“impossible” to take the overt political step at the time.

It was a political impossibility to foregive the war debts, but a practical impossibility to collect them. It all tied into the impossibility of collecting reparations from Germany, at least as far as the debts of the UK and France. In hindsight, would have been better to have just foregiven them and let the world get on with its business, but no one had that crystal ball (tho some people, notably Keynes, noted the connections between reparations, war debt and weak economies).

And the whole clusterf**k was part of what led to the Great Depression and inter alia, Hitler and WW2.

My only reason in bringing it up was that most Americans viewed the war debts as a solemn debt (which it was) and that moral commitment to the exclusion of other considerations led to some very bad policy, and there may be some lessons there for today’s world.

It may have been a political impossibility, but it happened in part (except for Finland). This is from Martin Gilbert’s Atlas of American History:

“War debts were payable to the U. S. over 62 years at an interest rate of just over 2%. Armenia never came into existence as an independent state, and thus none of the debt was paid. Finland alone of 19 nations paid her debt in full by 1965. In 1925 the United States cancelled 80% of the Italian debt. In 1926 60% of the French debt was cancelled. The Bolshevik Government of Russia rejected the demands that it honour Tsarist debts.” (p. 77)

Some of the 19 nations’ debts were extremely large. Britain owed the US 4.3 billion, France 3.4 billion, and Italy, 1.6 billion.

(Incidentally, the little Gilbert atlas has much in it, including some things that were new to me. I suspect, for instance, that you can surprise at least 95 percent of your friends with this gem.)

I can swallow hard and accept giving $$$ to someone who doesn’t really deserve it, if doing so increases societal well-being enough, but rewarding criminal fraud is a bridge too far for me.

One thing that needs to be remembered is that high house prices aren’t of value to everybody.

Especially since most of the unrealistic home prices are concentrated in a few geographical areas such as costal California and southern Florida.

Also, excessive belief in the investment value of housing has surely pulled investment dollars away from more economically-productive sectors.

If their lives don’t stabilize, then our lives don’t stabilize

The problem is we can’t stabilized the value of houses at an artificially high level. A lot of these houses are in California where they had small bungalows tricked out with luxury finishings and selling for $800,000-$1,00,000. Nobody is ever going to pay that much for those houses. We can’t stabilize the value of the these upmarket (really overmarket) houses by pumping more money into inflated values. The only thing to do is let the values drop to something that people will pay for.

Eventually, people will just stop saving at all and instead try to secure their economic future solely with political power.

What do you mean eventually?

“Personally, I hate the idea of 10 guys sitting around in the White House trying to redesign huge swaths of the U.S. economy on legal pads.

But at least they seem to be driven by a spirit of moderation and restraint. They seem to be trying to keep as many market structures in place as possible so things can return to normal relatively smoothly.

And they seem to understand the big thing. The nation’s economy is not just the sum of its individuals. It is an interwoven context that we all share. To stabilize that communal landscape, sometimes you have to shower money upon those who have been foolish or self-indulgent. The greedy idiots may be greedy idiots, but they are our countrymen. And at some level, we’re all in this together. If their lives don’t stabilize, then our lives don’t stabilize. “

What depresses me is that rolling back the achievements of welfare reform and education reform of the last few years will promote a disproportionately illegitimate & passive, bitter & sullen, poorly educated & defensive dependent class growing Alfies by the nursery fulls. Stupid economic engineering is most destructive when it tries (or ignores its complicity in) social engineering.

If one buys moral hazard by the tank car load, and sprays it around a country for a couple of generations, one is going to get a pretty good crop of chavs.

I think it’s time they stopped drinking our water and carried their own. I didn’t win life’s lottery I earned every penny the old fashioned way, by working my little ant tail off for it.

The thrust of the plan is not, I believe, to hurt prudent people or (as we’re told) to help keep people in their houses. I believe it is meant to prop up the failing financial system, the failed banks and bankers.

It is pretty bizarre that, with housing being overpriced, the government would try to support overpricing which, if it were successful, would leave us with the very same problem we have been having all along. As Shannon said, it won’t be successful, and the best such a plan can do is delay the time when housing
returns to affordable levels and contribute only a little bit to general inflation. The worst it can do is beyond me.

I agree, forgiving the war debts was a political impossibility in the 1920s United States. But, we learned something and didn’t try to reclaim all our Lend-Lease aid (which was just lent or leased, and by legal rights we could have insisted on its return) to UK, USSR and others in 1945, did we? And one has to accept that 1945-1970 for all its problems was better than 1918-1945, despite the malign presence of the USSR and Stalin athwart half of Europe in 1945, doesn’t one?

Some Germans were spoiling for a fight, and Hitler was their champion, but a big reason they were spoiling for a fight was they felt they had agreed only to an Armistice in November 1918, with a peace treaty to be based on the 14 Points, and they were then disarmed, ocupied, continud to be bvlockaded and starved, and then presented with an ultimatum that was much harsher than they had any reason to expect in 11-1918. And reparations were a part of that.

But a lot of Germans WEREN’T spoiling for a fight, they might have been disappointed, even angry, but they didn’t want another war–Berlin was almost morgue-like on Sept. 3, 1939, contrast to August 3, 1914.

We can certainly disagree about what to do, and I’m pissed as hell at my money being used to bail out people who lied to get their NINJA loans, but if I was looking at three foreclosures on my block right when I wanted to sell and retire to Arizona, I might say, hell, try to do something to keep those foreclosures from destroying my equity.

The moral hazard issue is a very tough one and we can disagree about what is the right balance, I’m just sayin’ there IS a balance to be struck

I daresay your description of the 1920s is very high-school social studies-ish.

Well, I disagree since the idea that war reparations caused the rise of Hitler was in fact the story I was taught in high school. I don’t think it holds up well as an explanation of WWII. The Germans were spoiling for a fight and they probably would have gotten it at some point. It certainly would have been generous for the U.S. to forgive the loan but that would have involved levying a tax on U.S. citizens to pay off European debts. That wasn’t going to happen in the 1920’s. Given the degree to which tariffs contributed to federal revenues of eras, it might have even backfired if tariffs were raised to pay for the write off.

… but imho moral hazard is only part of the nest of problems to be addressed, and focusing on it to the exclusion of everything else is not a sound way to make policy.

I remain unconvinced that two moral hazards make a right.

The fundamental problem with the residential housing market is that people own houses whose mortgages require a larger percentage of their income than they can or will devote to housing. Taking money from others to alter the conditions of the mortgages does not change the fundamental fact that the houses are intense luxury items that have little intrinsic value. By hurting prudent people we don’t address that fundamental problem.

Not a bad idea in general, if in place at the time it would certainly have curbed some of the more spectacular risky behavior of 2005-6-7. Some European countries do this, I understand, and they don’t have anything near our problems with mortgage defaults and foreclosures. Might even lower the costs of getting a mortgage (for teh truly credit-worthy) as it would shift some financial risk from lender to borrower.

This would have been easy to include–might have required some states to change their laws, but that would be their choice if they want their residents to be eligible to participate.

It would have probably been difficult to administer, but still should have been done.