = MC(l) and will offer a wage lower than market conditions. I assume that this is analogous to the monopoly condition, where a monopolist will supply fewer goods at a higher price than the market outcome. In this case, a minimum wage will increase employment and increase wages. Yup, theory again.
or, since that was somewhat long and rambling, what are your thoughts on the minimum wage at the federal, state, and local levels. Because cost of living varies so much between localities in the US, a federally mandated minimum wage doesn't account for such local variations. I'd rather see states handle their own minimum wage policies as they know their state's demographics better. Then again, living in North Virginia is different than living in Newport News. There isn't a pretty solution here. This is probably why the US minimum wage is set far below what would be the market clearing wage for most places. I think there's an argument here for local elbow room, (ie, plus or minus X% of the federal min wage).
@@Mulholland
I'm not sure of your stance on global warming and fossil fuel scarcity. Well, I think I accept the basics on global warming, but I, and most economists, laugh at Peak Oil arguments and am not that concerned about "scarcity" as such scarcity is often a function of price.
If global warming is a real threat to near term economic growth, and energy prices continue to rise eating into people's pocket books. Would you condone government action in remedying the problem? This probably depends on what kind of government action. Tax schemes, investment incentives sound reasonable. Nationalization or subsidies don't.
Myself, I would favour government investment in firms that show promise in generating non fossil fuel alternatives to our energy demand. Problem here is that a such directed investment, in the US, has led to ethanol subsidies, which has raised food prices here and abroad, and when it would be cheaper to import Brazilian sugar/ethanol.
And tax breaks to those who take measures to use energy from sources other than fossil fuel. Do you think this would distort the market too much? Many incentives already exist. Would a greater tax at the pump create a disincentive for the big SUVs? Probably, but that is only one source of pollution. We could incentive power companies to build new nuclear plants, but planning and construction would take a decade to bring enough online, even if we stop NIMBYism from preventing such.
The problem with these incentives on new fuel sources or global warming prevention policies is that any effective solution will take some time, and in the meantime, most taxpayers have not effectively understood their costs and externalities associated with their consumption. Therefore, they're not going to price the worth of preventing further warming into their decision making process. And many folks simply dont have the money to change anyways.
Plus what's your take on the carbon credits and the trading of such? Assuming GW will have near term negative externalities that is. Is an effective method of reducing emissions or another overly complex financial instrument that will end up in failure? I absolutely love cap n trade or carbon credits or offsets or pollution credits as a system. It worked wonders on coal-based pollution here and abroad. Its probably the case that a mix of incentives (tax and investment incentives into alternatives and pay for it with a tax) coupled with a pollution credits trading system (that reduces the number of credits over time to the goal target) would work best in the near term.
In America, if you were to abolish the income tax, would it help the economy? I ask mostly because of the savings problems in America, and with an excise or sales tax rather than an income tax, people would save more. At least, that is what I would think.
On another note, I'm rather sorry if the question has already been asked and answered, but trawling through all the pages of this thread would be very, very tedious...
A question about abolishing income tax... First, what would it be replaced by
In America, if you were to abolish the income tax, would it help the economy? I ask mostly because of the savings problems in America, and with an excise or sales tax rather than an income tax, people would save more. At least, that is what I would think. A sales tax is naturally retrogressive in nature and purpose. Unless heavily modified, a sales tax would benefit the rich and harm the poor. Why? Poorer households must consume a larger portion of the income to pay for necessary living expenses. For a richer household, they have an advantage in being able to choose to consume or save because they make enough to cover necessary living expenses.
An altered sales tax isn't that beneficial, at least the tax proposed by proponents called "Fair Tax" Fair Tax proponents claim the percentage of the tax is 23%, but that's because of mathematical manipulation to get it to a number that's lower than the average taxpayer pays. It's actually a 30 cent tax on something that costs a dollar. I would say that's a 30 percent tax (30/100=30%) but they derive the 23% by adding the 30 cent tax to the cost of the item, then doing the division (30/130=23%). I think that's poor math and poorer policy.
