US to guarantee mortgages for 500 billion

[ren0312]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPFaqO.S_m.g&refer=home

Treasury, FDIC Said to Consider Guarantees to Stem Foreclosures

By Alison Vekshin and Robert Schmidt
http://www.bloomberg.com/apps/data?pid=avimage&iid=ihGfyxTeO4tc
http://images.bloomberg.com/r06/news/enlarge_details.gif (http://www.bloomberg.com/apps/news?pid=photos&sid=aPFaqO.S_m.g)

Oct. 30 (Bloomberg) -- The U.S. Treasury and the Federal Deposit Insurance Corp. are considering a program that may offer about $500 billion in guarantees for troubled mortgages to stem record foreclosures, people familiar with the matter said.
The plan, which might put as many as 3 million homeowners into affordable loans, would require lenders to restructure mortgages based on a borrower's ability to repay. Under one option, the industry would keep lower monthly payments for five years before raising interest rates, the people said.
FDIC Chairman Sheila Bair (http://search.bloomberg.com/search?q=Sheila+Bair&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) mentioned the program at an international deposit insurers conference in Arlington, Virginia, yesterday without offering details. ``A framework is needed to modify loans on a scale large enough to have a major impact,'' Bair said.
A program of guarantees backed by the $700 billion bank rescue would be the Bush administration's most aggressive step on behalf of homeowners since the subprime crisis began more than a year ago. The government until now has relied mainly on a voluntary, industry-led alliance to spur loan modifications and avert foreclosures.
``It will take a massive and quick infusion of funds for refinancings and other foreclosure prevention to turn the tide,'' said David Abromowitz, a senior fellow at the Center for American Progress, a Washington-based public policy research organization.
Multiple options to stem foreclosures are being considered by the agencies and a final decision on a ``particular approach'' hasn't been made, said Jennifer Zuccarelli (http://search.bloomberg.com/search?q=Jennifer+Zuccarelli&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), a Treasury spokeswoman. ``The administration is looking at ways to reduce foreclosures, and that process is ongoing.''
Rising Foreclosures
Bair, whose Washington-based agency insures deposits at U.S. banks, is pressing the mortgage industry to modify more loans to curb foreclosures, which rose (http://www.bloomberg.com/apps/quote?ticker=HOMFCLOS%3AIND) to the highest on record in the third quarter led by California, Florida, Arizona, Ohio, Michigan and Nevada, according to California-based RealtyTrac.
``The FDIC has had better ideas about how to solve this mortgage crisis than anyone else in the Bush administration,'' said Senator Charles Schumer (http://search.bloomberg.com/search?q=Charles+Schumer&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), a New York Democrat. ``We hope that the White House will listen very carefully to the FDIC's proposals.''
The FDIC and Treasury program would provide incentives to mortgage lenders and loan-servicing companies to change their loans, ``along with a framework for modifying them systematically into long-term and sustainable, affordable mortgages,'' Bair said.
Banks, Hedge Funds
The plan would apply to banks, savings and loans, hedge funds and other mortgage holders, the people said. While it would provide guarantees for about $500 billion in mortgages, it would cost about $50 billion that would be covered by the bailout package.
The government also is considering guaranteeing a second home loan, such as a home-equity line of credit, to assure mortgage holders they wouldn't lose money when they change loan terms, the people said. A guarantee in effect would put taxpayers on the hook for the loan if borrowers default.
Treasury's plan ``was very necessary legislation to keep the fundamental financial institutions and the financial markets from collapsing,'' Ara Hovnanian (http://search.bloomberg.com/search?q=Ara+Hovnanian&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), chief executive officer of homebuilder Hovnanian Enterprises Inc., said last week. ``We think in isolation it will fail if it's not combined with something that stabilizes the housing market right now.''
The FDIC would manage the program, the people said, adding that details are still being worked out and might change.
`Productive Conversations'
While the FDIC has had ``productive conversations'' with Treasury on using loan guarantees, ``it would be premature to speculate about any final framework or parameters of a potential program,'' FDIC spokesman Andrew Gray (http://search.bloomberg.com/search?q=Andrew+Gray&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said in an e-mailed statement.
Bair last week said the rescue plan lets the government set standards for mortgage modifications and offer loan guarantees for mortgages that meet the standards.
``Loan guarantees could be used as an incentive for servicers to modify loans,'' Bair said in her Oct. 23 testimony before the Senate Banking Committee. ``The FDIC is working closely and creatively with Treasury to realize the potential benefits of this authority.''
To contact the reporters on this story: Alison Vekshin (http://search.bloomberg.com/search?q=Alison+Vekshin&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) in Washington at avekshin@bloomberg.netRobert Schmidt (http://search.bloomberg.com/search?q=Robert+Schmidt&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) in Washington at rschmidt5@bloomberg.net;
Last Updated: October 30, 2008 00:01 EDT

[Flagg]

And yet more monopoly money piled onto the camel's back

[2Sheds_Jackson]

The government also is considering guaranteeing a second home loan, such as a home-equity line of credit, to assure mortgage holders they wouldn't lose money when they change loan terms, the people said. A guarantee in effect would put taxpayers on the hook for the loan if borrowers default.


