Yeah Right... this is gonna work

[travesty]

Here we go again, Democrats thinking they know how to manipulate the economy, Barry thinks reducing mortgages (http://online.wsj.com/article/SB10001424052748704323704575461920164400014.html?m od=WSJ_hps_LEFTWhatsNews) (by government mandate) us going to get us out of this mess. Is he simply brain dead or is this just another example of the Dems ignoring the facts (http://www.newyorkfed.org/research/staff_reports/sr417.html) about the situation and trying to do what "feels good". I've said it before and I'll say it again to all Democrats who can hear me.....stop trying to fix the economy, you don't know what you are doing and you are making it worse...just fucking STOP!!!! Please!

[HAL 9000]

I may be missing something here, and am not close to this issue at all... but the paper you linked to seems to agree with the approach outlined in the Wall Street journal article you linked to.

The WSJ says the plan is Under the new "short refinance" program, banks and other creditors that write down mortgages to less than the value of the property can essentially hand off the reduced loan to the government.

While the NY Fed paper says


an alternative scheme would achieve the desired DTI by first writing down principal to the current market value of the property and then reducing the interest rate as necessary. We estimate that restoring the borrower’s incentive to pay in this way nearly quadruples the reduction in re-default rates achieved by payment reductions through interest rate modifications and term extensions alone.


I read the paper as saying that the old approach of subsidising interest repayments was ineffective, but if you incentives homeowners by putting equity back in their property, you can both reduce repayments (by reducing the principal) and incentivise desirable behaviours by giving people an asset to maintain (and quadrule the reduction in defaults in the process). And this seems to be what the WSJ is saying that the new plan is.

There may be moral hazard issues around this (surely the homeowners deserve to go broke for taking such risks) but it could make economic sense if the cost to society of the restructure is less than the cost of the foreclosure. I am neutral on this point.

I should note I only read the conclusion of the FED paper so I may have missed something. Interesting stuff though, good find!

[Adam]

The government need to stop what they are doing.

The government should do X, Y & Z.

The government need to stop what they are doing.

Why hasn't the government done anything. At least it can try do something to fix this mess it has made.

Doing nothing is what got us into this mess, let the markets decide. The banks got it wrong and they shouldn't of let it go on for so long without doing anything. They should should just stop.

[HAL 9000]

It makes good sense though to critically examine public policy in the context of the latest data and research, as travesty has done in this case (although I disagree with the conclusion travesty has reached). A lot of commentary on economics is based on off the cuff and partizan analysis of poorly understood principles (see every post by Valvano for reference) as you alude to in your post.

The economics of bail outs and regulatory actions are highly complex and it is this kind of research that rarely features in the public discussion of such concepts. Empiricism is the way forward although, econimies are chaotic systems (like the weather) and you can never be sure that a trend observed in one study is widely applicable!

[Sir SkratchaLot]

Here we go again, Democrats thinking they know how to manipulate the economy, Barry thinks reducing mortgages (http://online.wsj.com/article/SB10001424052748704323704575461920164400014.html?m od=WSJ_hps_LEFTWhatsNews) (by government mandate) us going to get us out of this mess. Is he simply brain dead or is this just another example of the Dems ignoring the facts (http://www.newyorkfed.org/research/staff_reports/sr417.html) about the situation and trying to do what "feels good". I've said it before and I'll say it again to all Democrats who can hear me.....stop trying to fix the economy, you don't know what you are doing and you are making it worse...just fucking STOP!!!! Please!

I tend to agree with you to the extent that there's very little you can do to "fix" the economy. That being said, there do need to be laws to prevent people and corporations from taking advantage of others, or taking advantage of the economic system.

Democrats need to stop trying to "fix" the economy. Republicans need to stop taking advantage of the system to line their pockets in the name of stopping "big government."