From Bloomberg this morning as stocks tumble:

“This is a systemic financial crisis, there is no end to it,” Nouriel Roubini, professor of economics and international business at New York University, told Bloomberg Television. “It’s a vicious circle between a contracting economy and greater credit and financial losses feeding on the economy.”

President Bush reminds us that the system is “basically sound”:

WASHINGTON (AP) - President Bush urged lawmakers on Tuesday to move quickly in putting into force legislation designed to help prop up mortgage giants Fannie Mae and Freddie Mac while declaring the nation’s financial system to be “basically sound.”

My thoughts?

Well - I don’t think the government should move too quickly on the Fannie and Freddie bailouts. I don’t trust them to get it right this quickly. Too many variables, too many unknowns. Take a deep breath, try to really understand what the best solution is to this problem. The last thing you want to do is panic. At the end of the day it’s investors who are losing money right now - and that’s the game they play, and the government can come in at anytime in the future with a more sensible plan and rescue the market. I just want to caution against hastily put together plans.

Late afternoon update (4:12PM):

Fed Chairman testifies on the Hill (Marketwatch):

Fed uneasy about inflation, growth, Bernanke says

But he also spoke candidly about the weak economy and fragile financial markets. “The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth,” Bernanke said.

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Tags: crisis, fannie, freddie, market, stocks
Categories: Congress and Government, Debt, Economics
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I came across an interesting post at The Liscio Report called “Presidential economics: Do parties matter?” And as I read through it I came across some interesting analysis and I realized there may be come misconceptions about which party really does what. Democrats are believed to be fiscally irresponsible, spenders and Republicans are supposed to be fiscally responsible and small government. Which should technically result in bloated budgets with lots of deficits for Democrats and trimmed outlays with balanced budgets for Republicans. I know in recent years fiscal responsibilty has been thrown out the window, but that seems to fit the pattern and does not appear to be an anaomoly.

Take a look at this chart:

This is not what I would have expected. Democrats lowering the budget deficits and Republicans increasing it for the most part? Are we being misled here then? Do the parties have a branding issue? This is how the authors explain it:

Though the picture so far is of the Republicans as the party of austerity and the Democrats as the party of stimulus, there’s a surprise when it comes to changes in the federal deficit: Republicans are more liberal with the red ink than Dems. On average, a Republican in the White House has meant a shift of –1.9% of GDP in the government’s budget balance (i.e., towards smaller surpluses or bigger deficits), while a Dem has meant a 1.5% improvement in the budget position (or 1.8%, if you start in 1949, thereby omitting the huge World War II deficit). And in this case, the average is a faithful representation of the distribution, with only one Democrat in the minus column and only one Republican in the plus.

Some of this reflects different tax policies, with Reagan and Bush 43 cutting, and Clinton raising income taxes. But it also reflects the partisan difference in GDP growth.

Read the whole thing. Certainly makes you think, doesn’t it?

Hat tip: The Big Picture

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Categories: Congress and Government, Debt, Economics
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Okay most everyone knows what I think about this massive bailout package Congress is about to pass. In case you missed it, I think it’s a sham. Seriously. A big sham. How else do you explain this to the 30% of tax payers who are not homeowners. How about the 80%+ homeowners who pay their bills on time, buy what they can afford and read before they sign? Yeah. How about these tax payers.  Mr. and Mrs. Renter who lives within your means how about you pony up some dough so that we can clean up the mess our Wall Street pals and a few over excited folks made over there.

Okay.

Take a deep breath.

Aaaaaaaaahhhhhhhhhhh!

Now. Here are some of the details of the $300,000,000,000.00 mortgage rescue plan currently being “debated” in the Senate. From the Dallas Morning News:

They would receive a refundable tax credit of up to $8,000, or 10 percent of the home value, on purchases of unoccupied housing.