There are already many, many incentives to save. There are pre-tax 401k plans with matching contributions by employers. There are Roth IRAs that grow without ever having income be taxed again. There are Trad IRAs that allow money to grow tax free and can be deducted from ones total income to pay less taxes.
While I can understand frustration with the IRS, a sales tax doesn't get rid of a government oversight body. In the Fairtax plan, a government organization would have to be created to send out monthly "rebate" checks to poorer folks. I don't know if I buy that the process will be efficient, nor how folks will verify that they are poor without reporting their income!
The current tax code may be non-optimal, and I would agree with that statement. But it's going to be fixed by a simplification of its current form, not by a whole new system that harms the poor, despite their rebate checks.
Almost all economists dislike sales taxes as a way to encourage saving, especially saving amongst the poor
What if you were to tax these considerable less than you taxed non-essentials?
The current tax code may be non-optimal, and I would agree with that statement. But it's going to be fixed by a simplification of its current form, not by a whole new system that harms the poor, despite their rebate checks.
Why can't you fix it with simplification? It seems to me that the simplest thing tends to be the best in most situations. As for harming the poor, I'm not sure that a sales tax necessarily harms the poor(see the above statements...).
@@Fuschia
A nice, old-fashioned, regressive sales tax. I consider that to be the best way to tax people. How is a regressive tax the best way to tax people? It harms the poor far more than the rich.
What if you were to tax these considerable less than you taxed non-essentials? How are we to know who is buying Cheerios? Can you imagine the political fighting to have your product classified as essential so you get the tax break and larger market? Businesses would be lobbying like mad. Taxes are a way of incentive-ing behavior. And new products come out all the time, so there'd have to be updates, constantly. This would be a nightmare to administer.
Why can't you fix it with simplification? It seems to me that the simplest thing tends to be the best in most situations. As for harming the poor, I'm not sure that a sales tax necessarily harms the poor(see the above statements... A sales tax necessarily harms the poor more than the rich. I explained the economic concept in simple terms, but you can find out more by looking at topics such as "marginal propensity to consume" and "marginal propensity to save". A sales tax would harm those whose incomes proportionally go more to MPC vs. MPS.
Yes, simple solutions sound elegant and play well politically. Sadly, economics is not simple. If it was, I wouldn't be employed!
Here's some links: http://en.wikipedia.org/wiki/Sales_tax
Note here that it says that it is regressive and harms poorer folks more. Should we allot a rebate, there is still going to need to be a government agency to determine what the rebate is, and who gets it, thus meaning that household income will still be tracked. A sales tax doesn't get rid of bureaucracy if it is paired with a rebate to counteract its regression.
Another major problem with switching to a sales tax is what would happen to goods purchased before the sales tax went into effect. This is a huge benefit to richer consumers who could purchase big items BEFORE the tax went into effect. However, the poor could purchase such items on credit before the tax, but then deal with credit issues afterwards.
A sales tax also would lose the ability that we have right now to incentivize behavior with tax deductions (like education, home purchases). Wow, I hope a home purchase wouldn't be taxed at a rate of 23% or 30%. That would be disastrous.
In addition, a National Sales Tax would punish harshly many households that chose to save (rather than carry credit card debt) by taxing that amount again on consumption
For example, I have 20K saved up in a savings account that I've been saving for 10 years to buy a new car. This is responsible behavior. Let's say the National Sales tax is passed. Now, if this responsible person went to buy a car after this was implemented, their savings of 20K wouldnt buy the car,because the car would be subject to the tax..around 5K!) It may seem silly to think that some AMericans do this when average household credit card debt is in the mid-thousands, but millions of folks do (just listen to a Dave Ramsey program). *I* do this.
Household who have saved money with intent to use to for later would be taxed again. That's unfair, and would encourage fiscal irresponsibility.
Sadly, "solving" the tax issue takes more than a simple concept with millions of dollars of lobbying backing from very rich folks to correct. While I fully acknowledge that I and my family would be better off under such a system (my annual HHI is in the top 3% of American households), I know that most households would be harmed.
