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Did Iceland really forgive "all the mortgage debt" ?

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Did Iceland really forgive "all the mortgage debt" ?

Let's clear up some misunderstandings

=====================================

 

iceland-11.jpg

Many icelanders may still be underwater

 

All over the web, you will find stories heralding Iceland, as if it had invented a new financial system,

and some stories even say that Iceland may have forgiven "All the Mortgage Debt" of its citizen.

 

Example:

 

The Icelandic government, responding to a mandate from its people, has informed the international bankers that portions of its so-called debt is considered to be illegal and therefore no further payments will be made. Iceland's response to the financial crisis which began in 2008 and beyond has been to put bankers and former heads of state on trial, while forgiving 13 percent of the country's debts.

 

Former Iceland Prime Minister Geir Haarde, put on trial in early March, was convicted of negligence over his handling of the financial crisis on April 23rd. He is considered to be the world’s first politician to face criminal charges over the crisis, and could have served up to two years in prison, but was given leniency.

 

Secondly, recent reports have suggested the government has wiped the slate clean of all mortgage debt incurred by its citizens.

 

With Iceland's brave and epoch-making course of action, it could ultimately serve as a model for many other countries to adopt as the people of Earth finally say to their controllers –– enough is enough. In other words, the jig is up, the ponzi schemes are over and the will of the people shall be obeyed.

 

/source: http://www.miraclesandinspiration.com/news_historic-global-economic-transformations.html

=== ===

 

My opinion is forgiving "all the mortgage debt" would be dangerous, stupid, and incredibly reckless.

This would reward those who borrowed too much, and strip away the legitimate advantage of those who used debt prudently.

 

I think what really has happened is this:

 

Iceland has created a mechanism where by people can reduce their mortgage debts to 110% of the value of their homes.

 

Effectively, this is forcing banks that lent too much (beyond the likely value of a home) to eat the loss. This will be a big lesson to the bankers, without handing a huge bonus to those who over-borrowed to buy a home.

 

I wish those wanting to party on the internet were a little bit more careful before they launched their celebrations.

 

I will seek confirmation for my version of the story

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First element: Only Debts beyond 110% were forgiven

 

There is an example of a Sovereign Nation’s successful Recovery Story which provides further basis for understanding how to Profit and Protect. Consider Iceland’s 110% plan in which the banks agree to forgive debt exceeding 110% of Home Values.

 

“Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country’s economic and financial collapse are reaping the benefits of their anger.

 

“Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association….

 

“The island’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union…

 

“The island’s households were helped by an agreement between the government and the banks,… to forgive debt exceeding 110 percent of home values….

 

“’The lesson to be learned from Iceland’s crisis is that if other countries think it’s necessary to write down debts, they should look at how successful the 110 percent agreement was here,’ said Thorolfur Matthiasson, University of Iceland.

 

“Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn….

 

/source: http://aheadoftheherd.com/1Articles/Deepcaster/2012/A-Macro-View-for-Profit-and-Protection.html

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Ah, there's also another element: Currency harmonization

 

"We need to bring our own bankers and politician to trial. So far Iceland, according to the articles, has relieved approx 25% of its citizens debts.

 

(that is to say all debts that are 110% over the home value will be wiped clean. And any loan in Iceland must be in Krona, which means currency fluctuations can no longer effect the cost of a mortgage)"

 

/see: http://www.abovetopsecret.com/forum/thread829921/pg2

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This seems very unfair to me. Those who paid too much for a home managed to force all of those who knew it was too much out of the ability to bid on a home as they were willing to borrow far more. They then got to live in the home for many years while those who didn't buy were forced in renting. Unless everyone was given cash, and those who had mortgages were forced to accept that cash as a write down on the mortgage (as Steve Keen suggests) then this still gives the reckless a significant advantage. Why punish the banks at the expense of the people who were sensible? Just let the reckless go bust and force the banks to suffer the right down or go bust.

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This seems very unfair to me. Those who paid too much for a home managed to force all of those who knew it was too much out of the ability to bid on a home as they were willing to borrow far more. They then got to live in the home for many years while those who didn't buy were forced in renting. Unless everyone was given cash, and those who had mortgages were forced to accept that cash as a write down on the mortgage (as Steve Keen suggests) then this still gives the reckless a significant advantage. Why punish the banks at the expense of the people who were sensible? Just let the reckless go bust and force the banks to suffer the right down or go bust.

