What if everybody on the planet received stimulus checks?

[Bob Walance]

It seems (to me) that if everybody received the same amount of money then the health of the global economy would not be affected.

Any other ideas?

 

[mcastillo356]

Why?.

 

[Vanadium 50]

By that argument, one could make the checks as large as we wanted. Why not a billion dollars each?

 

[gmax137]

You can't give "everybody" the same amount -- some bodies are paying. Every dollar given out comes from somebody's bank account. Sooner or later.

Even if you print money and pass it out, all that does is make the money people had to begin with worth less.

 

[phinds]

Any other ideas?

My idea is that you should study some basic economics

 

[JT Smith]

Isn't this an economic version of a perpetual motion machine?

 

[phinds]

Isn't this an economic version of a perpetual motion machine?

good analogy

 

[Jarvis323]

I think that most wealth is held up in complex systems of debt. A lot of stimulation could be achieved by unlocking some of that potential through debt forgiveness.

 

[russ_watters]

I think that most wealth is held up in complex systems of debt. A lot of stimulation could be achieved by unlocking some of that potential through debt forgiveness.

In order for one person to be in debt, another person has to have lent them money. What sort of impact do you think debt forgiveness would have on the lenders? Both in terms of their current economic health and their future likelihood to lend people money?

Hint: 10 years ago, the entire economic system of the developed world almost collapsed because of your idea.

Caveat: Debt is not wealth. Wealth is positive money, debt is negative.

 

[phinds]

I think that most wealth is held up in complex systems of debt. A lot of stimulation could be achieved by unlocking some of that potential through debt forgiveness.

See post #5

 

[Rive]

It seems (to me) that if everybody received the same amount of money then the health of the global economy would not be affected.

Guess any job what earns less than that would be just abandoned right away.

While I do not think that a base 'salary' kind of thing would do much harm it is not matter of 'stimulus' but must remain the matter of low level social aid.

 

[Jarvis323]

In order for one person to be in debt, another person has to have lent them money. What sort of impact do you think debt forgiveness would have on the lenders? Both in terms of their current economic health and their future likelihood to lend people money?

Hint: 10 years ago, the entire economic system of the developed world almost collapsed because of your idea.

Caveat: Debt is not wealth. Wealth is positive money, debt is negative.

I think that's an oversimplification at best and maybe the opposite of the truth. The system nearly collapsed because of high level economic crimes. People were lending money that didn't exist and the economy was essentially operating like a pyramid scheme. Then they were using non existent money to encourage regular people to go into debt by giving out large fraudulent loans without guarantees. Those people who were loaned money that didn't exist in turn couldn't pay it back.

It was actually caused more by debt creation than forgiveness. The people who caused the whole thing then used the crisis to take over their smaller competition, and recovered their losses with taxpayer money.

 

[russ_watters]

I think that's an oversimplification at best and maybe the opposite of the truth. The system nearly collapsed because of high level economic crimes. People were lending money that didn't exist and the economy was essentially operating like a pyramid scheme. Then they were using non existent money to encourage regular people to go into debt by giving out large fraudulent loans without guarantees. Those people who were loaned money that didn't exist in turn couldn't pay it back.

That's just not how it works, and if there were a significant number of crimes, it would be provable and you or someone (the feds) could point to them and prosecute them. What you are saying is basically made-up conspiracy theory. It's popular for people to assume the crisis was caused by crimes, but it just isn't true*.

At its basic level, when one person deposits money in a bank, the bank turns around and lends that money to another person. What you are calling "large fraudulent loans without guarantees" was primarily mortgages taken out by regular people, who couldn't afford to pay them back. The "debt forgiveness" was those people defaulting on their loans.

Secondarily, the banks/investment companies treated those mortgages like investments and bought/sold them to each other. When the mortgages were "forgiven" (defaulted), that market collapsed.

People like to believe that the core issue is that greed causes bankers to act illegally when the reality is primarily that greed causes them to act stupidly. And not just their greed/stupidity, it was also greed/stupidity for millions of ordinary Americans to take out loans they couldn't pay back.

It was actually caused more by debt creation than forgiveness.

Well, yeah, of course: in order to forgive a loan you first have to make a loan. Whether the loans are forgiven voluntarily or involuntarily, it's the same thing. I have no idea why you think there's a difference between this and what you are suggesting. What loans, exactly, are you suggesting be forgiven?

The people who caused the whole thing then used the crisis to take over their smaller competition, and recovered their losses with taxpayer money.

A large number of investors never got their money back, but surprisingly, the government bailout turned a profit for the government/taxpayers. It didn't cost taxpayers anything.