As part of a regulatory overhaul of Fannie Mae and Freddie Mac, the mortgage finance giants, the bill would permanently increase to $625,000, from $417,000, the limit on loans they can purchase from lenders in expensive housing markets. That would make it easier for borrowers in those areas to obtain mortgages at discounted rates.

Later on in the same peice it says:

The Senate bill would provide $150 million to expand counseling for borrowers to prevent foreclosure and establish stricter lender disclosure rules to make plain the maximum monthly payment for an adjustable rate loan.

The bill also establishes an Affordable Housing Trust Fund, to be financed by $500 million to $900 million in fees from Fannie Mae and Freddie Mac. Initially, the trust fund would cover any expenses related to the foreclosure rescue plan, meeting a demand by Senate Republicans that taxpayers not pay for the program.

Under the refinancing plan, only borrowers seeking to remain in their primary home would be eligible, shutting out real estate speculators and owners of vacation homes. And lenders would first have to agree to cut the principal balance of loans to roughly 85 percent of each property’s current value, a substantial loss in many housing markets.

Arizona Mortgage Team has a great post with all the details too.

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Tags: bill, Congress, housing rescue, Mortgages
Categories: Congress and Government, Debt, Economics, FHA
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Early in my mortgage career a sales veteran once told me that the best way to solve a customer problem was to throw money at it. I guess this is an even better solution when you’re the ones printing money.

Full story “Housing rescue plan passes key Senate test“.

My opinion:

Just to put things in perspective, I thought I’d put the faces of the folks who’ll be stuck with the bill:

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Tags: FHA, foreclosure rescue, spending
Categories: Congress and Government, Debt, Personal Finance
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David Brooks wrote a thought provoking column today on money and debt. I think he makes a great point about “The Great Seduction” of debt and the impact on todays society. He makes some interesting observations on how powerful a role financial discipline played as the United States became the wealthiest nation on earth:

The United States has been an affluent nation since its founding. But the country was, by an large, not corrupted by wealth. For centuries, it remained industrious, ambitious and frugal.

Over the past 30 years, much of that has been shredded. The social norms and institutions that encouraged frugality and spending what you earn have been undermined. The institutions that encourage debt and living for the moment have been strengthened. The country’s moral guardians are forever looking for decadence out of Hollywood and reality TV. But the most rampant decadence today is financial decadence, the trampling of decent norms about how to use and harness money.

I think the bubble economy we’ve seen the past few years bears this point out beautifully. To consider that the US economy has been through two huge bubbles since I graduated from college in 1997 is quite staggering. The first being the dot com bubble and the second is of course the housing (mortgage) one.

The explosion in personal consumer debt and the growing economic disparity cannot be good things for the long term health of the economy. I also think that the borrow and spend mentality that has overtaken the entire country starting from the President all the way down to teenagers applying for credit cards must be rectified at some point if this country to continue to be a wealthy nation. Otherwise it will go the way of Argentina in the late 1990s.

I found Brooks column very thoughtful and

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Tags: debt, economy, financial prudence
Categories: Congress and Government, Debt, Economics
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A few weeks ago it was widely reported that a Congresswoman from California was having mortgage trouble. Today we find out that Ed McMahon is talking about foreclosing on his house. This from Yahoo! News:

Ed McMahon talks about possible home foreclosure

Ed McMahon on home foreclosure: `If you spend more money than you make, you know what happens’

LOS ANGELES (AP) — Ed McMahon blames the possible foreclosure of his multimillion-dollar Beverly Hills house on a set of problems all too familiar to many Americans: a foundering economy, health problems and poor planning.

“If you spend more money than you make, you know what happens,” McMahon said Thursday night on CNN’s “Larry King Live.” “You know, a couple of divorces thrown in, a few things like that. And, you know, things happen.”

McMahon, 85, appeared with his wife, Pamela. The couple said they are $644,000 behind on their mortgage payments and are in negotiations with lender Countrywide Home Loans Inc. to set a foreclosure date.

McMahon, in a neck brace, said he had stopped working since he broke his neck in a fall 18 months ago. He didn’t elaborate.

