Krugman on European Financial Suicide

[Matthew Cissell]

"...his suggestion, if implemented, would fail because citizens willsimply resort to their old spending habits and, and this is important,
continue to bet on real estate" Old spending habits? How old we talkin? And who?
"Real estate is not an investment"??? The natives tried explaining it to white people but they still don't get it. You are in denial if you think that people do not consider their house an investment or if you think that real estate is not treated as a good to be capitalised upon. Where do you live again? It's a bit naive to think that no one will use it as a money maker. The problem comes when everyone thinks that instead of 4% return on 20yrs in a house they can get 8% possesing it for much less time (a big part of what inflated housing markets in Spain and elsewhere, but remember who kept the merry-go-round spinning). 

As a child I remember hearing the phrase "second mortgage" and it sounded terrible. If you had to get a second mortgage you really had a mess. It sounded bad, it was bad.
A couple of decades later I am walking around Chicago & I see this ad in a bank window "We know you have 15k hidden in your house, let us help you find it." (see NYT article http://www.nytimes.com/2008/08/15/business/15sell.html?_r=2&hp=&oref=slogin&pagewanted=all ). Home equity loans sound much better. A lot of people got taken in. Like every con there is the con man and the mark, you just gotta find someone who wants to believe it. Banks found lots of people. But do you really want to blame the victim (yes there are victims here) for financial illiteracy?
 You have been wise and frugal, the good little ant has put things beside. (I have been frugal as well.) I understand your worries. Still, I cannot accept your attitude toward the people who have it hardest. However, it is part of that Protestant attitude in the U.S (and other places). They are the preterite, they were lost before the story started being told. Who are we to step in and try to change the course of divine providence? 
Good luck, Al. I mean it. I think we all may need it.

mc otis on the hill




________________________________
From: alice wellintown <alicewellintown at gmail.com>
To: pynchon -l <pynchon-l at waste.org> 
Sent: Thursday, April 19, 2012 1:11 PM
Subject: Re: Krugman on European Financial Suicide

It's a quote, Richard; Krug wrote it and published it in the NYT. And,
again, while I think his motives good, I mean, who doesn't want people
to find jobs and live better lives, his suggestion, if implemented,
would fail to accomplish what he hopes for because citizens will
simply resort to their old spending habits and, and this is important,
continue to bet on real estate. As Shiller sez, real esate is not an
investment. But, and this is the cause of most of the usffering in
Spain and in the US and in many other places around the globe, people
treat real estate like a specualtive investment. That lenders treated
home owners like specualtive investments is also a very big part of
the problem, so I agree with your, fairly obvious point, that the
lending institutions need to be regulated and punished for their
crimes. But I don't engage in or believe in class or war, so...


>> Here is what he wrote in the NYT recently:
>>
>> large parts of the private sector continue to be crippled by the
>> overhang of debt accumulated during the bubble years; this debt burden
>> is arguably the main thing holding private spending back and
>> perpetuating the slump. Modest inflation would, however, reduce that
>> overhang — by eroding the real value of that debt — and help promote
>> the private-sector recovery we need. Meanwhile, other parts of the
>> private sector (like much of corporate America) are sitting on large
>> hoards of cash; the prospect of moderate inflation would make letting
>> the cash just sit there less attractive, acting as a spur to
>> investment — again, helping to promote overall recovery.
>
>
> That's not what he said. He said that moderate inflation prevents stashing
> cash under the mattress and spurs spending. With respect to debt, the ruling
> elites gave us credit against future earnings rather than paying us the
> wages that should have grown over time.