*Most of the wrongdoing that was punished was by the rating agencies (sometimes tied to the banks themselves) who rated loans/investments as more solid than they really were. A number of companies were fined, but nobody prosecuted. But that's a tough one, because the government actually encouraged giving mortgages to people who's reliability wasn't good, under the political/social idea that basically everyone should be able to buy a house. Still, again, this is your idea in action: give a mortgage to someone so they can buy a house, then "forgive" it.

 

[Jarvis323]

That's just not how it works, and if there were crimes, it would be provable and you or someone (the feds) could point to them and prosecute them. What you are saying is basically made-up conspiracy theory. It's popular for people to assume the crisis was caused by crimes, but it just isn't true*.

At its basic level, when one person deposits money in a bank, the bank turns around and lends that money to another person. What you are calling "large fraudulent loans without guarantees" was primarily mortgages taken out by regular people, who couldn't afford to pay them back. The "debt forgiveness" was those people defaulting on their loans.

Secondarily, the banks/investment companies treated those mortgages like investments and bought/sold them to each other. When the mortgages were "forgiven" (defaulted), that market collapsed.

People like to believe that the core issue is that greed causes bankers to act illegally when the reality is primarily that greed causes them to act stupidly.

Well, yeah, of course: in order to forgive a loan you first have to make a loan. Whether the loans are forgiven voluntarily or involuntarily, it's the same thing. I have no idea why you think there's a difference between this and what you are suggesting. What loans, exactly, are you suggesting be forgiven?

A large number of investors never got their money back, but surprisingly, the government bailout turned a profit for the government/taxpayers. It didn't cost taxpayers anything.

*If there were any crimes, it would have been the rating agencies who rated loans/investments as more solid than they really were. But that's a tough one, because the government actually encouraged giving mortgages to people who's reliability wasn't good, under the political/social idea that basically everyone should be able to buy a house. Still, again, this is your idea in action: give a mortgage to someone so they can buy a house, then "forgive" it.

https://money.cnn.com/2014/05/05/investing/too-big-to-jail/?iid=EL

I meant fraudulent in the sense that the banks were giving loans out to people that they knew couldn't pay them back and concealing it.

A large body of empirical research has now convincingly documented how mortgage fraud contaminated all portions of this supply chain (Griffin and Maturana, 2016; Piskorski, Seru and Witkin, 2015; Garmaise, 2015; Jiang, Nelson and Vytlacil, 2014; Black, 2013; Ben-David, 2011). This research has shown how these mortgages were originated with fraudulent and negligent practices, and how these abusive practices were then concealed from and misrepresented to investors who purchased securities based on these mortgages.The private label originate-to-distribute supply chain consisted of institutions which originated mortgages and then sold these loans to investment banks for distribution. Investment banks then packaged mortgages into securities, obtained ratings from ratings agencies, and sold the securities to investors. Finally, a servicer would process loan payments and manage defaults on behalf of the investors. Often a single large institution, such as Wells Fargo, would be responsible for all parts of this supply chain, but it was more common for these functions to be handled by separate institutions.

...

What sellers of MBS concealed from investors was a wholesale breakdown in underwriting standards at origination, which included outright falsification of borrower financial information. However, the sale of loans that were originated with fraudulent practices, or simply negligent underwriting, typically violated market regulations and contractual obligations. These rules require the accurate disclosure of loan quality. Of course, if these practices were disclosed, the securities would obviously not have been marketable. Loan officers and underwriters who originated loans for private securitization used a variety of techniques to falsify borrower financial information such as inflation of appraisal values, failure to report second liens, income overstatement, and misreported owner occupancy status. This was done to qualify borrowers for larger loans than they would otherwise be able to obtain and had the effect of making loans more risky by increasing borrower leverage.

The direct falsification of borrower financial information was largely committed by loan officers and underwriters within the industry, who coached borrowers on the specific ways to falsify their information, rather than by borrowers who defrauded otherwise honest lenders. For example, based on investigations and fraud reports, the FBI found that 80% of fraud cases involved collusion or collaboration with industry insiders (FBI, 2007). For example, a loan officer from Ameriquest explicitly described deceiving borrowers who were not comfortable with falsifying their information. He stated that, “Every closing was a bait and switch, because you could never get them to the table if you were honest,” and further elaborated, “There were instances where the borrower felt uncomfortable about signing the stated income letter, because they didn’t want to lie, and the stated income letter would be filled out later on by the processing staff.”[2] Perhaps most infamously, workers at another Ameriquest branch dubbed their break room the “Art Department” because it contained all the tools needed to falsify documents (Hudson, 2010).

https://www.ineteconomics.org/persp...d-fueled-the-financial-crisis-and-could-again

You could call if debt forgiveness, but people also lost their houses after years of paying towards them. A lot of the time banks would be happy to get the house after people have been paying on them for years. But the cascade of people losing their houses destroyed the housing market.

