3 Quick Steps For the Economy
How we got here, and what we need to do—now—to start to turn this crisis around
Second, the government must define a policy to relieve homeowners from foreclosures. It was encouraging to hear President-elect Obama stress this in his interview on CBS's 60 Minutes (and to acknowledge, as he did, that the Democrats are not without blame for the crisis). Foreclosed homes thrown on the market threaten to precipitate more downward pressure on house prices than is justified by normal supply and demand—and that spiral can suck in the financial system.
Third, financial markets must be kept open and liquid by whatever measures it takes.
As for regulation, the shadow banking system must now be appropriately regulated. It clearly hasn't been up to policing itself. The regulation must be broader and more comprehensive, with a clear mandate.
We have never before had to deal with the simultaneous bursting of bubbles of excessive debt that have plagued the financial system, the American consumer, and the American housing world. Nobody knows where the bottom is. People who say they do know are either ignorant or are serving their own interests.
When President Bush spoke at the meeting of the G-20 industrial nations, he said his advisers warned him that we may face a depression greater than the Great Depression. President-elect Obama and his treasury secretary must face up to this once-in-a-century crisis with urgency, resolve, and ingenuity. Unless they can stabilize the economy, the 44th president's entire tenure could be consumed.
Reader Comments
Thomas Jefferson
The comments from Bill Parks and quote from Thomas Jefferson is further proof that we are faced with a void in leadership in congress... 230 years have passed... and still we find ourselves reaching back to the founders of the republic for advice...
Re Banks
Re The financial crash of 1929, FDR and his group did restructure our nations banking policy and then went on to create the "New Deal" programs that did what they were expected to do, it seems that our congress has been giving the banks every thing that they want,and of course they took advantage and started to be less than truthful than they should be to their clients regarding the terms of the loans......My View is that they are the ones who are guilty,and they should get what is comming to them...cordially
Mortgage Modification...
The root cause of our economic depression is real estate... To paraphrase James Carville... It's the foreclosures stupid... it's the foreclosures... Eighteen months ago FDIC Chairman Sheila Bair testified before "Barney the Magnificent's" finance committee and strongly advised congress... and the industry... that loan modification was required to halt the free fall in real estate values... real estate taxes... and along with it a plunge in the economy... The Emergency Economic Stabilization Act (understatement!) contains ONE page on the foreclosures... to date nothing that has been enacted that remotely addresses the issue... Interesting factoid... The FDIC seized Indymac Bank in July, and immediately commenced loan modifications... the default and foreclosure rate at Indymac have dropped off dramatically...
Fact... the mortgage industry wrote sub-prime loans through the end of 2007... these were virtually all 2 year ARM's... thus we will not finish the 1st adjustments on these loans until May 2009... then the defaults... foreclosures and REO fire sales running through 2010... In addition, the option ARM's (neg-am) loans that have yet to play into this fiasco, are about to... and in numbers that will make our heads spin... a preponderance of these loans are about to reach their maximum negative accrual, and with that, the unlimited adjustment... due to the plunge in values it will prove impossible for anyone to refinance these loans... not even the 800 FICO "perfect" borrower, with money in the bank, and the Suze Orman "Gold Star" for having done everything perfect... thus more defaults... foreclosures and REO fire sales!! Without loan modification and true mortgage relief, we are looking at a minimum of 3-5 more years of this crisis... and a full blown depression...
A man's home is his castle... and the castle is under siege... everything in our economy is tied to this issue... "Bob and Betty" are not going to run our and buy that new car when they don't know if they will have a garage, or a wall for that new wide screen TV next week... in fact they will not buy anything that doesn't have "you need this to survive" written all over it!!!
The counties here in California will lose $1 Billion in real estate tax revenue in 2008 alone... and this is a permanent loss...and gets compounded every year... now think schools, police and fire protection, emergency services, social services and public works... all critical factors in real estate sales... thus, any of us that is reveling in the REO sales, thinking just how great this is... is truly a short sighted fool...
Yet the Cacophony of Conceited Condescending Clueless Clowns of Congress continue to fail to understand the crisis... a levee fails from it base not from the top... throw all of the rocks (money) in the world on top of the levee (Wall Street and the banks)... but fail to address the erosion at the base (real estate) and the levee will still fail...
It's the foreclosures stupid...
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