We do need to amplify savings incentives in this country, for sure, since most households carry far too much unsecured debt. There are better ways of creating incentives though than changing our tax code radically.
One aspect of the current tax code that has done much to alleviate poverty is the EITC. Yet, there's very little press on it.
Here's an opinion written by Bruce Bartlett in the Wall Street Journal (that bastion of business conservatism) that is highly critical of the National Sales Tax. Mr. Bartett was Mr. Bartlett was deputy assistant secretary of the Treasury for economic policy from 1988 to 1993 (during George H.W. Bush's presidency).
Spoiler:
Fair Tax, Flawed Tax
Does adding 30% to the price of every house sold sound like a good idea to you?
by BRUCE BARTLETT
Sunday, August 26, 2007 12:01 a.m. EDT
Former Arkansas Gov. Mike Huckabee's unexpectedly strong second-place showing in the recent Iowa Republican straw poll is widely attributed to his support for the FairTax.
For those who never heard about it, the FairTax is a national retail sales tax that would replace the entire current federal tax system. It was originally devised by the Church of Scientology in the early 1990s as a way to get rid of the Internal Revenue Service, with which the church was then at war (at the time the IRS refused to recognize it as a legitimate religion). The Scientologists' idea was that since almost all states have sales taxes, replacing federal taxes with the same sort of tax would allow them to collect the federal government's revenue and thereby get rid of their hated enemy, the IRS.
Rep. John Linder (R., Ga.) and Sen. Saxby Chambliss (R., Ga.) have introduced legislation (H.R. 25/S. 1025) to implement the FairTax. They assert that a rate of 23% would be sufficient to replace federal individual and corporate income taxes as well as payroll and estate taxes. Mr. Linder's Web site claims that U.S. gross domestic product will rise 10.5% the first year after enactment, exports will grow by 26%, and real investment spending will increase an astonishing 76%.
In reality, the FairTax rate is not 23%. Messrs. Linder and Chambliss get this figure by calculating the tax as if it were already incorporated into the price of goods and services. (This is known as the tax-inclusive rate.) Calculating it the conventional way that every other (This is called the tax-exclusive rate.)
The distinction is confusing, but think of it this way. If a product costs $1 at retail, the FairTax adds 30%, for a total of $1.30. Since the 30-cent tax is 23% of $1.30, FairTax supporters say the rate is 23% rather than 30%.
This is only the beginning of the deceptions in the FairTax. Under the Linder-Chambliss bill, the federal government would have to pay taxes to itself on all of its purchases of goods and services. Thus if the Defense Department buys a tank that now costs $1 million, the manufacturer would have to add the FairTax and send it to the Treasury Department. The tank would then cost the federal government $300,000 more than it does today, but its tax collection will also be $300,000 higher.
This legerdemain is done solely to make revenues under the FairTax seem larger than they really are, so that its supporters can claim that it is revenue-neutral. But for the government to afford to purchase the same goods and services, it would have to raise spending by the amount of the tax it pays to itself. The FairTax rate, however, is not high enough to finance the higher spending it imposes. Therefore the proposal only works if federal purchases are cut by 30%, close to $300 billion--the increased cost imposed by the FairTax.
Similarly, state and local governments would have to pay the FairTax on most of their purchases. This means that it is partly financed by higher state and local taxes. It's also worth remembering that state sales taxes now average 6%, which means that the total tax rate will be 36% on retail sales.
State sales taxes have long exempted all but a few services because of the enormous difficulty in taxing intangibles. But the FairTax would apply to 100% of services, including medical care, thus increasing their cost by 30%. No state comes close to taxing services so broadly.
Consumers would also find themselves taxed on newly constructed homes. Imagine paying 30% to the federal government on top of the purchase price of your next house.
Since sales taxes are regressive--taking more in percentage terms from the incomes of the poor and middle class than the rich--some provision is needed to prevent a vast increase in taxation on the nonwealthy. The FairTax does this by sending monthly checks to every household based on income.