 

It is not ideal perhaps, but better than many alternatives.

 

Forcing a haircut on some banks who over-lent is not a bad idea - that was reckless, and wants some adjustment. But I would have recommended it be done in a more sensible way. Let's take three people who all now own identical homes worth IK 100,000 (for example)

 

A / has IK 80,000 in debt, and nothing would happen - and he would go on owning 100% of his property.

 

B / has IK 120,000 in debt

 

C / has IK 150,000 in debt

 

Under the existing scheme, B&C would both get debt forgiveness down to IK 110,000 in debt, and the most reckless borrower © would get the most forgiveness. I agree with you, that is not fair to B and A, Mr Prudent.

 

Instead, I would allow the underwater borrowers to sell a portion of their property to the bank in return for debt forgiveness. I would use this formula

 

Pct of Debt Forgiven = Pct of equity given to bank, but where debt cannot be forgiven below 110% of Market.

 

And so:

 

A / No change

 

B / (120-110)/120 : 8.33%, bank owns 8.33% of property after forgiving IK 10,000

 

C / (150-110)/150 : 26.67%, bank owns 26.67% of property after forgiving IK 40,000

 

Under my system, if the borrower does not want to give up equity in his home, he will not be forced to do so, he can go on paying the higher mortgage amount and retain 100% ownership.

 

Maybe you can agree than "my system" is more fair to everyone. But perhaps some will find it "too complicated", which is sad

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Is your idea not the same as without any forgiveness? If the bank owns part of the property, then they will charge some sort of rent or take a slice of the proceeds at the time of sale. They will write that asset onto their books at the same amount as the forgiven amount under mark to model and so nothing will change for them. The owner will lose only a part of his property, and so be slightly better off as they will get to keep their house. However, as it was the banks who were the predatory lenders, I think it should be them that lose out.

 

I have never had time to consider what the world would be like now if the banks went bust, so it is difficult to say with certainty that they should have been allowed to fail, but I would still tend to lean on the side of the fence that says; bank loses, borrower loses, prudent people prosper. It may not be a perfect model for society, but at least it is consistent.

 

 

Maybe you can agree than "my system" is more fair to everyone. But perhaps some will find it "too complicated", which is sad

 

If that is too complicated for people, then perhaps they should go back to secondary school. Unfortunately, it may be too complicated for many people. Secondary schools will boom, then bust!

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Is your idea not the same as without any forgiveness? If the bank owns part of the property, then they will charge some sort of rent or take a slice of the proceeds at the time of sale. They will write that asset onto their books at the same amount as the forgiven amount under mark to model and so nothing will change for them. The owner will lose only a part of his property, and so be slightly better off as they will get to keep their house. However, as it was the banks who were the predatory lenders, I think it should be them that lose out.

 

I have never had time to consider what the world would be like now if the banks went bust, so it is difficult to say with certainty that they should have been allowed to fail, but I would still tend to lean on the side of the fence that says; bank loses, borrower loses, prudent people prosper. It may not be a perfect model for society, but at least it is consistent.

 

 

 

 

If that is too complicated for people, then perhaps they should go back to secondary school. Unfortunately, it may be too complicated for many people. Secondary schools will boom, then bust!

The banks are getting equity (which presently has zero value, in return for forgiving debt),

But the more they forgive, the more equity they get.

 

In fact, since the equity has zero value today, you can think of what they are getting as Call options. Though they have zero intrinsic value today, they could have real value in the future, if prices rise.

 

I think people will understand that banks are writing off debt (which has probably not realisable value today), in return for equity which has no realisable value today. In some senses, that is a fairer swap, than juts banks writing off debt, and getting nothing in return. And the equity they have to give up, may cause some people to think twice about how much mortgage debt they want to "swap out of." And the fact that there is a tradeoff is a very good thing in getting people to structure these "forgiveness swaps" so that they are not too one-sided.

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I think I have not quite understood your idea correctly.

 

If an owner had a mortgage of 100,000 and gave the bank 10% of the equity for a debt reduction of 10%, then the bank would own 10% of the of the equity and the owner would have a mortgage of 90,000. If the owner then sold the property for 80,000; the bank would get 8,000 and the owner would get 72,000, but to my understanding that would mean that the bank would have equity greater than 0 today, and not 0 as you seem to be saying.

