Infinite Unknown

The Problem Is Still Falling House Prices

A successful plan to stabilize the U.S. economy and prevent a deep global recession must do more than buy back impaired debt from financial institutions. It must address the fundamental cause of the crisis: the downward spiral of house prices that devastates household wealth and destroys the capital of financial institutions that hold mortgages and mortgage-backed securities.

The recently enacted financial rescue plan does nothing to stop this spiral. Credit will not flow and liquidity will not return to the banking system until financial institutions have confidence in the solvency and liquidity of other banks.

Because of the 20% fall in the price of homes since the bursting of the house-price bubble, there are now some 10 million homes with mortgages that exceed the value of the house.

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Tags: bailout, Credit Crisis, credit crunch, Economy, Foreclosures, Government, mortgage crisis, Mortgages, Politics, taxpayers, Treasury, U.S.

Oct. 1 (Bloomberg) — Manufacturing in the U.S. contracted in September at the fastest pace since the last recession as sales slowed, signaling the credit crisis is spreading beyond Wall Street.

The Institute for Supply Management’s factory index dropped to 43.5, the lowest level since October 2001 and less than economists anticipated, the Tempe, Arizona-based group reported today. A reading of 50 is the dividing line between expansion and contraction.

The housing slump has already spread to autos, and other industries may soon follow, as mounting foreclosures, tougher lending rules and rising unemployment choke off consumer spending. While exports have so far kept manufacturing from slipping much more, weakening economies around the globe are also causing overseas sales to slow.

“Manufacturing could be on the brink of a collapse,” said Lindsey Piegza, a market analyst at FTN Financial in New York. `There are no orders, no jobs and there is really no incentive for businesses to invest. The credit crisis is compounding the problem.”

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Tags: Credit Crisis, credit crunch, Economy, Foreclosures, Recession, U.S.

Federal Reserve chairman Ben Bernanke folds his hands while testifying with US Treasury secretary Henry Paulson before the Senate banking committee on Tuesday. Photograph: Charles Dharapak/AP

The proposed $700bn bailout of US financial markets faced harsh criticism in Congress today, with liberals and conservatives both sceptical that granting the Bush administration power to buy up risky mortgages would avert further economic crisis.

Yet despite the wariness from the Senate banking committee, where Henry Paulson and Ben Bernanke appeared today, the financial rescue seems poised to win approval by next week at the latest.

“This is not something I wanted to ask for,” the US treasury secretary said, assuring senators that “I feel your frustrations” and “I’m angry” at the prospect of Wall Street firms getting saved by the government.

But Paulson and Bernanke did ask for broad latitude to decide which toxic assets would win a purchase by the government. Senators of both parties did not attempt to hide their anger at the request, citing the Bush administration’s previous assurances of market stability.

“We have been given no credible assurances that this plan will work,” Richard Shelby, the senior Republican on the banking panel, said. “Congress does not have time to determine if there are better alternatives.”

The committee’s Democratic chairman, Chris Dodd, questioned Paulson’s request for immunity from any legal or government review of his actions during the bailout process.

“After reading this proposal, I can only conclude that it is not just our economy that is at risk,” Dodd told the treasury secretary, “but our constitution as well.”

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Tags: Ben Bernanke, Bush administration, Congress, Constitution, Credit Crisis, credit crunch, debt, Economy, Foreclosures, GDP, Government, Henry Paulson, mortgage crisis, Mortgages, Politics, Treasury, U.S., Unemployment, Wall Street

Sept. 21 (Bloomberg) — The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.

Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world’s largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority.

“He’s asking for a huge amount of power,” said Nouriel Roubini, an economist at New York University. “He’s saying, `Trust me, I’m going to do it right if you give me absolute control.’ This is not a monarchy.”

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Tags: AIG, bailout, Bank, Barack Obama, Bush administration, Congress, Credit Crisis, credit crunch, Economy, Fannie Mae, FDIC, Fed, Federal Reserve, Foreclosures, Freddie Mac, George Bush, Government, Great Depression, Henry Paulson, Lehman Brothers, mortgage crisis, Mortgages, Nancy Pelosi, Nouriel Roubini, Politics, Stock Market, taxpayers, Treasury, U.S., Wall Street

Hard times: central banks have acted to avoid a repeat of 1929

So, here we are - the start of a new world order. After the tumultuous events of the last fortnight, the global economic landscape will never look the same again.

Power has tangibly shifted - away from the United States and the Western world generally, and towards the fast-growing giants of the East. That’s been happening for some years now.

But September 2008 marks the moment when the scale of our excesses, the extent of our debts and the moral bankruptcy of our financial regulatory system finally began to be truly exposed.

