Let me state right now that I couldn’t care less one way or another about debt forgiveness, but many who propose to just “forgive” debt forget 2 main arguments for not doing it.
1. Banks can’t stay solvent and still do it. Our entire banking system will probably collapse if wholesale write offs take place too quickly.
2. If you let one person do it, you gotta let ‘em all do it. Foreclosures are still the best way to liquidate debt.
Bloomberg’s all over it.
Dec. 14 (Bloomberg) — Banks will need to take “substantial” writedowns on home-equity loans to enable loan modifications that will allow the U.S. housing market to recover, according to Amherst Securities Group LP.
The government’s mortgage-modification program will fail to avert many of the 9 million to 10 million looming foreclosures because it doesn’t reduce principal for borrowers, about a quarter of whom owe more than the current values of their houses, Laurie Goodman, a New York-based mortgage-bond analyst at Amherst, said today in a Bloomberg Radio interview.
“It’s important to realize the largest second-lien holders are the largest banks, and there’s going to have to be some very substantial writedowns if you go to a principal-reduction program,” Goodman said. “And this is going to have to be addressed head-on.”
This economy is not turning around any time soon. They say it would take 150,000 jobs per month for the next 48 months just to get under 10% unemployment.