tag:blogger.com,1999:blog-4492737693421611547.post4706360483652320674..comments2023-11-02T05:00:47.455-06:00Comments on The Liberty Sentinel: America's Failed Economy (?)Steven M Nielsonhttp://www.blogger.com/profile/08917953887136060455noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-4492737693421611547.post-66879485663869956422008-10-09T09:48:00.000-06:002008-10-09T09:48:00.000-06:00I live in England and over the past 30 years have ...I live in England and over the past 30 years have witnessed the ravages of Milton Friedman's market economics. In Britain during the early eighties our politicians wilfully closed down our manufacturing industries, claiming that they were unprofitable. In turn, to maintain their living standards people began to borrow heavily against whatever they could. The housing market became a new investment vehicle and the British became a nation of property entrepreneurs. The market supposedly dictated which businesses would survive. In reality it developed into a parasitic economy with Government departments setting up new business advocacy schemes and outsourcing programmes supposedly creating a lean burn economy. In truth we impoverished our workforce. For every job lost overseas four others fell away leaving local businesses failing all over the UK. The domino effect has reached it's ultimate conclusion. Without opportunity to work the workforces in the UK and USA will inevitably default on their debts. They simply do not have the resources to pay them back. If the US government want an answer to this crisis there is only one answer. Rebuild your manufacturing base get your people back into well paid work and stop outsourcing. For now we may have to prop up the people who have caused this mess but that is only a short term soloution. We need to stop paying the talkers and start paying the doers.Unknownhttps://www.blogger.com/profile/16711813266207678397noreply@blogger.comtag:blogger.com,1999:blog-4492737693421611547.post-82672006383367003882007-12-06T17:23:00.000-07:002007-12-06T17:23:00.000-07:00When we first look at an issue, things can seem si...When we first look at an issue, things can seem simple but the devil is in the detail. Which requires us to take a more detail and longer view of the issue. The real estate problems have nothing to do with ARMs (adjustable rate mortgages). The US is one of very few countries a person can get a 30 year fixed mortgage, most of the world has adjustable rate mortgages. Many folks have used ARMs for years without defaulting on their loan. The real issue are the loans where owners have little if any equity in the property combined with poor underwriting and appraisals. We created an environment that allowed individuals to easily get loans that in the past would have been denied. This created increase demand for housing that resulted in increase in prices. This was ok as long as real estate prices were increasing. If the owner got into trouble, he or she could quickly sell their property for more than they paid (after paying realty fees) and no one got hurt. The problem kicked in when the price of housing got way out in front of what the wages in the area could really support. Graph income growth and housing prices and you will see what I mean. You will see the bubble very quickly. When the market softened and folks were not able to flip property like they had in the past, things started unravelling. Folks who bought real estate with no money down because they had shakey finances or were just looking to flip the property quickly started defaulting on loans. At first the financial institutions were not cocerned as them had fooled themselves into believing that their fancy math had reduced the risk that the lending practices had produced. As we are now aware the risk was not small but large as it has always been. As the number of properties for sale grew, good old supply and demand can into play and prices fell. This resulted in other folks that had some equity but still small to come under pressure and we can see how we got into todays situation. Now to your question of just letting the market sort it out. Markets only work when everyone invovled are honest. Folks are honest about their financial situation. Lending institutions are honest about the risk. So the first thing that needs to be done is to have honest disclosure back into the system. That is why you are seeing lending institutions tighten up then credit standards for loans. You see large banks acknowledging the true risk in their loan portfolios. Now we need to deal with all of the loans that are questionable. Is it in everyones best interest to just dump all these questionable loans? The impact could be large if this resulted in real estate prices dropping 30 to 50 percent. If this were to happen those with available capitol would make large amounts of money at the expense of others. Or is the fix that the President pushing where we try to keep folks in their homes and paying their mortgages while acknowledging that the financial institutions played a part in this. Therefore they will make a little less on the loan but at the same time having a smaller impact on other loans that they because they will not be dumping as much real estate and depressing the prices farther. To say one approach is open market and the other isn't, is well, not that accurate. The bigger question is who is going to take the loss and how is the loss going to be distributed. It seems to me that the President's plan takes the approach that we are all in this together and that restoring honesty will in the long run keep open markets working best. Just more 2 cents worth.Anonymousnoreply@blogger.com