Overall, the crisis was incredibly complex.

The bailout turning a profit is disputable. Although it's better than having lost a half a trillion dollars.
https://www.nationalreview.com/2015/01/overselling-tarp-myth-15-billion-profit-matt-palumbo

 

[russ_watters]

Overall, the crisis was incredibly complex.

Agreed, so let's simply/get back to the primary topic:

I meant fraudulent in the sense that the banks were giving loans out to people that they knew couldn't pay them back...

You could call it debt forgiveness, but people also lost their houses after years of paying towards them.

So, how is this not your suggestion in post #8 in action? And if not, please be specific about what debt you would forgive, that you are referencing in post #8.

 

[sysprog]

That's just not how it works, and if there were crimes, it would be provable and you or someone (the feds) could point to them and prosecute them. What you are saying is basically made-up conspiracy theory. It's popular for people to assume the crisis was caused by crimes, but it just isn't true*.

At its basic level, when one person deposits money in a bank, the bank turns around and lends that money to another person. What you are calling "large fraudulent loans without guarantees" was primarily mortgages taken out by regular people, who couldn't afford to pay them back. The "debt forgiveness" was those people defaulting on their loans.

Secondarily, the banks/investment companies treated those mortgages like investments and bought/sold them to each other. When the mortgages were "forgiven" (defaulted), that market collapsed.

People like to believe that the core issue is that greed causes bankers to act illegally when the reality is primarily that greed causes them to act stupidly.

Well, yeah, of course: in order to forgive a loan you first have to make a loan. Whether the loans are forgiven voluntarily or involuntarily, it's the same thing. I have no idea why you think there's a difference between this and what you are suggesting. What loans, exactly, are you suggesting be forgiven?

A large number of investors never got their money back, but surprisingly, the government bailout turned a profit for the government/taxpayers. It didn't cost taxpayers anything.

*If there were any crimes, it would have been the rating agencies who rated loans/investments as more solid than they really were. But that's a tough one, because the government actually encouraged giving mortgages to people who's reliability wasn't good, under the political/social idea that basically everyone should be able to buy a house. Still, again, this is your idea in action: give a mortgage to someone so they can buy a house, then "forgive" it.

I think that the Bank of England presented a good, and to me surprisingly frank, explanation of the money supply that goes well beyond the overly simple model of banks lending out deposited funds:

https://www.bankofengland.co.uk/-/m...ney-in-the-modern-economy-an-introduction.pdf

https://www.bankofengland.co.uk/-/m...2014/money-creation-in-the-modern-economy.pdf

Regarding whether crime led to the housing market crash, I think that at least morally it certainly did; however, the ability of large financial interests to influence regulatory legality can pay off quite well in reward and impunity for financial wrongdoing.

It wrong for investment mangers to take excessive risks, and when they encounter the downside of those risks, simply get bailed out at public expense $-$

https://www.investopedia.com/articles/07/subprime-overview.asp

https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the_subprime_crisis

https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program.

 

[russ_watters]

Regarding whether crime led to the housing market crash, I think that at least morally it certainly did; however, the ability of large financial interests to influence regulatory legality can pay of quite well in reward and impunity for financial wrongdoing.

It wrong for investment mangers to take excessive risks, and when they encounter the downside of those risks, simply get bailed out at public expense...

Agreed, but I wouldn't let off the hook the people who recklessly took out loans they couldn't pay back. Much of that recklessness was built into the law/policy/ethics of the situation was done for their benefit, and they both contributed to the recklessness and profited from it:

...but people also lost their houses after years of paying towards them.

Their reward/profit for their recklessness was living in a house for years, that they never should have lived into begin with. That was a major prong of the government policy that led to the crisis.

 

[Jarvis323]

Agreed, so let's simply/get back to the primary topic:

So, how is this not your suggestion in post #8 in action? And if not, please be specific about what debt you would forgive, that you are referencing in post #8.

I would look into forgiving debt in a strategic way, to: (1) prevent even more unmanageable debt that cannot be realistically paid back from piling up; (2) Be fair; so that debt accrued through predatory lending practices, or that is piling up exorbitant costs far beyond what was borrowed in the first place is prioritized (people being ripped off essentially). (3) Debt resulting from medical costs; just cause it's the right thing to do. (4) Student debt to a limited extent.

There are economists who agree with me that debt forgiveness can help us (or may be necessary) to recover from the current crisis. But there are economists who disagree as well.

