Hudson: Greece FIRE

[Munger]

Re: Hudson: Greece FIRE

Housing prices are determined by the monthly payment. Let's say a person can afford to spend $1,000 per month on the housing costs. If the taxes run at $800 per month, that leaves $200 available to pay mortgage and interest. If the taxes run at $0 per month, that leaves $1000 to pay on mortgage and interest. In the first scenario, the equilibrium house price might be around $20,000. In the second scenario, the house price might be around $100,000. Same total payment stream, same house. But in first the scenario, the government gets $800 to spend on roads, utilities, firemen, etc. In the second scenario, the government gets nothing while the bank gets the (now) substantial interest payments. Moreover, the person is beholden to the bank for $100,000. Plus, the person has to pay either additional taxes or the private sector to provide the roads, firemen, etc.

[c1ue]

Re: Hudson: Greece FIRE

Housing prices are determined by the monthly payment. Let's say a person can afford to spend $1,000 per month on the housing costs. If the taxes run at $800 per month, that leaves $200 available to pay mortgage and interest. If the taxes run at $0 per month, that leaves $1000 to pay on mortgage and interest. In the first scenario, the equilibrium house price might be around $20,000. In the second scenario, the house price might be around $100,000. Same total payment stream, same house. But in first the scenario, the government gets $800 to spend on roads, utilities, firemen, etc. In the second scenario, the government gets nothing while the bank gets the (now) substantial interest payments. Moreover, the person is beholden to the bank for $100,000. Plus, the person has to pay either additional taxes or the private sector to provide the roads, firemen, etc.

Good description.

But you're forgetting the other parts of the second scenario:

Mortgage banker gets $500 (1/2%) for selling the loan. Investment banker get $1000 (1%) for the securitization plus commission. A different investment banker get $250 (1/4%) for the CDO(n). Bank gets $95,000 over 30 years in interest. Politicians get $100 via 'donations' from mortgage banker, investment banker, bank, bank CEO, bank PAC.

[don]

Re: Hudson: Greece FIRE

Housing prices are determined by the monthly payment. Let's say a person can afford to spend $1,000 per month on the housing costs. If the taxes run at $800 per month, that leaves $200 available to pay mortgage and interest. If the taxes run at $0 per month, that leaves $1000 to pay on mortgage and interest. In the first scenario, the equilibrium house price might be around $20,000. In the second scenario, the house price might be around $100,000. Same total payment stream, same house. But in first the scenario, the government gets $800 to spend on roads, utilities, firemen, etc. In the second scenario, the government gets nothing while the bank gets the (now) substantial interest payments. Moreover, the person is beholden to the bank for $100,000. Plus, the person has to pay either additional taxes or the private sector to provide the roads, firemen, etc.

That comes close to unveiling some of the magic of Cali's Prop 13.

[wayiwalk]

Re: Hudson: Greece FIRE

Good point, and it won't be easy.

I live in a neighborhood well-populated by FIRE economy masters-of-the-universe (couldn't help it, I moved to be in a good school district).

A good number of arrogant types, that both think they're doing "god's work" (only they believe they are the gods), and as EJ has said elsewhere - they're not going to give up their power/money easily!!!

[ST]

Re: Hudson: Greece FIRE

Thanks Munger & clue - succinct and clear.

[Rajiv]

Re: Hudson: Greece FIRE

This is what Hudson had to say in a comment on the UMKC site

Well, of course the comments are right. The Greek government COULD have simply monetized the deficit. But that's not what it does. So for starters, we're dealing with a euro-government that has no inkling of MMT.

Of course I believe in MMT. But I ALSO think that it's a good idea to tax the unearned income, if only to prevent a rentier class from developing. Taxing away land rent will PREVENT it from being capitalized into bank loans to bid up real estate prices. (The same is true of monopoly rents for privatized public enterprises.)

My criticism of Greece is that if you ARE going to monetize a deficit instead of taxing, taxes on labor should be the FIRST to be cut -- and taxes on land rent the last.

What I said about German banks owning Greek bonds is correct -- that's a problem of NOT following MMT -- and also of "freeing" property from taxation.

-Michael Hudson