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Tags: AIG, bailout, Bank, Congress, Credit Crisis, credit crunch, Economy, Fannie Mae, FDIC, Fed, Federal Reserve, Foreclosures, Freddie Mac, Gold, Government, Henry Paulson, Lehman Brothers, mortgage crisis, Mortgages, Politics, Stock Market, taxpayers, Treasury, U.S., Wall Street

Source: YouTube

Tags: AIG, Ben Bernanke, Congress, Credit Crisis, credit crunch, debt, Economy, Fannie Mae, Fed, Federal Reserve, Foreclosures, Freddie Mac, Government, Henry Paulson, mortgage crisis, Mortgages, Politics, Stock Market, taxpayers, U.S., Wall Street

Key lawmakers promise fast action on bailout

WASHINGTON (AP) - Senate Banking Committee Chairman Chris Dodd says the United States may be “days away from a complete meltdown of our financial system” and Congress is working quickly to prevent that.

Dodd said Friday that Democrats and Republicans on the Hill are coming together to support the Bush administration’s developing plan to buy up bad debt from financial institutions and get the credit system working again. Dodd told ABC’s “Good Morning America” that the nation’s credit is seizing up and people can’t get loans.

The ranking Republican on the Banking Committee, Senator Richard Shelby, predicts the new bailout plan will cost at least half a trillion dollars.

Shelby says the nation has “been lurching from one crisis to another.” Both veteran lawmakers say this is the most serious financial crisis they’ve seen in their years in Congress.

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Tags: Bear Stearns, Ben Bernanke, Bush administration, Credit Crisis, credit crunch, Economy, Fed, Federal Reserve, financial crisis, financial system, Foreclosures, Henry Paulson, Lehman Brothers, Meltdown, Merrill Lynch, mortgage crisis, Mortgages, Politics, Stock Market, Treasury, U.S., Wall Street

With yesterday’s announcement of the most massive federal bailout of all time, it’s now official: Fannie Mae and Freddie Mac, the two largest mortgage lenders on Earth, are bankrupt.

Some Washington bigwigs and bureaucrats will inevitably try to spin it. They’ll avoid the “b” word with vengeance. They’ll push the “c” word (conservatorship) with passion. And in the newspeak of 21st century bailouts, they’ll tell you “it all depends on what the definition of solvency is.”

The truth: Without their accounting smoke and mirrors, Fannie and Freddie have no capital. The government is seizing control of their operations. Their chief executives are getting fired. Common shareholders will be virtually wiped out. Preferred shareholders will get pennies. If that’s not wholesale bankruptcy, what is?

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Tags: bailout, bankruptcy, Bear Stearns, bonds, Constitution, Credit Crisis, credit crunch, debt, Depression, Economy, Fannie Mae, financial crisis, Foreclosures, Freddie Mac, Government, Henry Paulson, mortgage crisis, Mortgages, Politics, Recession, Stock Market, Treasury, U.S., Wall Street

WASHINGTON - An industry group says a record 9.2% of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June, as damage from the housing crisis continued to mount.

The latest quarterly snapshot by the Mortgage Bankers Association on Friday broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure.

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Tags: Credit Crisis, credit crunch, Economy, Foreclosures, mortgage crisis, Mortgages, U.S.

Eight years ago, Yale superstar professor and MacroMarkets chief economist Robert Shiller famously called the top of the stock market in his book Irrational Exuberance. Then, a year before the housing bubble peaked, he predicted the colossal bust we are now experiencing.

If you recognize Shiller’s name, it’s because the Standard & Poor’s/Case-Shiller home price indexes, which he developed with Wellesley College economist Karl Case, have become the nation’s most authoritative source for home price trends.

In part one of my one-on-one with Shiller, we discuss the grim outlook for U.S. housing, which he tackles in-depth in his new book The Subprime Solution. Highlights of our first discussion include:

• Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s. With prices already down almost 20%, it’s not a stretch to think we might exceed that drop this time around.
• There are about 10 million homeowners whose debt is higher than their home value, which has broad implications for how Americans feel about their wealth and spending habits (read: more pressure on consumer spending).
• The current hopeful consensus — that house prices will bottom soon and then begin to recover — is most likely a dream. Housing markets don’t usually have “V-shaped” recoveries. And even if house prices stabilize in nominal terms, after adjusting for inflation, most homeowners will continue to lose money. Continue reading »

  Tags: bubble, Credit Crisis, credit crunch, Depression, Economy, Foreclosures, Great Depression, Inflation, mortgage crisis, Mortgages, Standard & Poor's, U.S.