 

[russ_watters]

(1) prevent even more unmanageable debt that cannot be realistically paid back from piling up...

That's not debt forgiveness, that's issuing fewer loans, but fair enough, I agree with that.

(2) Be fair; so that debt accrued through predatory lending practices, or that is piling up exorbitant costs far beyond what was borrowed in the first place is prioritized (people being ripped off essentially).

That's too vague to respond to well. There are certain types of loans that I would agree are predatory, such as payday loans, and I would support outlawing them and in some cases shutting down the loan companies

(3) Debt resulting from medical costs; just cause it's the right thing to do.

I'm not sure how one would do that, because it's not a coherent class of debt. Some is on credit cards and some is on mortgages, for example. And some is just unpaid bills. Do you still literally mean forgiving this debt or are you thinking more in terms of just handing out money to pay it back, per the OP's suggestion?

(4) Student debt to a limited extent.

There's a variety of entities that hold student loan debt. Forgiving it would mean harm to banks and more debt for the federal government.

There are economists who agree with me that debt forgiveness can help us (or may be necessary) to recover from the current crisis. But there are economists who disagree as well.

Sure, and it gets into a matter of personal politics. When a debt is forgiven, someone gets hurt. Support for such ideas is largely about hurting the right people. However, I suspect that in a lot of cases the secondary and tertiary harms aren't well considered:
1. If you hurt a bank or a hospital, you aren't just hurting the rich CEO, you're hurting the everyday Americans who invested in the bank or hospital system.
2. If you hurt a bank or hospital, they may not be able to provide their services anymore, to people who need/want them.

And that's my main counterpoint on debt forgiveness: people get harmed by it, and it usually isn't just the people that people want to harm.

 

[Vanadium 50]

I have money in the bank and in bonds. I intend to use this money to retire someday. I have loaned this money to banks (who then further loan it out) and governments who are borrowing from me.

If we have "debt forgiveness", that means I don't get my money back. I may lose my house, and my retirement will not be very nice. Why is it fair that I lose my house so that other people can keep theirs?

If the answer is "hey this is a democracy, and there are more of us grasshoppers than you ants" pretty soon there won't be any ants.

 

[russ_watters]

If we have "debt forgiveness", that means I don't get my money back. I may lose my house, and my retirement will not be very nice. Why is it fair that I lose my house so that other people can keep theirs?

Because it was reckless of you to be responsible with your money your entire life, and you need to be punished for that. And people who were reckless should be rewarded and encouraged to be more reckless in the future.

 

[russ_watters]

It [is] wrong for investment mangers to take excessive risks, and when they encounter the downside of those risks, simply get bailed out at public expense...

It isn't the investment managers' money, it's the money of everyday people like you and me. Those loans/bailouts didn't bail out the investment managers, they bailed out us.

 

[Rive]

Those loans/bailouts didn't bail out the investment managers, they bailed out us.

I won't debate that, but the extra money those managers could cash on those bailouts feels a teeny bit excessive for me

Ps.: by the way, the topic feels a bit derailed now, maybe a split would be in order?

 

[Jarvis323]

Do you still literally mean forgiving this debt or are you thinking more in terms of just handing out money to pay it back, per the OP's suggestion?

I'm not going to pretend I am capable of coming up with a noteworthy coherent strategy on the fly while sitting in an armchair. Of course any solution will be highly complicated and take teams of people to work out the deals and make the ultimate decisions.

I think it might be possible to forgive debt outright in part, in the form of waiving interest and penalties, or canceling the debt if the net sum paid (including interest) is on par with what was owed, while trying to be fair so that both parties come out even. The moral argument is that the pandemic isn't the fault of either party, but the situation has made the contract untenable. Both parties can be considered to have taken a risk, so we distribute the consequences of the risk to both parties fairly. Or something like that.

Second, in some cases it might make sense to simply pay people's debts directly; with say, some of that printed money. I guess (1) the money goes to the banks anyway; which works towards bailing them (or you and vanadium, or us, or whoever) out (as we would be doing anyways). (2) It also helps out the person in debt, who may then be able to keep from becoming homeless, needing to take out more debt to make payments on the existing debt, or from losing their business. Or it might simply free up cash for them to spend, thereby stimulating the economy.

 

[PeroK]

It isn't the investment managers' money, it's the money of everyday people like you and me. Those loans/bailouts didn't bail out the investment managers, they bailed out us.

Everyone has their own views on this, but I have the suspicion at least that those in positions of power in financial services take more out of the system than is justified. Certainty it appears easier in banking and finance to overestimate the value of investments (either fraudulently or by over-confidence) than in other industries. It's much harder for a supermarket, say, to pretend it's making vast profits for five years and then crash owing trillions.