Grumble. Well, I for one am just really pleased to be responsible for repaying a loan somebody used to buy 22" rims, a jet-ski and Ninja bike.

[Macs.]

Socialism.

[Createdeemcee]

Terrorism/Socialism.


Fixed That for you MACS!

[Igor01]

The US Government will bail out everybody, great. But who will bail out the US Government when its balance sheets and the value of the dollar are completely destroyed?

[2Sheds_Jackson]

The value of the dollar is doing just fine - after all these bail-outs and crashes around the world, it's been gaining against most other currencies. But it's the taxpayer who ultimately props up the whole thing. Not citizens...not every American...but the ones who actually pay taxes.

[Laworkerbee]

**** this, I held off from buying a home and saved my money waiting for this day to come and now they want to bail these idiots out!

Not with my money you won't you bastards :fork:

[Flagg]

The value of the dollar is doing just fine - after all these bail-outs and crashes around the world, it's been gaining against most other currencies. But it's the taxpayer who ultimately props up the whole thing. Not citizens...not every American...but the ones who actually pay taxes.


Unfortunately there is strong evidence to suggest that over the next couple of years we could see a significant depreciation of the US Dollar.

With US interest rates approaching zero

With the extreme difficulty in raising taxes during a serious recessions

With government spending extremely difficult to curtail due to efforts to get the economy kickstarted again

The only remaining conventional options relate to reducing the value of the US Dollar by cranking up the printing presses.

What we have probably seen recently is the instinctive "flight to the US Dollar" in times of crisis....but I believe both individuals and governments are already beginning to shift out of US Dollars on the recent dead cat bounce.

From a non-US perspective...which is quite important due to continuing US debt financing needs, the US Dollar is ultimately a poor investment choice due to the following:

The US Dollar serves 2 customers:

1.) US government, citizens, and residents

2.) foreign governments, foreign citizens who have currencies linked to US Dollar valuation and/or buying commodities denominated in US Dollars.

It is in the best interest of overindebted US government and US consumers to see their debts inflated away by a weaker dollar(all the debt is denominated in the US Dollar).

It is in the best interest of foreign government and foreign citizens that loaned the US government and US consumers money in good faith to see a STRONG dollar...and not see their investment INTENTIONALLY depreciated.

These two sets of US Dollar customers/users are diametrically opposed.

It's like playing the game of monopoly, only to find out halfway through that your savings have been unilaterally halved....to the detriment of 90% of the game's players, and to the benefit of only 10%...it does not inspire confidence in the game.

The global reserve currency comes with unequalled benefits......but it comes with some serious responsibilities that have been largely, and intentionally, ignored.

I think the US Dollar is going to be heading in a downward spiral at some stage over the next few years....some indicators will be gold/silver/food prices...eventually followed by energy prices as well.


Just my 0.02c

[tea drinker]

Grumble. Well, I for one am just really pleased to be responsible for repaying a loan somebody used to buy 22" rims, a jet-ski and Ninja bike.

Nice. What mileage do you get on the Ninja and what did you put those rims on? p-)




**** this, I held off from buying a home and saved my money waiting for this day to come and now they want to bail these idiots out!

Not with my money you won't you bastards :fork:

I know, I am in the same boat, you play it safe and make sensible, sometimes even good decisions, then you get sand kicked in your face like this.....

[Laworkerbee]

I know, I am in the same boat, you play it safe and make sensible, sometimes even good decisions, then you get sand kicked in your face like this.....

It's not right, I find it downright offensive.

[wotsnext]

Its only money, you still have you're health....Right? p-)

[2Sheds_Jackson]

Unfortunately there is strong evidence to suggest that over the next couple of years we could see a significant depreciation of the US Dollar....

That's a reasonable assessment. But, regardless of the motivations at work, the value siphoned off of the dollar must be regained elsewhere, right? And that elsewhere can't just be some agreed-upon currency - it has to represent a superior value based on it's own merits. So my question would be - which one? What contender will be in better shape?

[Albatross]

It's not right, I find it downright offensive.

Its an insult to the people that did the right thing, for all intensive purposes, it awards people for making piss poor decisions. I am voting against everyone that is in office right now based on all of these ridiculous votes.

[Igor01]

That's a reasonable assessment. But, regardless of the motivations at work, the value siphoned off of the dollar must be regained elsewhere, right?

I am not so sure that overall assets value is preserved akin to the way energy/matter preservation happens. Ultimately, any financial asset and any fiat currency is just a somebody's obligation to pay, and backed up only by trust in the obligee's ability to pay and the health of the financial system in general. Remove either one or both of these two conditions and you have either a non-payment or a payment in depreciated assets or currency.

So far the US government retains its AAA credit rating but so did a bunch of financial entities right up to the moment they went ******* up. I doubt that the US Government is going to officially default on their debt obligations, but the temptation for them to devalue the USD drastically will surely be very hard to overcome.

