R Carlson

The FDIC Isn't Helping the Banking System

Obvious example of Regulatory Capture. The FDIC is trying to protect existing banks (the ones it already insures) from competition from new "Clean" banks. New banks would suck business from the old banks who are already teetering on the edge of insolvency. Local borrowers and the local economy would benefit from new banks, but the FDIC would would have to bailout even more old banks. FDIC wins but the economy loses by discouraging new banks.

Clunkers and Home Buyer Tax Credit: All the Same Thing

What success?? Clunkers deals & housing subsidies borrow from the past as well as the future. Consumers were hoarding clunkers and waiting for many months before the long announced program finally kicked in. Subtract that reduction in sales while waiting, and the programs net grand total increase in sales is pretty small. Furthermore, it made the depth of the recession for the auto industry even worse. Ditto for housing.

Back to Washington to Learn About Stimulus

Good Job. I particularly agree with the point that trying to sustain the housing bubble is A. Hopeless & B. A bad idea.
Maintaining unjustifiably high prices for a key necessity is just plain bad policy. Encouraging the bubble in the first place, particularly FNMA buying sub primes, is what got us into this mess.

The Financial Crisis Explained

Right On!! At the core of this disaster was Federally controlled Fannie Mae & Freddie Mac "encouraged" by Congress to get into the disastrous Sub-prime business. If the two GSE's had stuck to their original charter of repackaging prime mortgages, none of this would have happened.

Speculating on Oil Bubbles

Great idea. On top of that end the idiotic tariffs that keep cheap Brazilian ethanol from our shores. That would send both corn and gasoline prices down.

RCC

How Low Can the U.S. Dollar Go?

What's the magic wand to "tighten trade policies"??? What planet are you on? Most tariffs are set by treaty, and raising them would increase inflation. Raising our tariffs helped kick-of the last Great Depression worldwide. Want to try that again? Housing loan policy, not trade policy is what caused this mess. The declining dollar is a huge help to many US industries

Truth Stranger than Fiction: MBIA Declines Ratings

Ratings are a well known scam. They have no predictive vlaue beyond about 18 months. Rating agenceis always madly cut ratings just before companies go under to save their "reputations". See Penn Central, Enron etc. etc etc.

ARM Bailout Unfair to Responsible Borrowers

Whoa!

Lets think this one through. This policy is an attempt to protect housing markets and all of the institutions and individuals who depend on them by reducing the number of foreclosures over the next few years. Yes, its just buying time for many individuals, but time is a pretty valuabe commodity during a market panic. The flippers will be madly changing addresses, bribing tenants etc. to sneak into the party, but the immediate beneficiaries will mostly be individual buyers who bought over their heads. If you think your financial problems are temporary, ARM's are not stupid.

The real problem here is that many markets should not be bailed out. Home prices in AZ (one of my homes is in Tucson), Fla, Nevada, and S.Cal were and still are ridiculous. Trying to support prices in these markets is bad policy and impossible. Hundreds of thousands of people have built their financial dreams on unsupportable values in these markets. They will be hurt, whatever we do, the only question is how soon. All recent buyers in these markets were speculators, whatever their type of mortgage.

In recent years, sub-primes made up about 20% of the buyers in these markets. Sub-prime lates and defaults are about 11% now, and may hit 20% if nothing is done. Extending terms for 1/3 the sub-primes may cut defaults by 5 %, max. For the market as a whle that means cutting defaults by 1% -- from 2% to 1%. That looks small but is a big share of sales. Owner occupied sales are about 6% of homes per year, so dumping or not dumping an extra 1% on the market now is a BIG deal.

The net result of all of this is that extending terms on 1/3 of sub-primes will help prevent a disastrously large nationwide housing price decline, but it's not enough to prevent a further major decline in the numerous bubble markets. For most markets, a 5 year extension will allow inflation to catch up true values to current prices. For Fla, AZ, NV and CA, not a chance. From a policy perspective, that's about right. It doesn't cost us taxpayers a nickel and protects the value of the nation's key financial asset, our homes.

I, too, hate to bail out the dumbos, speculators and greedy mortgage brokers, but that egg was cracked some time ago. The time to prevent this was back in 2005. Too late now.

RCC

It's a Collateral Crunch, Not a Credit Crunch

I think it might be better described as a world awash in easy credit. (Thank you Mr. Greenspan, Japan, China & OPEC.) With all that money sloshing around, it has to go somewhere. The unique factor of the last decade is that it sloshes into asset markets, not goods and services. Having been suckered into bad housing credits by idiot rating agencies , the credit tidal wave is pulling back from housing, but where will it slosh next? Repeat: it has to go somewhere.

Richard Calrson, Chairman, Spectrum Economics, Palo Alto, CA