Posts Tagged ‘Financial Crisis’

Inside Job. Must see movie. Very Interesting

 | Comments Off on Inside Job. Must see movie. Very Interesting

If you truly want to understand how our economy got into it’s current mess, who’s responsible, and where they are now this is a must movie.

It does a great job of pulling together the threads and showing the whole cloth.

Reality vs. Partisan Pundits. No Contest

 | Comments Off on Reality vs. Partisan Pundits. No Contest

 

The Administrations well meant efforts to make it possible for many homeowners to avoid foreclosure has stirred up a hornet’s nest among some media commentators.

The Plan described at http://www.makinghomeaffordable.gov/ uses up to $75 billion to provide incentives to holders of FANIE MAE and FREDDY MAC loans to work with Borrowers to refinance, or modify existing problem loans, rather than simply go ahead and foreclose.

This is a classic version of the glass ½ full, or ½ empty. Typically, in our current exclusively partisan media, the answer is dictated solely by political affiliation regardless of the facts.

This is unfortunate because there are legitimate reasons for supporting, opposing, or, better still, improving the current process.

One the one hand it is a legitimate effort to try to help Joe Public get through a situation brought about by failures in our economic systems. Given the Trillions of dollars being ploughed back to the very people who caused this situation, the $75 Billion allocated to this program is peanuts.

On the other hand there is a valid argument to be made that subsidizing refinances, or modifying problem loans, is simply putting off an inevitable final default. This can often hurt the very people it purports to help by having them use up scarce funds in a doomed attempt to save an impossible situation, rather than simply give the property back to the Lender and getting  on with life.

The December report on the status of this program provides ample ammunition for both schools of thought, and the regulators have shifted emphasis to try to deal with the problems showing up.

The summary shows that 728,000 loan modifications are already in the required trial phase. Unfortunately only 31,382 have completed that phase and have become permanent, saving homeowners an average of $550 per month. The low rate at which Trials become Permanent  is a serious problem raising concerns that a significant number of these modifications are simply allowing the Banks to delay acknowledging the number of bad loans on their books and to avoid taking the losses on to their Balance Sheets.

If that is true then the inevitable result will be a longer period of foreclosed properties coming to market as these failed modifications fall apart.

As with most things there is not a simple answer, but on balance I come down on the side of giving the program a fair shot. This is based mostly on my view that given the countless billions we have poured into supporting the financial institutions that caused the problems,  a little effort to give similar assistance to the victims is not unreasonable.

The Fed and the Crisis

 | Comments Off on The Fed and the Crisis

The Fed and the Crisis

For anyone wishing to understand what the Federal Reserve actually did, and will continue to do in dealing with our current financial problems, here is a link to a San Francisco Fed web site where you will find a goldmine of facts and commentary. http://www.frbsf.org/econanswers/

It’s a great resource dealing with the process of digging out of the hole and getting back on track.

Maybe one day they will do an equally good job on their failure to prevent all this from happening. As far as I can see they did not have the courage to take away the cookie jar when this Bubble was so obviously getting seriously inflated.

Turns out that Mr. Greenspan really let us down by failing to spell out what was happening, and take the risk of being unpopular with his Political Masters. Like many before him he seemed to buy into the “New Paradigm” myth. Remember that phrase during the run up to the Dot Com bust.

The More Things Change The More They Stay The Same

 | Comments Off on The More Things Change The More They Stay The Same

This is the text of a remarkable lecture given by Nobel Laureate James Tobin in 1984. He was discussing whether a more simple Economic System would provide most if not all that is needed in a modern society.

“I suspect we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity. I suspect that the immense power of the computer is being harnessed to this “paper economy”, not to do the same transactions more economically but to balloon the quantity and variety of financial exchanges…I fear that, as Keynes saw even in his day, the advantages of the liquidity and negotiability of financial instruments come at the cost of facilitating nth degree speculation which is short-sighted and inefficient.”

It seems to me that this gentleman saw the current situation developing 25 years ago.

Let’s not lose sight of the fact that it is taxpayers and savers who pay the price for the recurring financial crises, not the whiz kids who benefitted most generously from its complexity.