So yeah, instead of investing in S&P, DJ etc. and seeing their wealth vanish into the "credit crisis" blackhole, the investors reluctantly choose the option of parking their money in US Treasuries because at least they know they are guaranteed each dollar of their investment back. The big question is what will those dollars be worth at the time of repayment. With the unprecedented monetary inflation taking place now, price inflation will surely follow, that's just the natural law of cause and effect.

You can either pick your poison now or, dust off your tin foil hat, buy gold and enjoy the tragic spectacle unfolding around you...

[SOG]

It's not right, I find it downright offensive.

Bend over, we're not done with you yet!

So the bailout will be pushing what, 2 trillion? And it all goes to bail out the corporations at the taxpayers expense. Nice.

[Igor01]

Bend over, we're not done with you yet!

So the bailout will be pushing what, 2 trillion?

Yeah, but that's just part of it. The Treasury now has the authority to enter into currency swap deals with foreign Central Banks for as much money as needed and as long as needed. This is exactly the same liquidity infusion, only done in such a way that it doesn't have to appear on the balance sheets. Methinks, the words "credit crunch" repeated ad nauseum by the talking heads on TV in 2008 will be replaced by "runaway inflation" in 2009-2010.

[Flagg]

Yeah, but that's just part of it. The Treasury now has the authority to enter into currency swap deals with foreign Central Banks for as much money as needed and as long as needed. This is exactly the same liquidity infusion, only done in such a way that it doesn't have to appear on the balance sheets. Methinks, the words "credit crunch" repeated ad nauseum by the talking heads on TV in 2008 will be replaced by "runaway inflation" in 2009-2010.

Absolutely......

It's like some old school Chinese torture.

First you get lit on fire (credit destruction)

Then you're forced to beg for water to put the fire out (massive liquidity injection to put out the credit destruction, deleveraging fire).

Then you're drowned in 10 feet of water (reflation, massive inflation once the liquidity floodgates open, trickle down, and pass through to prices of non-leveraged tangible stuff.

Few "Joe Bloggs" and "Joe six packs" and "Joe the plumbers" have the time and/or education to dedicate to understand what's happening.

Even though we're hitting headlines daily about the crisis.....little mainstream information is available on what is nearly guaranteed to occur.

I believe it's pretty much a 99% chance that the middle class is going to get absolutely hammered in the next few years.

Just my 0.02c

[Flagg]

Bend over, we're not done with you yet!

So the bailout will be pushing what, 2 trillion? And it all goes to bail out the corporations at the taxpayers expense. Nice.


I THINK(don't hold me to it) that with this individual residential mortgage bailout it tips the scale at potentially $2.5-ish Trillion.

And we haven't gotten to:

Bailing out individual States (many are in BIG trouble, or very soon will be to the point of cutting everythiing but essential services)

Bailing out pensions (This isn't even on the radar yet and is HUGE)

The next downward leg of corporate earnings, followed by big layoffs, followed by further drops in consumer spending, floowed by further share price drops, followed by drops in tax revenue, etc....rinse and repeat.

Bailing out more large publically held companies

And the big nasty fart in the room is STILL toxic derivatives. JUST the most toxic of the whole derivative rubbish dump equals a low multiple of global GDP.

For me a positive sign would be INCREASING time periods between market grand mal seizures......at this stage the time periods between the deemed requirements for market intervention are still shrinking.

I'm not the least bit optomistic in the short-term.............other than the optomistic hope that common sense, effective leadership, and discipline/hard work will result in light at the end of the tunnel.

[Flagg]

That's a reasonable assessment. But, regardless of the motivations at work, the value siphoned off of the dollar must be regained elsewhere, right? And that elsewhere can't just be some agreed-upon currency - it has to represent a superior value based on it's own merits. So my question would be - which one? What contender will be in better shape?


Here's my thoughts on "what might be next":

I do not think we can transition to a global currency replacing our existing currencies...at least not in the short to medium term....and not without a big frickin conflict to more easily pave the way.

I believe it MAY be possible to run TWO layers of currency.

We maintain our existing currencies and domestic monetary/fiscal policies.

IF two nations(or companies/individuals within those two nations) wish to trade using their existing currencies....everything remains as is.

IF one or both nations(or companies/individuals within those two nations) are unhappy with the thought of trading with another because of legitimate or perceived currency concerns...then use exchange traded "currency/commodity basket notes" to get around problems associated with poor monetary/fiscal policy of an individual currency making up the global reserve currency that would have a big impact on reducing volatility on the global means of exchange.

They would be exchange traded notes using say 5-10 of the most traded currencies based on % of global GDP as well as a portion of their value consisting of 5-10 of the most traded commodities as % of total commodity trade.

They would be completely transparent and traded on the open market on all major exchanges as their 10-20 underlying components change in value....but likely with far less volatility than we are seeing with our current global reserve currency.

Overtime, the currency/commodity basket notes would be adjusted slightly to reflect changes to the underlying value of currencies and commodities.

If I've developed my line of thought correctly it would mean that nations with their currency and/or the resource commodities they produce within the currency/commodity basket note...would all share, relative to their contribution, in the benefits that the global reserve currency offer.