 

I think people will understand that banks are writing off debt (which has probably not realisable value today), in return for equity which has no realisable value today.

 

I guess I am one of the people who would not understand this and should go back to secondary school! :unsure:

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Just got back from Iceland last month, amazing country. The local english language newspaper ran this article whilst I was out there on negative amortization loans which many took out in the bubble.

 

Robbery-By-Math

 

The locals also don't like the country held up as an example as many left wing commentators are doing in response to austerity, you can tell outside alcohol due to the taxes and imported goods that the locals have been hit very hard, article here responding to many of the errors:

 

A-Deconstruction-of-Icelands-Ongoing-Revolution

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I think I have not quite understood your idea correctly.

 

If an owner had a mortgage of 100,000 and gave the bank 10% of the equity for a debt reduction of 10%, then the bank would own 10% of the of the equity and the owner would have a mortgage of 90,000. If the owner then sold the property for 80,000; the bank would get 8,000 and the owner would get 72,000, but to my understanding that would mean that the bank would have equity greater than 0 today, and not 0 as you seem to be saying.

 

I guess I am one of the people who would not understand this and should go back to secondary school! :unsure:

I would use the Icelandic system, where the homeowner can only Trigger an swap when the Mortgage is more than 110% of the Home's value.

 

So in my example, the Home is worth 100,000 and the Debt is 120,000 - as in case B - and that homeowner can force the bank to swap 10,000 of the mortgage into debt, but not more than 10,000. In return for a 10/120 (8.333%) reduction in debt - forced by the homeowner - the bank would get 8.333% of the equity.

 

Only the homeowner can force the bank to make the swap, the bank cannot force it. However, any homeowner in danger of foreclosure is likely to trigger the swap, since that might buy some time. The alternative would be a "successful" foreclosure by the bank, in which case the bank would wind up with 100% of the equity and the homeowner nothing. But then the bank would then need to find a buyer for the home. So many banks may prefer to have a homeownner in the property paying the debt, to owning 100% and needing to find a buyer or someone to rent the home.

 

If the home is later sold for 120,000, and the mortgage has been reduced from 110,000 to 105,000, then there is equity of 15,000 after the repayment of the Mortgage, and the bank would get 8.333% of that 15,000, or 1,250. This means that they are worse off, than if the mortgage of 120,000 had stayed in place - since they will have lost 10,000 on the swap and only "clawed back" 1,250 from the equity they received.

 

The homeowner will have benefitted from the swap, but he will have to continue to service the (reduced) debt, to get his equity from selling the home at a later date.

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Much Hope gets blown up, but there is little reality is in Iceland's "example", it seems:

 

The locals also don't like the country held up as an example as many left wing commentators are doing in response to austerity, you can tell outside alcohol due to the taxes and imported goods that the locals have been hit very hard, article here responding to many of the errors:

 

A-Deconstruction-of-Icelands-Ongoing-Revolution

Last night, ‘Shock Doctrine’ author Naomi Klein tweeted: “#Iceland is proving that it is possible to resist the Shock Doctrine, and refuse to pay for the bankers' crisis” with a link to an article called, “Iceland’s On-going Revolution,” by Deena Stryker.

 

This article is full of factual errors, so we tweeted back: “@NaomiAKlein We are fans of yours, but we are sad to say that your tweet and the article it cites are both dead wrong. #Iceland”

 

She replied: “@rvkgrapevine tell me and i'll correct”.

 

So here it is, a deconstruction of that error-ridden article, “Iceland’s On-going Revolution,” which is unfortunately making rounds in the Twitter-sphere.

 

Great!

A real discussion, aiming at the Truth, not just making points-supported-by-half-truths

 

He goes on to cite:

 

+ "wildly inaccurate" figures on debts

+ A report that Iceland declared bankruptcy was wrong

+ The new Constitution has not yet been approved, as the article claimed

+ The Constitution was not "crowd-sourced", but suggestions were taken online

 

(The conclusion of the article blows apart Naomi Klein's article):

 

"While nearly every paragraph in this article is riddled with factual errors...

