John Preston

Reading Rates: MBA Application Survey

Actually quite on point.....the comments at least, by Mr. Mouch....I always felt that MBA stood for "More Bad Advice".....

Sheila Bair - World's Worst Regulator - to Stay at FDIC

Tom

Where do I begin.....

First, as we now know, the housing/mortgage crisis has crippled the economy....spending, both for expansion (construction...busine... investment...etc) and for consumption, has slowed.

Second, jobs are now going way at an accelerated pace.

Third, steps 1 & 2 are a cycle, and they repeat and repeat and repeat.

Robert Shiller, and others, have linked housing to to consumption....since 70% or more of the GDP is consumer driven, fixing housing becomes a priority to stabilizing the broader economy...

Let' see....Case-Shiller HPI is down 30%+....the dow is down 30%+....consumption is down 3.4% +/- (Shiller predicted a 10% change in housing = a 1% change in spending, btw).

Some sharp economist is going to study this period in the near future, from the deliquent homeowners perspective, and find that their household incomce declined by 30%+.

30%+ seems to be the problem...

When unemployment hits 10%....and it will, we may all wish that housing had been fixed, and that the modification process had been done right.

As for Sheila Bair....she got far more right than anyone else in Washington or Wall Street......

The Great American Ponzi Scheme (Part I)

so, you think te economy is not a ponzi scheme....what ever you do earn a living....is predicated on someone coming in and engaging....todays works...tomorrows money...

is it so different than a ponzi.....

Time for the American Government and People To Confront Reality

Whose reality??? One of my favorite Peter Drucker quotes is "The best way to predict the future is to create it".....

The "lets put housing into the dark ages" crowd must have some perverse cost-benefit analysis procss....

Let's see: 10% deliquency /default rates..10% unemployment ...40% DOW crash...

Maybe to those who crawl over others, and delight is misfortune, are enjoying this time...

However, if you care for others,, then this is a time to seek workable solutions...

The Financial Crisis Explained

This may be the beginning of true dialogue on the housing and mortgage issue. Few, if any, commentators have centered on Fannie/Freddie (F/F) changes which began in the 1990's...and really set the tone for our problems.

During the Clinton administration, F/F were encouraged to expand housing opportunities..and they did. The compensation abuses and accounting irregularities were a byproduct of the expansion process F/F embarked on.

Anyone directly involved in mortgage lending will know that F/F, through the AUS (automated underwriting system), really blew the doors off of the traditional credit criteria approval process. The guidelines that were printed were not related in any fashion to the results generated by the AUS.

A review of mortgage lending product market share (conventional prime, ALT and subprime versus government) show that the government portion shrank for 12-15% in the late 1990's to about 3% in 2006. Government loan criteria NEVER changed. As I said, without the expansion of credit criteria by F/F, and subsequent expansion by other lenders, we don't have a housing bubble.

I postulate that the F/F expansion set the one for all lending. I add to the mix that the major lenders, together with Wall Street, went well beyond reason in creating a system of back-end finance that was far too profitable and too little understood. There was no financial limit on funding mortgage loans.

This back-end system created far too much available funding for all loans, and the F/F guideline expansion lead the "easing of credit".

How can credit criteria be "easier" one moment, and "tighter" the next. Isn't credit criteria really a constant???? Arbitrarily expanding and contracting the pool of approvable borrowers is an abuse of power and a shunning of responsibility.

Interest rates are a variable...as are asset valuations and income...BUT CREDIT CRITERIA SHOULD BE A CONSTANT.

A significant issue is that this is not the first time that the credit criteria were treated as a variable by the lending community for busines growth and profit. The first ALT/Stated/No Doc loans were introduced in the mid-1980's...and withdrawn around 1990...so, this is our second experience with this "accordion" process of easing...and tightening...???

This is my point...F/F took a constant, and mixed in "flexibility-for-profi... and influenced ALL of the mortgage lending standards.

The other part of the story is the fact that Congress has oversight over F/F...and they blew it. They had the right and the responsibility to keep F/F under control, and Congress chose to do nothing, ultimately allowing this process to begin, thrive, and crash.

To address specifically Mr. Wahlman's three points:

1. By allowing this to process to occur, FAR too many people became buyers/borrowers...sim... supply and demand says that prices will go up. In a constant and consistent credit climate, that cannot happen.

2. I really blame Congress and those charged with oversight of F/F. I believe they are at the root of the problem. Wall Street is second on the list. Without the back-end funding, the process would slow down and rates would have gone up.

3. Here I disagree. Housing is directly related to the overall economy. Congress, F/F, Wall Street, regulators, along with large corporate mortgage holders, shunned their duty. They created a false market, put housing in peril, and set up the economy for a big fall. And, I truly believe they hoodwinked Main Street.

My proposal: Directly address Main Street...immediately. There is a way to do this and I have posted it elsewhere. Main Street is the foundation of our economy. We have a top-down problem, and we need a bottom-up solution.

Overall, this article heads in the right direction.