It's simply a cocktail napkin concept that would likely be too difficult to implement, but I'm hearing little in the way of sustainable and fair concepts for "what's next".

The only idea I've heard from a respected source would be Warren Buffett's concept of import/export credits to develop balance of trade WITHIN a nation.

Which is every(or at least the majority of big players) nation implemented would see some rationalization within the global economy.

My idea probably sucks balls, but I'm just not hearing about any effective alternatives.

Hopefully the abuse of the global reserve currency hasn't been so severe that it's been irreparably harmed.....but I'm not betting FOR the US Dollar in the short-to-medium term.

At the end of the day we need a stable and reliable means of exchange for the game of global monopoly...and right now...and for the foreseeable future our global means of exchange is about as stable as wet dynamite.

[drunken sailor]

It's not right, I find it downright offensive.

Hell the inflation and pay cuts that we have now is making it hard as hell for people to stay in their homes let alone the dumbarses who could not come close to affording it.

Why would you be bitching anyway? If you did save to buy a house then you should be happy they are all dirt cheap right now. I have a nice house on the water in Florida I will sell you lol. Right now I cant sell it for half of what it is worth.

I am taking a beating because nobody wants to spend any fricking money and I could go out of business. I am not getting any help and that pisses me off.

The crooks in D.C. are stealing our money and I guarantee that most is going overseas.

What is really dumb is that you have to go into default on your mortgage before these areshole banks will even try to help you, Until the the banks are forced to work with people before it gets that bad then more and more people will just throw in the towel. How the hell does it cost 500 billion to rewrite them, Thats what is astounding. 3 months ago they could have bought all the bad mortgages for about 4 billion. Now its 500 billion, I would like to know where all that money is going because it sure wont end up bailing out the average person.

[CG51]

Grumble. Well, I for one am just really pleased to be responsible for repaying a loan somebody used to buy 22" rims, a jet-ski and Ninja bike.

I could not agree more. What a PC society we have become. Rewarding people that live beyond their means. **** this bailout, let the chips fall.

[Kilgor]

Socialism.

hussein

.....

[ren0312]

Absolutely......

It's like some old school Chinese torture.

First you get lit on fire (credit destruction)

Then you're forced to beg for water to put the fire out (massive liquidity injection to put out the credit destruction, deleveraging fire).

Then you're drowned in 10 feet of water (reflation, massive inflation once the liquidity floodgates open, trickle down, and pass through to prices of non-leveraged tangible stuff.

Few "Joe Bloggs" and "Joe six packs" and "Joe the plumbers" have the time and/or education to dedicate to understand what's happening.

Even though we're hitting headlines daily about the crisis.....little mainstream information is available on what is nearly guaranteed to occur.

I believe it's pretty much a 99% chance that the middle class is going to get absolutely hammered in the next few years.

Just my 0.02c

The BOJ went through its version of massive liquidity infusion in the 1990's and also brought down rates to 0, without causing runaway inflation, in fact inflation is just barely above 2%.

[ren0312]

Here's my thoughts on "what might be next":

I do not think we can transition to a global currency replacing our existing currencies...at least not in the short to medium term....and not without a big frickin conflict to more easily pave the way.

I believe it MAY be possible to run TWO layers of currency.

We maintain our existing currencies and domestic monetary/fiscal policies.

IF two nations(or companies/individuals within those two nations) wish to trade using their existing currencies....everything remains as is.

IF one or both nations(or companies/individuals within those two nations) are unhappy with the thought of trading with another because of legitimate or perceived currency concerns...then use exchange traded "currency/commodity basket notes" to get around problems associated with poor monetary/fiscal policy of an individual currency making up the global reserve currency that would have a big impact on reducing volatility on the global means of exchange.

They would be exchange traded notes using say 5-10 of the most traded currencies based on % of global GDP as well as a portion of their value consisting of 5-10 of the most traded commodities as % of total commodity trade.

They would be completely transparent and traded on the open market on all major exchanges as their 10-20 underlying components change in value....but likely with far less volatility than we are seeing with our current global reserve currency.

Overtime, the currency/commodity basket notes would be adjusted slightly to reflect changes to the underlying value of currencies and commodities.

If I've developed my line of thought correctly it would mean that nations with their currency and/or the resource commodities they produce within the currency/commodity basket note...would all share, relative to their contribution, in the benefits that the global reserve currency offer.

It's simply a cocktail napkin concept that would likely be too difficult to implement, but I'm hearing little in the way of sustainable and fair concepts for "what's next".

The only idea I've heard from a respected source would be Warren Buffett's concept of import/export credits to develop balance of trade WITHIN a nation.

Which is every(or at least the majority of big players) nation implemented would see some rationalization within the global economy.

My idea probably sucks balls, but I'm just not hearing about any effective alternatives.

Hopefully the abuse of the global reserve currency hasn't been so severe that it's been irreparably harmed.....but I'm not betting FOR the US Dollar in the short-to-medium term.