 

To the contrary of the message put forth in this article, “Iceland’s On-going Revolution,” and the notion that Iceland was able to resist the shock doctrine, he says: “The political debate in Iceland has gotten horribly stale and repetitive. In some places Iceland is held up as being a model of how to survive an economic crisis and rebuild society. For most Icelanders this seems totally wrong. Some politicians, including our President, like to flaunt this view when they go abroad, but this is definitely not the feeling in Iceland.”

 

So, @NaomiAKlein have we crushed the hopes of millions? As a publication we strive to practice good journalism, though we have to say that a part of us is reluctant to correct these kinds of articles, as it is nice to see citizens of other nations, like Spain and Portugal, being inspired by our story. Hope has to come from somewhere.”

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I would use the Icelandic system, where the homeowner can only Trigger an swap when the Mortgage is more than 110% of the Home's value.

 

So in my example, the Home is worth 100,000 and the Debt is 120,000 - as in case B - and that homeowner can force the bank to swap 10,000 of the mortgage into debt, but not more than 10,000. In return for a 10/120 (8.333%) reduction in debt - forced by the homeowner - the bank would get 8.333% of the equity.

 

Only the homeowner can force the bank to make the swap, the bank cannot force it. However, any homeowner in danger of foreclosure is likely to trigger the swap, since that might buy some time. The alternative would be a "successful" foreclosure by the bank, in which case the bank would wind up with 100% of the equity and the homeowner nothing. But then the bank would then need to find a buyer for the home. So many banks may prefer to have a homeownner in the property paying the debt, to owning 100% and needing to find a buyer or someone to rent the home.

 

If the home is later sold for 120,000, and the mortgage has been reduced from 110,000 to 105,000, then there is equity of 15,000 after the repayment of the Mortgage, and the bank would get 8.333% of that 15,000, or 1,250. This means that they are worse off, than if the mortgage of 120,000 had stayed in place - since they will have lost 10,000 on the swap and only "clawed back" 1,250 from the equity they received.

 

The homeowner will have benefitted from the swap, but he will have to continue to service the (reduced) debt, to get his equity from selling the home at a later date.

 

Thanks for the clarification, I think I now understand what you are saying.

 

I know that this is a difficult political and financial situation to solve, but I still can't get my head away from the fact that your idea is bailing out those who made a stupid decision (the bank, the borrower and the politician). They reckless may get to stay in their home, but now the prudent who never got a chance to buy a home, because the reckless increased the cost and priced them out, are stuck renting - and that seems grossly unfair to me.

Edited by klogger

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Thanks for the clarification, I think I now understand what you are saying.

 

I know that this is a difficult political and financial situation to solve, but I still can't get my head away from the fact that your idea is bailing out those who made a stupid decision (the bank, the borrower and the politician). They reckless may get to stay in their home, but now the prudent who never got a chance to buy a home, because the reckless increased the cost and priced them out, are stuck renting - and that seems grossly unfair to me.

I understand your point, but the stupidity was on both sides: bank and borrower.

 

The banks have been bailed out, but in turn they were forced to sell equity at low prices. In a way, my idea extends the same concept to individuals, and the more reckless the borrower, and the more forgiveness he requires, the more of his equity he must swap for debt. That only makes sense. To give huge debt forgiveness to one borrower, and little or nothing to the next one - and get nothing in return in either case seems like a great example of moral hazard - it encourages future recklessness by borrowers.

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I understand your point, but the stupidity was on both sides: bank and borrower.

 

The banks have been bailed out, but in turn they were forced to sell equity at low prices. In a way, my idea extends the same concept to individuals, and the more reckless the borrower, and the more forgiveness he requires, the more of his equity he must swap for debt. That only makes sense. To give huge debt forgiveness to one borrower, and little or nothing to the next one - and get nothing in return in either case seems like a great example of moral hazard - it encourages future recklessness by borrowers.

 

Even your suggestion encourages moral hazard. The reckless keep their house and as house prices remain elevated because there isn't the forced sale that the owner deserved, it's the prudent who lose out.

 

The message is buy a house and you get bailed out, do anything else and you don't. The bankers are rewarded because house prices remain high and in the future they have the benefit of the increased levels of debt that need servicing as a result.

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Even your suggestion encourages moral hazard. The reckless keep their house and as house prices remain elevated because there isn't the forced sale that the owner deserved, it's the prudent who lose out.