Aside from the incredible complexity and intrusiveness of tracking every American's monthly income--and creating a de facto national welfare program--the FairTax does not include the cost of this rebate in the tax rate. As noted earlier, the FairTax is designed only to match current revenues and does not cover any increased spending that it may require. Since the rebate will cost at least $600 billion the first year, either federal discretionary spending would have to be cut by 60% or the rate would have to be five percentage points higher than advertised.
Rejecting all the tricks of FairTax supporters and calculating the tax rate honestly--by including the higher spending that it mandates and by being realistic about what could actually be taxed--professional revenue estimators have always concluded that a national retail sales tax would have to be much, much higher than 23%.
A 2000 estimate by Congress's Joint Committee on Taxation found the tax-inclusive rate would have to be 36% and the tax-exclusive rate would be 57%. In 2005, the U.S. Treasury Department calculated that a tax-exclusive rate of 34% would be needed just to replace the income tax, leaving the payroll tax in place. But if evasion were high then the rate might have to rise to 49%. If the FairTax were only able to cover the limited sales tax base of a typical state, then a rate of 64% would be required (89% with high evasion).
I've emphasized problems with the FairTax rate because public opinion polls have long shown that support for flat-rate tax reforms is extremely sensitive to the proposed rate, with support dropping off sharply at a rate higher than 23%. But there are also massive technical and administrative problems with collecting all federal taxes at the checkout counter and relying entirely on state governments to collect the federal government's revenue.
Among the problems: What possible incentive would the states have to be vigorous in their federal tax collections? What is to stop them from slacking off and giving their citizens a tax cut at federal expense? What about states with no sales taxes? What's to stop people from bypassing retail outlets and buying their goods from producers or at wholesale, tax-free?
Perhaps the biggest deception in the FairTax, however, is its promise to relieve individuals from having to file income tax returns, keep extensive financial records and potentially suffer audits. Judging by the emphasis FairTax supporters place on the idea of making April 15 just another day, this seems to be a major selling point for their proposal.
Yet all but six states now have state income taxes. So unless one lives in one of those states, this promise is an empty one indeed. In short, the FairTax is too good to be true, and voters should not take seriously any candidate who supports it.
Since 1950 we have had 48 pullbacks - meaning declines of 5 - 10%. We’ve had 18 corrections - meaning 10- 20%, and 8 bear markets. At the worst on average we end up getting back to normal in about 3 1/2 years. But people just don’t want to wait that long and they let fear overtake their emotions.
Citigroup announced a steep cut in its stock dividend and another big investment by foreign investors on Tuesday after taking more write-downs related to subprime securities and posting a $9.83 billion loss for the fourth quarter.
Only 9.83$ billion? I was expecting far more. Of course, there are still many huge loans on the brink of defaulting. It's only starting...
I wonder, how can a bank that has report losses distribute dividends? Black financial magic, surely. At least I'm sure banks are desperate enough to do almost anything. Interesting times ahead, this bear hopes.
A question about international finance and the World Bank/IMF:
It seems that once they have a developing country in their grasp, they do every thing they can in order to prevent that country from becoming economically independent.
For example, they do not allow debtor nations to impose import tariffs, or to subsidize their industries. Under the standard rules, these nations are to allow unrestricted access of their markets to foreign goods.
The end result of this seems to be that farms, for example, in developing countries, being unable to compete with the heavily-subsidized-and-industrialized U.S. exports, are forced to close, and these nation's abilities to grow their own food supply are seriously undermined. Once enough farms close, that nation has in effect become entirely dependent on the West/U.S. for it's food supply.
My question to the economist:
Is this an example of good intentions but bad implementation on the part of international financial sector, or deliberate cruelty intent upon cutting poor people out of their own markets and making them utterly dependent upon the good graces of the US/west for their food supply? Or do I have it all wrong and have been listening to the wrong hippy?
Only 9.83$ billion? I was expecting far more. Of course, there are still many huge loans on the brink of defaulting. It's only starting...
I wonder, how can a bank that has report losses distribute dividends? Black financial magic, surely. At least I'm sure banks are desperate enough to do almost anything. Interesting times ahead, this bear hopes.