At the end of the day we need a stable and reliable means of exchange for the game of global monopoly...and right now...and for the foreseeable future our global means of exchange is about as stable as wet dynamite.

A better solution will be to go back to the Bretton Woods setup, with the currencies of all big economies pegged to a certain amount in relation to the US Dollar, and to peg the US Dollar to gold, plus or minus 1 percent, having a national currency is an important symbol of national sovereignty and I am too nationalistic/patriotic to give that up. Or just risk going back to the gold standard, during the time when the US was still in the gold standard that price of an apple in 1940 is roughly the same with the price of an apple in 1800 in real terms.

[Nano]

The BOJ went through its version of massive liquidity infusion in the 1990's and also brought down rates to 0, without causing runaway inflation, in fact inflation is just barely above 2%.

Yeah what japan was going through is the opposite of our likely future situation. You however bring up an interesting point maybe enough consumption is being curtailed by all the economic problems that prices fall in the short term due to oversupply of goods and lower demand for them. Stagflation maybe what we are seeing before our very eyes now, but there is going to be a point where that may turn towards inflation. I'm not sure if short term stagflation is possible as the economy transitions towards inflation. I'm thinking a whole new model is going to be devised which integrates/explains some of what is going on.

[Kaplanr]

I could not agree more. What a PC society we have become. Rewarding people that live beyond their means. **** this bailout, let the chips fall.

Wake the F up. Until the FDIC plan this was never about homeowners who could or couldn't afford what they'd bought. This is/was about dumb banks, and dumber investment banks that figured they could buy unsecured debt as an investment.

You tell me who's to blame; Joe wants to buy a home who marginally understands the terms of his mortgage and vaguely comprehends interest? or the mortgage broker or real estate agent who approved him, arranged the terms and did the closing? or the investment guys who packaged and bought the collection of loans?

What's your explanation for the undervalued and defaulted Florida properties that are on the books at 1/2 their 2 year ago value? They weren't bought by people who couldn't afford them.

[Flagg]

The BOJ went through its version of massive liquidity infusion in the 1990's and also brought down rates to 0, without causing runaway inflation, in fact inflation is just barely above 2%.

Japan has been in a funk for 18 years....their individual and national savings rate has allowed them to remain in an undead state all this time.

The US possesses neither the individual, nor the national, savings rate to allow a mirror image repeat of Japan...even with the benefit of the reserve currency.

We MAY head in that direction initially....but I don't think the US could do so for long even if it tried.

Just my 0.02c

[Flagg]

A better solution will be to go back to the Bretton Woods setup, with the currencies of all big economies pegged to a certain amount in relation to the US Dollar, and to peg the US Dollar to gold, plus or minus 1 percent, having a national currency is an important symbol of national sovereignty and I am too nationalistic/patriotic to give that up. Or just risk going back to the gold standard, during the time when the US was still in the gold standard that price of an apple in 1940 is roughly the same with the price of an apple in 1800 in real terms.


The US MAY have abused it's priveledges as holder of the reserve currency too much.

I am NOT in any way suggesting individual nation currencies be eliminated......my rationale is the same as yours......it would cause more problems(including but not limited to insurrection, civil war, war, and more war) than it MIGHT solve.

What I AM suggesting is an ADDITIONAL currency....or currency-like means of exchange.....by using a basket of currencies and commodities tied in together as one transparent and tradeable product with inherently less volatility than any other liquid means of exchange.

Monopoly is not fun when the currency used to buy and sell changes in value up 20% and down 40% within a year.......99.99% of people in business around the world have little time, interest, or skill in setting up foreign currency hedge positions.

Keep it simple stupid

[Nano]

Im thinking you're right Flagg on making an additional currency. I'm thinking that a form of barter might also be utilized as to guarantee one good for another.

[Flagg]

Im thinking you're right Flagg on making an additional currency. I'm thinking that a form of barter might also be utilized as to guarantee one good for another.

To me, barter = something failed(usually)

IF you match up a small number of the most traded currencies(forex exchange per day is several trillion) with a small number of the most traded commodities(BIG money, but still far smaller in total daily $$ volume than forex), you would wind up with a basket of currencies and commodities used by pretty much everyone in the world either directly or indirectly......the mix within the basket would as closely as possible match the demand for what's in the basket.

People would want and need what underwrites the basket.

Smaller nations that currently peg to the US Dollar for example would be better off pegging to a basket to avoid having excess inflation exported to them(like Gulf States getting hammered by US Dollar peg inflation).

I think it might work..at leats in theory.....

[EZFEED]

I could not agree more. What a PC society we have become. Rewarding people that live beyond their means. **** this bailout, let the chips fall.

AMEN thats what I'm saying!woot

[Nano]

True you're right about barter, but it may prove an option for some. What you propose is more or less akin to a world currency. Thing is that currently there appears to be some paper manipulation of certain commodities. I find you're idea worthwhile exploring. With the use of electronic trading there might not even be a need to print this new currency.

[CG51]

Wake the F up. Until the FDIC plan this was never about homeowners who could or couldn't afford what they'd bought. This is/was about dumb banks, and dumber investment banks that figured they could buy unsecured debt as an investment.