 

The message is buy a house and you get bailed out, do anything else and you don't. The bankers are rewarded because house prices remain high and in the future they have the benefit of the increased levels of debt that need servicing as a result.

Under my suggestion, reckless folks lose a PART of their house, but maybe not the whole house.

 

It is a limited form of debt jubilee, where the most reckless lose the most, and the prudent lose nothing (except maybe an opportunity.) As you may know, debt jubilees tend to come every 60 years or so. It will be a long wait for the next one, and banks will be more prudent.

 

The benefit to everyone, is it helps to clear away some of the debt overhanging the economy, in a the fairest possible way. (Have you something more fair? If so, please propose it.)

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Have you something more fair? If so, please propose it.

 

 

Why is it not fairer to let those who inflated the bubble to go bust, and those who were prudent to at last get the opportunity that they were denied? A loss of opportunity is no small thing! The opportunity to purchase a house is an important stepping stone in a persons life, and I do not think that it is something to be thrown away lightly just because of the reckless actions of others.

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Why is it not fairer to let those who inflated the bubble to go bust, and those who were prudent to at last get the opportunity that they were denied? A loss of opportunity is no small thing! The opportunity to purchase a house is an important stepping stone in a persons life, and I do not think that it is something to be thrown away lightly just because of the reckless actions of others.

The banks take a big hit, under my suggestion,

Surely, they should have know better.

 

And the market avoids a big overshoot, and may recover more quickly.

 

You seem to WANT an "overshoot" to the downside.

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The banks take a big hit, under my suggestion,

Surely, they should have know better.

 

And the market avoids a big overshoot, and may recover more quickly.

 

You seem to WANT an "overshoot" to the downside.

 

Do the banks not take a big hit when they have to repossess the house and can only sell it for less than the size of the original loan?

 

I agree that they market may recover more quickly, but then people don't learn their lesson properly, and so we will get the same thing again later on.

 

I am not worried about an overshoot to the downside, but I would like to see housing at a fair price. I have been priced out for 7 years now, and I don't see why I am paying to keep the people who bid up the price of housing in their overpriced property.

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I am not worried about an overshoot to the downside, but I would like to see housing at a fair price. I have been priced out for 7 years now, and I don't see why I am paying to keep the people who bid up the price of housing in their overpriced property.

You must be in the UK, rather than the US.

 

These sorts of "solutions" will not make sense to people until 2-3 years into a housing bust, when prices are well off the highs.

Before then, governments, banks, and other assorted idiots think they can keep the bubble intact.

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You must be in the UK, rather than the US.

 

These sorts of "solutions" will not make sense to people until 2-3 years into a housing bust, when prices are well off the highs.

Before then, governments, banks, and other assorted idiots think they can keep the bubble intact.

 

Yes, I am in the UK.

 

You may be right, but obviously if I need to wait 2-3 years to understand this idea, then I can't comment now!

 

I assume that your idea will prevent the overshoot in some way? Is that not the same as saying 'No more boom and bust; just a boom and a return to normal without a bust followed by another boom.'

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Under my suggestion, reckless folks lose a PART of their house, but maybe not the whole house.

 

It is a limited form of debt jubilee, where the most reckless lose the most, and the prudent lose nothing (except maybe an opportunity.) As you may know, debt jubilees tend to come every 60 years or so. It will be a long wait for the next one, and banks will be more prudent.

 

The benefit to everyone, is it helps to clear away some of the debt overhanging the economy, in a the fairest possible way. (Have you something more fair? If so, please propose it.)

 

I'd like to go back to capitalism where firms/people are allowed to fail when they deserve it.

 

Clearing a debt overhang by propping up moral hazard just creates more debt in the future. I don't agree that banks lose out because it enables/encourages house prices to stay elevated which gives banks higher interest payments from the market as a whole forever.

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I'd like to go back to capitalism where firms/people are allowed to fail when they deserve it.

 

Clearing a debt overhang by propping up moral hazard just creates more debt in the future. I don't agree that banks lose out because it enables/encourages house prices to stay elevated which gives banks higher interest payments from the market as a whole forever.

 

People would still be "allowed" to fail.

If they cannot service the 110% mortgage, then they would still face a possible foreclosure.

Indeed, those who really borrowed far beyond their means might have little alternative

 

The bigger point is, that people go-debt-crazy every 60 years or so, and we have recently moved through a period like that - as we have also seen many times before in history.