In any case, I'm not convinced I'm any wealthier because over a thousand people in the City of London get a million pound bonus every year. It feels to me that we are subjected to a type of financial dictatorship that no government has been able to tackle effectively.

 

[sysprog]

It isn't the investment managers' money, it's the money of everyday people like you and me. Those loans/bailouts didn't bail out the investment managers, they bailed out us.

I view it as a gambling operation such that when a favored bettor loses, people who didn't play can be forced to pay in his stead. The early players made out like bandits, the big guys got bailed out at the crash, and there was rampant fraud, and gross inequities $-$ e.g.
Goldman-Sachs and Citibank:

https://fortune.com/2016/04/11/goldman-sachs-doj-settlement/

https://abcnews.go.com/Business/story?id=8214818&page=1

and the alternative of denying a bailout doesn't always turn out well either:

https://www.nytimes.com/2014/09/30/...e-lehman-brothers-bailout-that-never-was.html

 

[phinds]

If the answer is "hey this is a democracy, and there are more of us grasshoppers than you ants" pretty soon there won't be any ants.

Yep. Ayn Rand's Atlas Shrugged

 

[russ_watters]

I won't debate that, but the extra money those managers could cash on those bailouts feels a teeny bit excessive for me

Everyone has their own views on this, but I have the suspicion at least that those in positions of power in financial services take more out of the system than is justified...

In any case, I'm not convinced I'm any wealthier because over a thousand people in the City of London get a million pound bonus every year.

I view it as a gambling operation such that when a favored bettor loses, people who didn't play can be forced to pay in his stead.

Oh, I don't disagree, guys. I'm fundamentally opposed to the idea of other people managing my money on general principle. I don't have an investment manager, and don't have a pension (another idea I think makes no sense), so I'm in nearly complete control over my money. I don't think a bank failure could cost me anything, though I guess I can't be certain of that.

Fundamentally, people have jobs to make money for themselves, and absent a true professional responsibility and license (doctor, accountant, engineer), there is no legal responsibility for a person/investment manager to act in the best interest of their clients. One might argue there's an ethical/moral responsibility, but I'd never trust my life savings to someone based on the hope that their morals/ethics align with mine.

To me it is a bit like a casino poker game, but inverted. The house fronts the money, and the gamblers bet it and take a cut from the house (we're the house in this analogy). And the gamblers can invent new and creative ways to bet and take cuts. Large, institutional savings such as pension funds provide those guys such a sandbox to play into invent new ways to bet other peoples' money, often without those people even knowing it.

Ps.: by the way, the topic feels a bit derailed now, maybe a split would be in order?

I'm not so sure. The issue of the OP is that it's unclear where the money would come from, and a lot of this is discussion of that issue. I did try to steer us away from too much in depth discussion of the 2008 financial crisis though. (this post notwithstanding)

 

[Vanadium 50]

There are certain types of loans that I would agree are predatory, such as payday loans, and I would support outlawing them and in some cases shutting down the loan companies

I think this is actually an example of the wrong people get hurt.

Full disclosure: I used to hold stock in a payday loan company. I sold it because it's a hard way to make money and eventually the reward wasn't worth the risk.

There are some people who live loan-to-loan and never catch up. Most of them ultimately default. Payday loan companies do not like these customers, and if there were a cheap way to identify them before their first loan, wouldn't do business with them. Then there is the bread-and-butter customer: someone comes in once or twice a year, and rolls the loan over once or not at all. The way you make a profit in this business is by having a lot of customers of the second type who end up supporting customers of the first type.

Averages and medians look very different, as do statistics by loan vs. by customer.

If you express the cost of a loan as a percent interest rate, it looks crazy. As would a mortgage that you paid back after two weeks. So why would anyone get one?

The answer is that it let's the borrower avoid bank charges - around $35 for overdraft or NSF, per transaction once the balance hits zero. It doesn't take many transactions before it would be better to pay the payday lender instead of the bank.

Banks hate this. Overdraft fees are a $12B business and payday lending is $9B. And nobody defaults on a bank fee. And banks led the charge against payday lending.

Are the borrowers really better off? How are they helped by having fewer options?

 

[jack action]

People like to believe that the core issue is that greed causes bankers to act illegally when the reality is primarily that greed causes them to act stupidly. And not just their greed/stupidity, it was also greed/stupidity for millions of ordinary Americans to take out loans they couldn't pay back.

Assuming nothing illegal happened, it is funny that you don't mention how stupid it is for people to blindly lend their own money to irresponsible bankers that gives it to irresponsible loaners, basically having no clue what they do with it.