You tell me who's to blame; Joe wants to buy a home who marginally understands the terms of his mortgage and vaguely comprehends interest? or the mortgage broker or real estate agent who approved him, arranged the terms and did the closing? or the investment guys who packaged and bought the collection of loans?

What's your explanation for the undervalued and defaulted Florida properties that are on the books at 1/2 their 2 year ago value? They weren't bought by people who couldn't afford them.

LOL its funny because you believe what you wrote.

[2Sheds_Jackson]

Wake the F up. Until the FDIC plan this was never about homeowners who could or couldn't afford what they'd bought. This is/was about dumb banks, and dumber investment banks that figured they could buy unsecured debt as an investment.

You tell me who's to blame; Joe wants to buy a home who marginally understands the terms of his mortgage and vaguely comprehends interest? or the mortgage broker or real estate agent who approved him, arranged the terms and did the closing? or the investment guys who packaged and bought the collection of loans?

What's your explanation for the undervalued and defaulted Florida properties that are on the books at 1/2 their 2 year ago value? They weren't bought by people who couldn't afford them.

Well one could sure argue that they were bought by people who should have known better. I knew better, and I'm a damned idiot. I'd stand there and look at the vast nothingness of SW Florida, with houses as far as I could see, and empty land extending farther than I could see...and I wondered, why would anybody pay that kind of money for it? People were trying to make a quick buck...and the more money there is to be made, the more risk there is. I blame the banks, but I blame people too. There were plenty of people who purposely avoided overextending themselves with expensive houses or ELOCs.

[Flagg]

Well one could sure argue that they were bought by people who should have known better. I knew better, and I'm a damned idiot. I'd stand there and look at the vast nothingness of SW Florida, with houses as far as I could see, and empty land extending farther than I could see...and I wondered, why would anybody pay that kind of money for it? People were trying to make a quick buck...and the more money there is to be made, the more risk there is. I blame the banks, but I blame people too. There were plenty of people who purposely avoided overextending themselves with expensive houses or ELOCs.


I think it was mid 2005 or so when Fortune Magazine(definitely NOT Steve Forbes and his Geobbels-like propaganda rag) ran a cover story on the insanity in US Residential RE.

The article covered how people "made" millions by simply buying a bunch of condo units off plan and reselling the same before construction completed.

There was also coverage of people lined up the night before a new McMansion development was launched...with people clamoring to sign on a new house with no money down....and get this.....every half hour or so they would raise prices from say $345,000 to $355,000 to increase the frenzy to not think, but BUY NOW!

So Kudos to Fortune for being far ahead of the glacier-like mainstream media curve about 3 years ago....and may Steve Forbes burn in eternal communist hell for his role in perpetuating this charade.

It all reminded me of a story involving foodstuffs in short supply during the Gold Rush.......where cans of sardines traded hands for staggering sums of money.

One unfortunate buyer made the mistake of opening a can of sardines with the intent to use them for their original intent...which is to eat.

Upon opening the poor miner discovered the can of sardines to be completely rotten....the seller of the rotten sardines replied, "Why did you open that can of sardines?!?!? Those aren't eating sardines, they are trading sardines!"

So much stuff smells like rotten sardines right now it would take less time to write down what DOESN'T stink

[LRPV]

That's a reasonable assessment. But, regardless of the motivations at work, the value siphoned off of the dollar must be regained elsewhere, right? And that elsewhere can't just be some agreed-upon currency - it has to represent a superior value based on it's own merits. So my question would be - which one? What contender will be in better shape?


I tend to believe the USD will remain predominant even it sheds value, only one shed, not two. Confidence is everything and the only contender is the Euro, which depending upon your view, is not as politically tenable.

[ren0312]

I think it was mid 2005 or so when Fortune Magazine(definitely NOT Steve Forbes and his Geobbels-like propaganda rag) ran a cover story on the insanity in US Residential RE.

The article covered how people "made" millions by simply buying a bunch of condo units off plan and reselling the same before construction completed.

There was also coverage of people lined up the night before a new McMansion development was launched...with people clamoring to sign on a new house with no money down....and get this.....every half hour or so they would raise prices from say $345,000 to $355,000 to increase the frenzy to not think, but BUY NOW!

So Kudos to Fortune for being far ahead of the glacier-like mainstream media curve about 3 years ago....and may Steve Forbes burn in eternal communist hell for his role in perpetuating this charade.

It all reminded me of a story involving foodstuffs in short supply during the Gold Rush.......where cans of sardines traded hands for staggering sums of money.

One unfortunate buyer made the mistake of opening a can of sardines with the intent to use them for their original intent...which is to eat.

Upon opening the poor miner discovered the can of sardines to be completely rotten....the seller of the rotten sardines replied, "Why did you open that can of sardines?!?!? Those aren't eating sardines, they are trading sardines!"

