Letters to the Editor
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Published Letters: 351 Editor's Choice: 43
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Flexible Guidelines
[Read the article: John Edwards ponies up the subprime cash]
[Read more letters about this article: Here]If the "regulated bankers" had been more flexible with their underwriting guidelines then not as many people would have been at the mercy of predatory lenders,
The banks were more flexible - that's why we're in the mess we're in today. They were directly financing loans they shouldn't have been, and they were gobbling up massive packages of mortgage debt generated and then sold off by fly-by-night predatory lenders. If major financial institutions hadn't spent the past 5 years buying that garbage like it was going out of style, the worst of the mortgage scam could never have been pulled off.
There's a reason why the guidelines were strict prior to the deregulated fraud-for-all of the past 20 years or so - it's because strict guidelines work. That's why they were legislated into existence to begin with. They protect not only homebuyers, but also lenders and investors from the kind of implosion we're seeing today. The latest casualty appears to be Northern Rock bank in the UK, which had to crawl to the Bank of England for financing as they could no longer fund their day-to-day operations.
The old folks know where this is heading - they've queued up around the block to withdraw their funds. They've seen this all before, in 1929.
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I have a phrase for it
[Read the article: John Edwards ponies up the subprime cash]
[Read more letters about this article: Here]And we don't even have a proper name for what this new phase is yet!
Of course we do - we've seen this before. It's old style Robber Baron capitalism. The clown who ran Countrywide into the ground is a classic example. He helped to inflate a massive bubble, sold off hundreds of millions worth of stock before the whole scam imploded, and is now sitting pretty while a bunch of investors in and employees of Countrywide are hosed.
There's absolutely nothing new to see here - this has all happened before. It's why our economy came out of the 1930's so heavily regulated, and those regulations are why this country prospered so much during the 1950's and 1960's. And as these regulations have slowly been circumvented and removed, the economy has responded in kind, with stagnating wages, spiraling debts, declining exports and an ever-increasing series of taxpayer bailouts of clueless, crooked fat cats.
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Debt is the symptom, not the disease
[Read the article: John Edwards ponies up the subprime cash]
[Read more letters about this article: Here]OK, I get what you're saying. Yes, these levels of debt are somewhat unusual, but debt and bubbles have traditionally always gone hand in hand. Keep in mind that part of what made the collapse of 1929 so bad was that so many had borrowed money to buy stocks on the assumption that they'd never all fall at once and leave lots of people underwater. Real estate values also collapsed - again, a symptom of the easy credit environment that preceded the Great Depression. The Japanese real estate bubble of the '90s is another example, as was America's own S&L crisis.
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Not Quite The Whole Story
[Read the article: Rate cut delirium battles housing starts unhappiness]
[Read more letters about this article: Here]That's the bigger picture. The price of homes has gone up faster than the rate of inflation. This is why people had to take out fancy ARMs and no interest loans. It's the only way to afford them.
I think you're getting your symptoms and your causes mixed up a bit. This latest housing bubble came about because lending standards were seriously relaxed over the past decade or so, and because the Fed has maintained unnaturally low interest rates in the wake of the dot com implosion and 9/11. When any nitwit can "qualify" for a $500,000 stated income, interest only, adjustable rate, no money down mortgage, you're going to dramatically expand the demand for homes. That's going to drive up prices dramatically, which is what we've seen. Then speculators enter the market, buying and flipping homes they otherwise couldn't afford to pay the mortgages on.
That scam is played out now. Too many clueless consumers were loaned too much money by crooked financial services outfits - debt those consumers couldn't even begin to service, let alone pay off. Those consumers started dumping their homes, increasing the supply, lowering the price and leading to the current crisis in the mortgage industry. Most of our largest financial services outfits are sitting on a mountain of mortgage debt, and too much of it is backed by homes that are either already underwater in value relative to their mortgage, or are obviously headed that way.
Because our economy has become so dependent on real estate development, especially over the last couple of decades, this promises to have consequences well beyond the mortgage and homebuilding sectors. That's going to serve to further shrink the pool of potential homebuyers, leading to more downward pressure on home values. It's a vicious circle.
It'll end when the supply of homes for sale is equal to or less than the supply of truly qualified buyers. My guess is that's at least a couple of years and a further 10%-25% drop in home values away, even assuming the Fed continues its blatantly inflationary policies. That's because salaries inevitably lag behind price inflation, especially during periods of economic weakness like this. It'll take at least a couple of years until salaries adjust to the inflated dollar and make homes somewhat affordable again according to traditional, sound lending practices.
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Oil in Euros
[Read the article: Is Saudi Arabia afraid of the dollar?]
[Read more letters about this article: Here]I wouldn't be surprised to see the Saudis switch to the Euro. The value of the dollar continues to plummet, and with the recent interest rate cut it's clear that the Fed's not going to do anything to slow the decline. It seems unlikely that Japan and China can continue to prop up what's left of the value of the dollar indefinitely, even if they wanted to. If the Saudis don't switch to the Euro, they stand to lose tens or even hundreds of billions over the next couple of years.