A question about international finance and the World Bank/IMF:
It seems that once they have a developing country in their grasp, they do every thing they can in order to prevent that country from becoming economically independent.
For example, they do not allow debtor nations to impose import tariffs, or to subsidize their industries. Under the standard rules, these nations are to allow unrestricted access of their markets to foreign goods.
The end result of this seems to be that farms, for example, in developing countries, being unable to compete with the heavily-subsidized-and-industrialized U.S. exports, are forced to close, and these nation's abilities to grow their own food supply are seriously undermined. Once enough farms close, that nation has in effect become entirely dependent on the West/U.S. for it's food supply.
My question to the economist:
Is this an example of good intentions but bad implementation on the part of international financial sector, or deliberate cruelty intent upon cutting poor people out of their own markets and making them utterly dependent upon the good graces of the US/west for their food supply? Or do I have it all wrong and have been listening to the wrong hippy?
One truism of economics is that that all economies are different. I actually work right next to the WB complex in DC. Most of the folks that I know that work for WB/IMF/USAID are incredibly good people who truly believe they can help and are working to help those less fortunate. The overwhelming majority of them are liberal to radically liberal (US version). I think sometimes they liberalize trade too fast (not subsidizing local industries can promote healthier better industries, but you can't simultaneously expose them to foreign goods whose countries subsidize the heck of em. There is alot of stripping a country down to build it back up which can be turbulent. However, SE Asia is doing very well now, as are some less publicized african countries.
The biggest problem of the WB/IMF/USAID attempts is that they apply blanket programs and policies when research shows that micro-targeting (small projects in local areas does more to improve economic livelihood. They're stuck in a vision (a typically American liberal vision) that a big happy sounding program can effect change. But big programs tend to bloat with bureaucracy, and that decreases their effectiveness.
Most of the folks I know that aren't higher ups in WB/IMF/USAID know this, but feel that the folks in charge have their heads in the sand (mainly, because they only know how to do big programs).
The biggest problem of the WB/IMF/USAID attempts is that they apply blanket programs and policies when research shows that micro-targeting (small projects in local areas does more to improve economic livelihood. They're stuck in a vision (a typically American liberal vision) that a big happy sounding program can effect change. But big programs tend to bloat with bureaucracy, and that decreases their effectiveness.
Only 9.83$ billion? I was expecting far more. Of course, there are still many huge loans on the brink of defaulting. It's only starting...
I wonder, how can a bank that has report losses distribute dividends? Black financial magic, surely. At least I'm sure banks are desperate enough to do almost anything. Interesting times ahead, this bear hopes.
They'd lose too many shareholders (that require one IE pensions) by not paying a dividend.
These bonds are not worthless so all they're doing is marking to market the bonds because of the new rule, FASB 157. The problem is the bonds simply don't have bids. It is interesting to note how much new money is being raised by hedge funds that are creating distressed debt funds now.
Here's the situation:
There's been ~$70–80 billion in write-offs so far (and more after h Citi's today and Merrill's write off Thursday), plus the $75 billion already lost in the off balance-sheet structured investment vehicles (SIVs).
Based on my number that should cover most of the likely subprime and alt a losses.
Let's look at an extremely severe example...
There's $1.2 trillion in subprime and alt a debt. Foreclosure means that something will be recovered and let's assume instead of the historical average of 80% it drops to 60%. That brings us to $480 billion if every loan went bust. A big number and most certainly not a reality but still not an abyss everyone makes it out to be. Many of these foreclosed loans were not owner occupied (~70% were speculators according to a underwriter I've spoke with). It's why they're so concentrated in a few places (IE what were hot markets)
But let's assume a still huge but at least more realistic number.
Let's say that the 15-20% that are already deliquent (30 days) all default (also not what's normal historically but we'll assume they do)...
The total value involved would come to $180–240 billion. Since we've already assumed we won't get the historical average we'll lower the value of the home to 50%. That brings us to $90-$120 billion. This has already been written off on balance sheet and off...\
C&I loans are running at .48% write off. Nothing close to the levels in 2001-2004. Right now corporate balance sheets are as good as we've seen in 30 years and inventories are low.
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