So much stuff smells like rotten sardines right now it would take less time to write down what DOESN'T stink

This article appears to contradict some of your assertions:

http://www.forbes.com/opinions/2008/10/29/stagnation-recession-deflation-oped-cx_nr_1030roubini.html

Doctor Doom
Get Ready For 'Stag-Deflation'
Nouriel Roubini 10.30.08, 12:01 AM ET

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Back in January, I argued that four major forces would lead to a risk of deflation-- or "stag-deflation," where a recession would be associated with deflationary forces--rather than the inflation that mainstream analysts have worried about.
They were: (1) a slack in goods markets, (2) a re-coupling of the rest of the world with the U.S. recession, (3) a slack in labor markets, and (4) a sharp fall in commodity prices following such U.S. and global contraction, which would reduce inflationary forces and lead to deflationary forces in the global economy.
How has such argument fared over time? And will the U.S. and global economies soon face sharp deflationary pressures? The answer: Deflation and stag-deflation will, in six months, become the main concern of policy authorities.
Why?
First, the U.S. has entered a severe recession that is already leading to deflationary forces in sectors where supply vastly exceeds demand (housing, consumer durables, motor vehicles, etc.). Aggregate demand is falling sharply below aggregate supply. The unemployment rate is up sharply, while employment has been falling for 10 months in a row. And commodity prices are sharply down--about 30% from their July peak--in the last three months, and are likely to fall much more in the next few months as the advanced economies' recession goes global. So both in the U.S. and in other advanced economies we are clearly headed toward a collapse of headline and core inflation.
Is there any doubt about this ongoing inflation capitulation and the beginning of sharp deflationary forces? Take the current views of the economic research group at JPMorgan Chase. This group was, in 2007-08, the leading voice arguing about the risks of rising global inflation and the associated risks of a global growth reflation, and that policy rates would be sharply increased in 2008-09.
This week, however, the JPMorgan research group published its latest global economic outlook, arguing that we are headed toward a global recession, negative global inflation and sharply lower policy rates in the U.S. and advanced economies--a 180-degree turn from its previous position. What a difference a year makes!
Do you have any further doubt that we're headed toward a global deflation or--better--a global stag-deflation? Read on: Aggregate demand is now collapsing in the U.S. and advanced economies, and sharply decelerating in emerging markets. There is a huge excess capacity for the production of manufactured goods in the global economy, as the massive, and excessive, capital expenditure in China and Asia (Chinese real investment is now close to 50% of gross domestic product) has created an excess supply of goods that will remain unsold as global aggregate demand falls.
Commodity prices are in free fall, with oil prices alone down over 50% from their July peak (and the Baltic Freight Index--the best measure of international shipping costs--is 90% down from its peak in May). Finally, labor market slack is sharply rising in the U.S., and rising, as well, in Europe and other advanced economies.
Next question: What are financial markets telling us about the risks of stag-deflation?
First, yields on 10-year Treasury bonds have fallen by about 50 basis points since Oct. 14, getting close to their previous 2008 lows. Also, the two-year Treasury yield has fallen by about 150 basis points in the last month.
Second, gold prices--a typical hedge against rising global inflation--are now sharply falling.
Finally, and more important, yields on Treasury Inflation-Protected Securities (TIPS) due in five years or less have now become higher than yields on conventional Treasuries of similar maturity. The difference between yields on five-year Treasuries and five-year TIPS, known as the break-even rate, fell to minus 0.43 percentage points.
This is a record. Since the difference between the conventional Treasuries and TIPS is a proxy for expected inflation, the TIPS market is now signaling that investors expect inflation to be negative over the next five years, as a severe recession is ahead of us.
So goods, labor, commodity, financial and bond markets are all sending the same message: Stagnation/recession and deflation (or stag-deflation) is ahead of us.
Don't be surprised, then, if six months from now the Fed and other central banks in advanced economies will start to worry--as they did in 2002-03 after the 2001 recession--about deflation rather than inflation. In those years, when the U.S. experienced a deflation scare, Fed Chairman Ben Bernanke wrote several pieces explaining how the U.S. could resort to very unorthodox policy actions to prevent a deflation and a liquidity trap like the one experienced by Japan in the 1990s. Those writings may, very soon, have to be carefully read and studied again.
Finally, while in the short run a global recession will be associated with deflationary forces, some ask whether we should worry about rising inflation in the middle run? This argument--that the financial crisis will eventually lead to inflation--is based on the view that governments will be tempted to monetize the fiscal costs of bailing out the financial system, and that this sharp growth in the monetary base will eventually cause high inflation.
In a variant of the same argument, some posit that--as the U.S. and other economies face debt deflation--it would make sense to reduce the debt burden of borrowers (households and, now, governments taking on their balance sheets the losses of the private sector) by wiping out the real value of such nominal debt with inflation.
So should we worry that this financial crisis and its fiscal costs will eventually lead to higher inflation? The answer to this complex question: likely not.
First, the massive injection of liquidity in the financial system--literally trillions of dollars in the last few months--is not inflationary, as it accommodates the demand for liquidity that the current financial crisis and investors' panic have triggered. Thus, once the panic recedes and this excess demand for liquidity shrinks, central banks can and will mop up all this excess liquidity.
Second, the fiscal costs of bailing out financial institutions would eventually lead to inflation if the increased budget deficits associated with this bailout were to be monetized, as opposed to financed with a larger stock of public debt. As long as such deficits are financed with debt--rather than by the printing presses--such fiscal costs will not be inflationary, as taxes will have to be increased over the next few decades and/or government spending reduced to service this large increase in the stock of public debt.
Third, to the question raised earlier: Wouldn't central banks be tempted to monetize these fiscal costs--rather than allow a mushrooming of public debt--and thus wipe out with inflation these fiscal costs of bailing out lenders/investors and borrowers? Not likely in my view. Even a relatively dovish Bernanke Fed cannot afford to let the inflation-expectations genie out of the bottle via a monetization of the fiscal bailout costs. It cannot afford to do that because a rise in inflation expectations will eventually force a nasty and severely recessionary Volcker-style monetary-policy tightening to get the genie back into its bottle.
Fourth, inflation can reduce the real value of debts as long as it is unexpected, and as long as debt is in the form of long-term nominal fixed-rate liabilities. An attempt to increase inflation would not be unexpected: Investors would write debt contracts to hedge against such a risk if monetization of the fiscal deficits does occur.
Also, in the U.S. economy, a lot of debts--of the government, of the banks, of the households--are not long-term nominal fixed-rate liabilities. They are, rather, shorter-term variable-rate debts. Thus, a rise in inflation in an attempt to wipe out debt liabilities would lead to a rapid repricing of such shorter term, variable-rate debt. And thus expected inflation would not succeed in reducing the part of the debts that are now of the long-term nominal fixed-rate form--i.e., you can fool all of the people some of the time (unexpected inflation) and some of the people all of the time (those with long-term nominal fixed-rate claims), but you cannot fool all of the people all of the time.
In conclusion, a sharp slack in goods, labor and commodity markets will lead to global deflationary trends over the next year. And the fiscal costs of bailing out borrowers and/or lenders/investors will not be inflationary, as central banks will not be willing to incur the costs of very high inflation as a way to reduce the real value of the debt burdens of governments and distressed borrowers. The costs of rising expected inflation will be much higher than the benefits of using the inflation tax to pay for the fiscal costs of cleaning up the mess that this most severe financial crisis has created.
Nouriel Roubini, a professor at the Stern Business School (http://www.stern.nyu.edu/) at New York University and chairman of Roubini Global Economics, (http://www.rgemonitor.com/) is a weekly columnist for Forbes.com.

