Re: It is unnecessary for ANYONE to borrow money to own a …
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[quote=kmarinas86]Recommendation) One method to deal with this might
be for every $x mortgage defaulted, the bank’s debt to the Fed could be
reduced by $x. This would encourage not only stability but also greater
desire for banks to adopt the proposal. Even if my system were not
applied, this could be done even in our current financial context (I
Okay, now we’re down to the nub of the matter. You’re
admitting that the new scheme is to be capitalized by expropriating
existing creditors — that is, voiding contracts, which is unlawful.
However, the notion of expropriating ‘banks’ debt to the Fed’ is
backward. In the ordinary course of business, banks keep reserves on
deposit at the Fed. Banks don’t owe money to the Fed; the Fed owes them money. Oops, there goes that idea!
there are some special cases of big, insolvent money-center banks which
have borrowed from the Fed and do owe it money. If this extraordinary
debt (TARP, TALF and the like) is cancelled out to fund your
scheme, then taxpayers are the bagholders who have put up the capital for the housing scheme.
No matter how you slice it, someone is putting up the
initial capital to fund the new housing scheme. If it’s the big banks or the
Fed, then the capital is derived from Treasury
debt. Your housing scheme may claim to be debt and interest free. But
its start-up capital — its original sin, if you will — is entirely
debt-based. Replacing mortgage debt with Treasury debt is a shell game,
accomplishing nothing. You cannot create capital ex nihilo. There is no magic formula. Sorry.