McMahon, who was Johnny Carson’s sidekick on the “Tonight” show, said the house had been on the market for two years and that although 50 organizations or individuals had looked at it, no one had made an offer. Documents show McMahon has a $4.8 million mortgage on the home.

“It’s like a perfect storm,” he said. “Economy problems. Selling the house right now is a tremendous operation.”

If you know of any other famous folks on the brink of foreclosing on their home I’d like to hear.

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Tags: ed mcmahon, foreclosure, Real Estate
Categories: Debt, Mortgages, Real Estate
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Today was a historic day, for on this day, the US government announced the largest government bailout of a U.S. securities firm. In case you’re not familiar with todays events, Bear Stearns, one of the largest securities firm on Wall Street was teetering on the brink of collapse from a lack of cash yesterday. A few calls here and a few handshakes there, it got emergency funding from the Federal Reserve and JPMorgan Chase & Co. this morning. Here is the Fed announcement on what your tax dollars are doing for you:

Release Date: March 14, 2008
For immediate release

The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system. The Board voted unanimously to approve the arrangement announced by JPMorgan Chase and Bear Stearns this morning.

The message has been sent and here is what I hear:

1. Risk? Why not bet the whole farm? Uncle Sam will come by and pick up the tab.
2. Free market? Well that’s only when things are going well.
3. Market correction? Only applies to the “less” important industries like accounting!
4. Borrow and spend? Hey, we all do it, what’s a few bucks between comrades family.
5. Corporate Responsibility? Thats a stump speech, did we really mean that? Ha… ha.. ha..

Readers, I invite you to add what you heard today. I am very eager to hear your thoughts.

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Tags: bailout, bear sterns, federal reserve
Categories: Congress and Government, Debt, Economics
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Go Gold! From Rueters (via Yahoo):

U.S. gold hits $1,000 record high
Thursday March 13, 9:13 am ET

NEW YORK (Reuters) - U.S. gold futures rallied to a record high of $1,000 an ounce on Thursday, fueled by a combination of a weakening dollar, strong investment demand and inflation fears due to rising crude oil prices.

I’m not a doom and gloom kind of guy, but I once heard a wise man say that it’s possible to have a strong economy with a weak currency, but no country with a weak currency has a strong economy!

Meanwhile the paper in your wallet (from the AP):

Dollar at Record Low in Europe, 12-Year Low Vs. Yen, As Oil and Gold Hit All-Time Highs

FRANKFURT, Germany (AP) — Widespread concern about the U.S. economy pushed the dollar to a record low against the euro and a 12-year low versus the yen Thursday, while the price of gold and oil hit levels never seen before.

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Tags: dollar, economy, gold
Categories: Debt, Economics
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 Hat tip: Absurdly Rational 

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Tags: cartoon, economics, fun
Categories: Debt, Economics, Humor and Fun
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A few weeks ago I made the claim that equity managent was not what it’s craked out to be. I also wrote a post on AgentGenius.com (a national real estate magazine) that equity management is overrated. I can’t say these articles have caused a firestorm, but proponents have come out and made some really good rebuttals.

Yesterday, Robert Ashby wrote that equity management is misunderstood and made a very good case on the other side. He breaks down my arguments point by point and presents a very good set of counter arguments. As someone who has personally practiced the principles he is very well positioned to provide some insights.

… as one who practices equity management myself and has provided many families mortgage plans that are helping them meet their financial goals by using their mortgage as a tool, I have to disagree with it being overrated.  The bottom line, as I see it, is equity management can help anyone, regardless of what the markets are doing since it is centered around the individuals financial goals and dreams.

Don’t forget to read the comments in these pots. Some industry heavy hitters like Jeff Brown and Brian Brady provide some really good counter arguments as well.  Not quite a juicy firestorm, but it’s an educational experience for anyone curious about equity management!

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Tags: debt, equity management, Mortgages
Categories: Debt, Mortgages
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