BearMarketTrader
I can understand that not paying your mortgage frees up capital which is temporarily good for the economy, but what happens once the house is foreclosed upon? The bad debt is on the books of the banks–or of Fannie or Freddie–or of AIG or whoever is insuring the derivitives. Whoever it is is left holding these ‘toxic assets’ and eventually even a FASB rule change wont be able to cover them up. If the government bails them out they simply transfer the debt to the public sector. The problem is too much debt and is handled in one of three ways:
- Pay it off (means decades of pain for US)
2…US Treasury default (yikes)
- Inflate debt away (who knows how far dollar would need to drop–which causes its own problems)
Presently Obama is trying a bit of number #3 and hoping someday to manage #1. He vastly underestimates the pain the US will have to go through.