 

I will try to find the link to the thread about this sort of episode in the time of Julius Caesar. He sought a solution similar to what I have suggested.

 

Here it is:

MARTIN ARMSTRONG: Anatomy-of-a-Debt-Crisis /10.jun

Only Julius Caesar had the solution to a Debt Crisis

http://www.greenenergyinvestors.com/index.php?showtopic=6818

 

julius_caesar_statue.jpg

 

The only politician in history who has ever in fact understood the nature of a Debt Crisis and came up with practical solutions, was Julius Caesar (100-44BC.)

 

We all now all face, what Caesar faced. The corruption of the Republic of Rome is as widespread today as well. If we understand the mistakes of the past, we can escape the same outcome...

 

+ There was a brewing debt crisis in Roma, and the oligarchy was determined to retain power at any price

 

+ Before Caesar, Cicero in 63BC was granted "ultimate decree", a form of dictatorship

. . .

 

Armstrong's Prescriptions:

 

+ Cap interest payments on credit cards at 8%, not 20-30%

 

+ Insist that banks stick to banking, and not use their capital for trading and other non-bank risk taking

 

+ Eliminate all direct taxes, including income tax. Tax indirectly (such as on land, as Fred Harrison has suggested - ?)

 

+ Monetise the debt, and stop borrowing (ie print enough money to pay off the debts, but also stop fresh borrowing. Force governments to live within their tax revenues)

 

+ Create tort reform so that doctors cannot be so easily sued for health mishaps- this could save 30% of health costs, consumed by wasteful legal actions and insurance expense

 

+ Eliminating debt (by paying it off with cash), will mean that the cash will need to go into other types of investment, investments which can create employment and productive jobs

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People would still be "allowed" to fail.

If they cannot service the 110% mortgage, then they would still face a possible foreclosure.

Indeed, those who really borrowed far beyond their means might have little alternative

 

I'm in the UK and I don't own a house. The base rate has crashed 90% to help the indebted. People who paid too much for houses are in many cases being supported via my taxes through such as SMI. Various government schemes using my taxes are propping up house prices. Bankers are still collecting bonuses. Our labour is being devalued against housing.

 

I want the people who cannot afford their houses to be thrown out and those properties sold at auction. I'd like bankers and politicians sent to prison for fraud.

 

Julius Caesar did not have a "solution" to a debt crisis. A solution is when you solve a problem and stop it happening again. If he had sentenced everyone involved to death that could have been a solution because it would have been a deterrent to stop it happening every 60 years.

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I'm in the UK and I don't own a house. The base rate has crashed 90% to help the indebted. People who paid too much for houses are in many cases being supported via my taxes through such as SMI. Various government schemes using my taxes are propping up house prices. Bankers are still collecting bonuses. Our labour is being devalued against housing.

 

I want the people who cannot afford their houses to be thrown out and those properties sold at auction. I'd like bankers and politicians sent to prison for fraud.

 

Julius Caesar did not have a "solution" to a debt crisis. A solution is when you solve a problem and stop it happening again. If he had sentenced everyone involved to death that could have been a solution because it would have been a deterrent to stop it happening every 60 years.

The UK's method is very unfair:

It robs savers to subsidise those who over-borrowed to buy expensive housing.

 

If the UK had allowed a decent 25-35% correction before moving to ZIRP (as the US did), it might not have been so bad. Lessons would have been learned by banks and borrowers. But not so, they chickened out and launched ZIRP too soon.

That is unfortunate. I suspect a "bigger-and-badder" crash will come eventually, especially in London, where people are still paying too much and borrowing too much.

 

CAESAR FACED a different situation than exists now in the UK - more like what is in Iceland or maybe Ireland and Spain:

 

+ Caesar himself was heavily indebted, and so was in some sympathy with the popular movement to forgive debtors

 

+ In a debate within the senate, Caesar argued unsuccessfully against the death penalty for Catiline's co-conspiritors. His argument rested on the importance of the rule of law, which the death penalty would have negated. He could not accept the image that the Senate was ruled by passions rather than law. Caesar was seen as being on the side of the people, against abusive power sought by oligarchs, who were championed by Cato and Cicero.

