Morning Reading (Somewhat Depressing)
By Arnold Kling
Officials said the GOP was coalescing behind a proposal designed to give banks an incentive to make loans at rates currently estimated at 4 percent to 4.5 percent. Fannie Mae and Freddie Mac, which were seized by the federal government in September, would be required to purchase the mortgages once banks have made them to consumers.
This is a horrible, horrible idea. Mortgage rates are ridiculously low right now. You can get a 30-year, fixed-rate mortgage for less than 5 percent. I saw what happened to the S&L industry when they were caught holding 30-year mortgages with 6 percent interest rates in the 1970’s. If you make a 30-year fixed-rate loan at less than 5 percent today, then good luck to you…
I am fairly confident that the only people you can get to make thirty-year fixed-rate loans at current interest rates are the taxpayers. They only do it because they (we) have no choice in the matter.
Rogoff and Reinhart forecast the future, based on past slumps.
deep financial crises in the past have mostly been country-specific or regional, allowing countries to export their way out.
The current crisis is decidedly global…weak global demand limits how much the U.S. can rely on exports to cushion the ongoing collapse in domestic consumption and investment.
Rogoff is a congenitally gloomy guy. His vocal intonations would make him the perfect voice for Eeyore. I remember that when I decided to take my general exams a semester early, Ken evenly said, “You’ve probably doubled your chances of failing, but increased your expected utility.”
Finally, the Free Exchange blog concludes a roundtable named for Olivier (“the state of macro is good”) Blanchard:
We don’t sound like expert diagnosticians debating which of several potential infections could be causing a patient’s trouble. We sound like witch doctors who can’t agree on just where in the body the lifeforce can be found. We’re not comparing engineering schematics. We’re pondering the shape of the earth. Is the issue animal spirits? Do we need a placebo? Are debt concerns most important, or should stimulus be as large as politically possible?