Wednesday, February 25, 2009
Nordstrom Woes
Amid recent reports of slumping forth-quarter profits, Nordstrom explores new strategies to get back on top and satisfy their customers. Here's a screenshot sent to me by a friend and loyal Nordstrom customer.
Tuesday, February 24, 2009
Monday, February 16, 2009
Home is Where Your House Was
The opinion has been expressed recently that instead of bailing out banks, government should bailout homeowners whose mortgages are in foreclosure. I disagree.
An important portion of the billions of dollars the government uses to bailout banks is used to buy bad debt. Bad debt doesn't generate revenue as quickly as is necessary for banks to operate normally, but government doesn't need to profit in the short-run, so buying this bad (but likely salvageable) debt is not a bad risk to take. Regardless of return on investment (measured by how well the debts may recover), the cash given to banks allows them to begin lending to companies and individuals again. This means companies can retain existing jobs or create new ones, and qualified individuals can get home and car loans; this translates to more consumer spending. Consumer spending is the mechanism through which a stimulus of any kind will eventually repair a bad economy.
When relief is given directly to those whose mortgage is in, or on the verge of, foreclosure - whether the relief takes the form of a tax credit, tax break, direct subsidy or otherwise - the relief is temporary. The problem with many of these mortgages is that they were barely affordable when the loan was granted; people signed on for loans with adjustable interest rates when rates were unsustainably low. Rates rose to natural levels and the mortgages were no longer affordable. To temporarily shore-up these mortgages is a short-term multi-billion-dollar solution with few benefits. It doesn't force the difficult, but ultimately necessary resettlement of the housing market. That is, nearly everyone who loses their home will be displaced to housing he or she can afford. Not everyone is meant to own a single-family home with extra bedrooms, and the market will always shake that out in the long-run.
It is true that direct subsidy or tax-relief will generate an increase in consumer spending when given to homeowners, but most of the spending will go directly to the mortgage companies. Mortage companies will, of course, pay workers and workers will spend money throughout the economy, further increasing consumer spending. But the only hope of government recapturing the financial outlay is through taxation and taxation alone. There is no repayment plan. In the end, this is not much more than a hand-out which leaves a signifcant portion of the economy - large-scale lending - in shambles. Bank bailouts are often loans that require repayment, and when not a loan, the government is making an investment by buying bad debt with the hope of future returns. Relief for the banks upon which every company and individual relies, either directly or indirectly, increases spending which creates tax revenue, the government comes away with assets that may eventually produce revenue, and there is plan for repayment.
Bank bailouts are simply the better choice.
An important portion of the billions of dollars the government uses to bailout banks is used to buy bad debt. Bad debt doesn't generate revenue as quickly as is necessary for banks to operate normally, but government doesn't need to profit in the short-run, so buying this bad (but likely salvageable) debt is not a bad risk to take. Regardless of return on investment (measured by how well the debts may recover), the cash given to banks allows them to begin lending to companies and individuals again. This means companies can retain existing jobs or create new ones, and qualified individuals can get home and car loans; this translates to more consumer spending. Consumer spending is the mechanism through which a stimulus of any kind will eventually repair a bad economy.
When relief is given directly to those whose mortgage is in, or on the verge of, foreclosure - whether the relief takes the form of a tax credit, tax break, direct subsidy or otherwise - the relief is temporary. The problem with many of these mortgages is that they were barely affordable when the loan was granted; people signed on for loans with adjustable interest rates when rates were unsustainably low. Rates rose to natural levels and the mortgages were no longer affordable. To temporarily shore-up these mortgages is a short-term multi-billion-dollar solution with few benefits. It doesn't force the difficult, but ultimately necessary resettlement of the housing market. That is, nearly everyone who loses their home will be displaced to housing he or she can afford. Not everyone is meant to own a single-family home with extra bedrooms, and the market will always shake that out in the long-run.
It is true that direct subsidy or tax-relief will generate an increase in consumer spending when given to homeowners, but most of the spending will go directly to the mortgage companies. Mortage companies will, of course, pay workers and workers will spend money throughout the economy, further increasing consumer spending. But the only hope of government recapturing the financial outlay is through taxation and taxation alone. There is no repayment plan. In the end, this is not much more than a hand-out which leaves a signifcant portion of the economy - large-scale lending - in shambles. Bank bailouts are often loans that require repayment, and when not a loan, the government is making an investment by buying bad debt with the hope of future returns. Relief for the banks upon which every company and individual relies, either directly or indirectly, increases spending which creates tax revenue, the government comes away with assets that may eventually produce revenue, and there is plan for repayment.
Bank bailouts are simply the better choice.
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