Epiphanyblog

All about ideas…

Economist Roubini says mortgage contracts should be broken.

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In speaking to CNBC today while attending the CBOE Risk Management conference, Roubini stated

…that the housing market, like a company restructuring in bankruptcy, needs to have “face value reduction of the debt.” Rather than go through mortgages one by one, he says reduction has to be “across the board…break every mortgage contract.”

The man who predicted this recession and has been right every time about its depth also says the stimulus package was not enough.

Roubini also took issue with the $800 billion stimulus package, saying it’s not enough. For one thing, there’s only $200 billion upfront, and half of that is a tax cut, which Roubini calls “a waste of money” that is not going to make a difference.

Finally, while he says there will be “a light at the end of the tunnel”, it’ll probably get worse before it gets better. Those who believe in a second half recovery this year “are delusional” he says.

In fact, based on Roubini’s calculations, we could conceivably see the S&P 500 at 500, the Dow at 5000.

So much for Republican ideology of tax cuts as the solution to every fiscal problem. So much also for getting out of this mess soon. I hope Roubini is wrong this time…but he’s been right too often for me to bet against him.

Nevertheless, I wonder about his idea of breaking all the mortgage contracts and restructuring them. Would it work? How would it work? And what would be the unintended consequences?

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