January 24, 2009
Seems like every day another bank needs another fresh cash infusion or fails altogether, which invariably results in another round of articles, analyst opinions and “is it over?” type queries from every financial news anchor.
The obvious answer is, it isn’t. And it won’t be for as long as home prices keep dropping and foreclosures stay up.
It’s not rocket science: Banks still have 40 trillion of derivatives on their books, much of it CDSs and MBSs whose value declines when the value of the underlying assets they represent or insure goes down.
We have a clear choice to make as a country, do we:
a) Let home prices fall until some sort of historic affordability level is reached, in the meantime injecting another 2-3 trillion into our banking system just to keep it from imploding.
b) Stem foreclosures and stabilize prices where they are (already 20-40% from high depending on market).
I believe the first option is dangerous and maybe even impossible to achieve: If the financial system isn’t stabilized soon, the resulting deep and protracted slowdown will result in such loss of jobs and purchasing power, historic affordability figures will be meaningless.
Home prices must be stabilized, one way or another. I hope the rest of the TARP is used this way to a large extent.
December 3, 2008
Trillions have been spent to prop up the banks, but little has been done to address the other side of the problem: home prices keep falling and foreclosures climbing. Obama is right to keep bringing this up. The crisis must be attacked from both sides.
Paulson has introduced some programs, to be sure, but the money allocated is a drop in the bucket compared to bank bailouts. Much more was spent just saving Citi in one day than on all the homeowner help programs so far.
November 16, 2008
I must have read a thousand articles that point the finger at someone or another for our troubles. The latest one zeroes in on the baby boomer generation, especially its politicians which failed to lead on anything the last three decades (case in point our lack of an energy policy… only when oil hit $145 did they try to actually do something). Others blame the Republican philosophy of everything-goes free market. Or a Bush administration that didn’t even enforce the rules which actually were on the books. Lobbyists. Exotic derivatives. Speculators. And of course plain old Wall Street greed.
But politicians have always been fickle, financiers always greedy, and our market free all along.
I believe these are all mere symptoms. The root cause is a national media that fails to inform the citizenry and whose sole objective is to increase their audience (and their income).