If you declare bankruptcy, will everything be OK in a few days, weeks?
By Michael Collins
The crazies in the United States House of Representatives would have you believe it were so. They say fix that budget before we'll raise the debt ceiling. If we don't get our fix, they announce, there's no deal. We'll just default until things get straightened out. (Image: George Romero)
Let's see what would happen to you or me. We are unable to pay our bills, unless we tap a special line of credit that we've used in the past, one that has never failed us. We'll have to raise some money and cut some expenses too.
We're tired of paying bills and just want to stop for a while. We file for bankruptcy following all of the required procedures. The minute we file, we're granted an automatic stay on our debt. We are now protected, no bills to pay.
Then we get a few visits from creditors. They let us know that they know we can pay. Other people owed money show up also and ask, what is your problem? You owe us the money. You can pay and you will. The combination of angry creditors and recipients of our funds forces us to do what we could have done in the first place.
We tap the line of credit, cut expenses, and increase income. We make the payments we could have made all along. Once again, we have the choice of fixing things long term or repeating the process yet again.
PermalinkDeadbeats Bush and Gingrich Say "States Better Off Bankrupt"
Michael Collins
Not if a state owes you money!
Jeb Bush and Newt Gingrich just published an OpEd in the Los Angeles Times arguing that states would be wise to consider filing bankruptcy to relieve their financial troubles. They cite three states, California, Illinois and New York, while failing to mention the angry elephant in the living room with similar problems, Texas.
Texas faces a $25 billion shortfall for a $95 billion two-year budget. That equals California's 18-month deficit inherited by the recently inaugurated Governor Jerry Brown.
"So why haven't we heard more about Texas, one of the most important economy's in America? Well, it's because it doesn't fit the script. It's a pro-business, lean-spending, no-union state. You can't fit it into a nice storyline, so it's ignored," said Business Insider
The Era of Pain Avoidance is Over
By Numerian
Erskin Bowles: former Chief of Staff to President Clinton and prior to that a North Carolina businessman. Alan Simpson: at age 79, fourteen years senior to Erskin Bowles, and a former Republican senator from Wyoming. Alice Rivlin: also age 79, and Clinton’s former budget director. Peter Domenici: age 79, and a former Republican senator from New Mexico. These four people are the principal players in a set of competing proposals to do something about the US federal debt. They all have what Washington calls “gravitas”, which is a certain respectability that comes with age and experience. They also display that precious quality of “bipartisanship” which makes them supposedly immune from political bias. That’s why you get these Republican-Democrat partnerships: Simpson-Bowles, and Domenici-Rivlin. You would trust these people, wouldn’t you, to give you the cold, hard truth that politicians cannot deliver?
You shouldn’t. These people are good at delivering cold, hard truths in terms of areas of the budget to cut, and new sources of revenue to tap, which together over the long run will bring deficits down to zero and reduce the interest burden of the national debt to something manageable. But they won’t give you a vision of America under these new fiscal conditions. Reading through their proposals, we are left to imagine what America would be like in such a permanent state of austerity.
The Devil's in the Details - Foreclosures
By Numerian Posted by Michael Collins
It seems, therefore, that millions of foreclosures that have occurred in the past two years may be invalid. Investors who were part of the $8,000 tax credit program may not have valid mortgages and may not legally have the right to live in their home. Title insurance companies have stopped accepting mortgage titles from GMAC and other financial firms implicated in this situation. Numerian
Fed begins monetizing the deficit - buying U.S. Treasuries
By Numerian
The Federal Reserve, in announcing the results of this week's meeting of the Open Market Committee, surprised the market by revealing it will begin purchasing US Treasury notes and bonds with the principal income it receives from its vast holdings of Fannie Mae and Freddie Mac mortgage securities. This practice - wherein the Fed buys up US government securities and injects cash into the public market as payment for these securities - is a form of monetizing the debt.
The last time the Fed did this on a big scale was back in the 1960s when it attempted to mop up the excess Treasury securities that were flooding the market as a result of Lyndon Johnson's efforts to finance the Vietnam War. That Fed program was viewed at the time as a failure, since the cash the Fed put back into the economy in exchange for the securities was a big reason - perhaps the major reason - why price inflation accelerated from the late 1960s until a decade later, when Paul Volcker managed to squelch inflation once and for all with forbiddingly high interest rates.
XML Feeds