SC wrote:

At some point, in our capitalistic system, losses must be taken or the price of the commodity has to recover...in order for prices to recover,,,the environment for business must favor growth...

I have a very real example of that right on our block which seems to illustrate why we cannot rely on our banking system to right the ship any more than our government...no one wants to be the one in charge and accept the repsonsibility of realizing losses.

A local example:

There is a classic 160 year old house on my block of older homes which has been vacant for almost two years, pipes frozen, holes in walls, and is in real danger of deteriorating and detracting from the whole neighborhood. Bank of America holds the mortgage which was issued at the height of the real estate bubble in 2004 or so. The last owner paid way too much for it and the mortgage is held by the Bank of America who continues to accrue fees etc on it and on their books they are owed about $400,000. for this house.

The "price of this commodity" is never going to recover, in fact the value is likely to decline from neglect.  "Growth" in housing demand will never (in my opinion) recover enough to get this house and the Bank of America "above water".

The house is not worth anywhere near this figure. And will be worth less as time goes on. Older houses need someone in them and TLC.

A friend of mine has been trying to buy this house for what the current value appears to be given the amount of money that will need to be put into it to make it liveable again.

Bank of America has dragged their feet on replying and finally did reply recently through the real estate agent who handles "underwater" sales that they want close to 400,000. for this house.

Now in my opinion this house was never worth the $400,000 they loaned on it and never will be. It appears to me that Bank of America would rather keep the loan on its books and keep accruing fees etc than to realize the loss down to the $200,000 range which is really about all the house is worth in its current condition and given the local market and alternatives. You can buy a brand new house for in the area of what my friend was offering and not have the hassles and expenses of this big old house.

It seems that Bank of America is willing to keep "papering over" this, turn down a realistic cash offer, and let their property and neighborhood suffer deterioration rather than realize the seemingly inevitable loss on their books. At some point there will probably have to be a sheriffs auction to pay the real estate taxes due for several years unless the bank pays those, also rather than show the loss on their books.

So I think this is a local microcosm/example of what SC is talking about. Changing presidents or congress is not going to help as Roubini also says.

It seems like there are parallels between this neighborhood example and our national situation - WE, the people of the US, like the Bank of America, are not willing to realize the losses suffered due to OUR national behavior of the past decade.

WE collectively want to spend on things WE want to spend on but WE also want to cut taxes and absolutely skewer any political person who even suggests that we must pay our way. Politicians soon find that the way to insure their own position is to delay realizing the losses even further.

And as in Roubini's speech, politicians, (like the Wall St bankers) are sure they will suffer no negative personal consequences for the delay so why not continue the charade???

Just be negative and make sure you are not associated with anything that might be a bit painful...

Thanks to all for the thoughtful and respectful discussion on this and related topics here.

Jim at Dawn