[Kaplanr]

150 years ago, wouldn't that additional currency have been the gold standard?

[Flagg]

150 years ago, wouldn't that additional currency have been the gold standard?

Yes......but I don't think a return to the gold standard is possible.

It would likely be too politically and economically distasteful.

In effect it would be an admission of failure.....and I don't see that happening.

Here's a list of the most traded and/or most politically important currencies:

US Dollar, Euro, Yen, Yuan, Loonie, Real, Ruble, Rupee

All are vulnerable to poor monetary/fiscal policy......which can result in high volatility at times with each individual currency's value.

Here's a list of some of the most traded commodities:

Crude, Natural Gas, Gold, Silver, Copper, Aluminium, Corn, Sugar

All are vulnerable to supply/demand cycles....which can result in high volatility at times with each individual commodity's value.

BUT if you put together a basket of both in a simple, fair, and proportional way the value of the currency/commodity basket would likely have far less price/value volatility than any SINGLE currency or commodity....it SHOULD only increase in value at ROUGHLY the rate of global inflation

If a nation executes well on a strong currency policy they will benefit from direct trade or benefit from a relatively cheaper cost buying a currency/commodity basket.

If a nation goes down a weak currency path they will suffer from possibly slowing direct currency to currency trade , see an increase in the need to use the currency/commodity basket, which will cost them more due to their weak currency policy where their national inflation exceeds that of the global currency/commodity basket.

The main benefits I see are:

1.) A global means of exchange that is far more fair and likely to be FAR LES VOLATILE than the current reserve currency means of exchange or any proposed single currency or single commodity replacement.

2.) Many nations LIE about their inflation figures....one particularly blatant example would be the US over the past decade...the relative "impartiality" of such a currency/commodity basket would negate official inflation LIES....sort of a "trust by verify" opportunity

3.)Quite possibly the most important benefit is NOT changing ANY existing currencies....it's simply ADDING one additional option....the only impact on each nation's existing currency will be that strong currency advocates will likely benefit to a point, weak currency advocates will likely suffer to a point..........eventually forcing an equilibrium of sorts.....which we are currently lacking due to poor monetary/fiscal policy, blatant currency manipulation, and poor conservatorship of the current global reserve currency.

There could very well be a fundamental reason or reasons why this idea would absolutely suck........but even if it's an entirely valid concept vested interests who would see a loss of economic and/or political power as a result of such a shift away from the status quo would surely not be very supportive, making this or something like this a very steep uphill battle.

Although at the end of the day the idea is just the rant of an interested amateur