 

+ Interest rates were doubled from 4% to 8% for the elections of 54BC, allowing the oligrachs to take more money for bribery and vote-buying

 

+ Meantime in Roma: Property values were collapsing, and debts were excessive. Those who held property as collateral, refused to accept the property in settlement of debts. (That is, many debtors were in "negative equity.")

 

226896-julius_caesar_large.jpg

 

+ Caesar did not forgive debts. He awarded homeowners a rent reduction, but stood by his 49BC decree rejecting the cancellation of debts. Caesar argued that he had heavy debts himself, and if he cancelled them, he would personally benefit. He forced Marc Antony to pay the full price he had bid for Pompey's estate.

 

+ He may have miscalculated. In showing he was a man of reason (once again), rather than passion, he may have led to his onw undoing. Those he spared, merely plotted against him. Some saw his act of mercy, as a waiver of Rome's right to punish. He did not talk of clemency, he spoke of "compassion, generousity, and lenacy." In a letter to Cicero, Caelius wrote of him: "Have you ever read or heard of anyone fiercer in attack and more moderate in victory." He acted as a man, not interested in power - says Armstrong - but "interested in saving his country."

 

+ Caesar was assasinated on 14 March 44BC. Cicero did not show up at the moment of Caesar's death. Was he tipped off?

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CAESAR's WISDOM was NOT rewarded

But his ideas were sound, and might work in our present mess

 

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CAESAR'S REFORMS

 

+ In domestic reforms, Caesar moved with lightening speed, following his "I came, I saw, I conquered" sense of urgency. "He put to shame the first 100 days of Roosevelt."

 

+ He changed the Roman calendar, inserting days, to make it fit reality, moving to 365.25 days, and inserting 67 days between November and December 46BC

 

+ He tampered with the practice of replacing freed men employees with slaves, requiring employers to add freed men

 

+ He brought more medical care and education to Roma, by offering citizenship to doctors and teachers

 

+ He cut the number of people receiving welfare (free rice), by about half, by denying free rice to those who failed to show up in person to claim their welfare. This stopped the fraudulent claims from those taking free rice unfairly and reselling it

 

+ He began to apply criminal penalties to those oiligarchs who previously exonerated themselves from punishment. He undertook reform, to provide the right for trial by jury

 

+ He put tariffs on the import of foreign goods, especially luxury items

 

+ He was beginning a building works and infrastructure spending program on projects like a highway from the Adriatic across the Apennines to the Tiber, and the cutting of a canal through the Ithmus of Corinth

 

RESOLVING THE DEBT CRISIS

 

A Debt Crisis faced the entire economy when Caesar took power, and it was widely expected that he would cancel the debts. Instead, Caesar avoided this "remedy", and showed remarkable insight, unlike many politicians who act because they are expected to "do something!" but without due consideration

 

+ He decreed that every debtor should have his property assessed at the pre-war valuation, and then subtracted the interest they had paid, and insisted that they pay the remaining valuation to the extent of the assessed value. (In effect, those who had been given too much money, relative to their pre-war assets, were able to obtain some relief in the amount owed.) "Creditors lost about a fourth of hwt they had lent."

 

+ Caesar was confronted with a collapse of real estate values. But he did not have open to him the actions of modern times. He had no Central Bank to turn to print money, nor could he use a government guarantee of debts. In such circumstances in other countries interest rates rose sharply as risks were magnified, and that normally served to make the crisis worse. "Caesar had to understand the problem and come up with a solution that would not destroy the economy, as those calling for forgiveness of all debts had been urging. That would result in a Marxist transfer of wealth, and flatten may productive elements within the economy, those who are involved in capital formation.

 

+ He recognised that money provides a measure of property values, but that property also provides a measure of what money is worth. So what he did was go back to a point in time when Property and Debt were in reasonable balance, and fix the repayment at that relationship. This meant that where a borrower had a loan outstanding which was 90% of the property's value at that time, the lender woiuld get 90% of the value at the later time, not 100% or 110% of the property's value. He was decreeing the writedown of SOME percentage of the debts, but not all the debts. Likewise. if a borrower had a loan which was 50% of the property's value, he would retain a 50% equity stake in the property.

 

+ Caesar paid for his economic reform with his life.

 

/source: post#3 : http://www.greenenergyinvestors.com/index.php?showtopic=6818

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