I've decided to analyze the different viewpoints of Tim Geithner's from both his supporters and his critics. This article points out Geithner's five statements he made, and clarifying why it is not true or misleading.
One of the misconsceptions is about bad assets.
"Bad assets are "bad" because the market doesn't understand how much they are really worth. The reality: The bad assets are bad because they are worth less than the banks say they are. House prices have dropped by nearly 30% nationwide. That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion). The banks don't want to take their share of those losses because doing so will wipe them out. So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer."
These bad housing investments have a big impact on GDP. One of the major components for GDP is investments. Banks are investing in houses predicting that they will continually go up, and be able to take less of a hit if the owner defaults on their loan. Not only do the banks lose money on their investments, home owners also lose money when they see their homes lose their value. This results in a lose of GDP.
The article also shows two staggering graphs of the percentage of our GDP as debt, and the writer is very skeptical that the economy will recover due to America's huge debt.
No comments:
Post a Comment