Sonia

Bank Liabilities: Why the Discussion Isn't Explicit

I'd never heard of this - thank you for the education!


On Mar 07 11:26 AM Hari Seldon wrote:

> The banks were playing what organized crime would call a Bust Out
> Scheme.
>
> During the process, the perpetrator builds up a history of good behavior
> with timely payments and low utilization. Over time, they obtain
> additional lines of credit and request higher credit limits. Eventually,
> the account holder uses all available credit and stops making payments.
> Overpayments with bad checks are often included in the final stage,
> temporarily inflating the credit limit and resulting in losses higher
> than the account credit limit.
>
> AIG would be a classic example of this. All other large banks are
> guilty as well. Small local banks are victims in the scheme.

The End of the Credit Crisis

But why would Investor only be willing to pay Bank $100K for a non- delinquent mortgage with a face value of 500K, secured (the difference between paper and cash value) - by a house saleable for 400K today and surely worth at least 300K at auction if foreclosed in the next year or so?

Why couldn't Bank write down the loan on their books to its present value of 400K rather than 100K?

The End of the Credit Crisis

The increase in sales price from $300K to $500K was caused by many years of cumulative inflation. Inflation is already taxed; ithe 200K increase due to inflation was taxed as capital gains when the owner sold at 500K. But when the owner sold, the 500K wouldn't have bought any more goods or house than 300K would have years ago when he purchased the house. Worse, the owner has already been ripped off by capital gains tax on inflation, because $500K less tax on $200K won't buy a duplicate of the 300K house which has become a 500K house!


On Feb 28 12:41 PM prudentinvestor wrote:

> I'll propose another solution, which, I fear some will find shocking:
>
>
> When that house, that is worth only $300k, was sold for $500k, its
> seller pocketed a $200k "bubble profit". Seems to me that fairness
> dictates that the sellers who unreasonably profited by selling inflated
> real estate should be the first to contribute the unwinding of this
> bubble. Why not a "windfall profit tax" on sellers of real estate
> during the great bubble, just like we had on oil companies after
> the oil price spike in 1979. I'd suggest that this is more fair than
> charging the loss to those who have not participated, nor profited
> from the bubble.
>
> The treasury can create a table of "artificial inflation" percentages,
> defined by geographic area and by month/year of the bubble, and all
> real estate transactions in this area/month/year would be subject
> to an appropriate windfall profit tax, payable in installments over
> five years.