Lake Erie Conservative

thoughtful discussion(s) about issue(s)

Posts Tagged ‘Mortgage loan’

… Our Economy is Hooked on Easy Money …

Posted by paulfromwloh on Thursday,July 18th,2013

.. Amazingly enough , much like a drug addict , the U.S. economy is hooked on the Federal Reserve’s easy money policies.

.. the Fed has pumped trillions of dollars into banks and financial markets since the last financial crisis  — first, by buying banks’ troubled real estate loans , and then by purchasing long-term Treasury and mortgage-backed securities to push down mortgage rates.

.. Foolishly , Congress passes a new bill [Dodd – Frank] that has caused the costs of doing business in the banking sector to soar . The effect of it has made the Sarbanes – Oxley bill (securities markets) , passed a decade ago , look puny by comparirison . This rescued Wall Street banks from near death experiences, while federal regulators shuttered more than 480 smaller banks. Unable to cope with more cumbersome regulation, many other regional banks sold out to bigger institutions.

.. The reduction in competion may be nice . It reduces the competition for deposits , and drives down interest rates , from the competitive side . Retired Americans who rely on interest from savings to help pay bills have taken an enormous loss. The result of this has impoverished millions of seniors , and those nearing retirement .

.. Those who are hungry for yields are going ga-ga for junk bonds . Which , by the by , is not the brightest move .  Should the Fed permit interest rates to rise, defaults would burn investors in a replay of the financial crisis.

.. The low interest rates have had a predictable effect on the real estate market . It has recovered ,  but only somewhat  . Homebuyers, farmers and speculators, armed with cheap mortgages, have bid up home and agricultural land values, and should the Fed let mortgage rates rise, many would not be able to sell properties as needed and ultimately would default on loans. Rerun time on the banks . Oops .

.. The disappearance of smaller banks has had a drastic effect on the small business sector . Smaller businesses can’t get credit from disappearing regional banks. Smaller real estate developers are selling out to big national builders, which can access the bond market to finance projects. Reduced competition pushes up new home prices, but when cheap money goes away, those mega-builders will be unable to sell options-ladened homes and some will default on their bonds. Talk about the Law of Unintended Consequences !

Like the first crack taken by the dysfunctional personality, easy money made the economy function somewhat better for a brief period. From the beginning of the recovery through September of last year, gross domestic product grew at a modest 2.2 percent. But like the addict, it needs ever-larger doses to stay on task. Last September, the Fed nearly doubled purchases of long-term securities, but growth has since slowed to about 1 percent  .

.. But , What can be Done ? More to Follow in another post  …


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… Real Stupid Idea …

Posted by paulfromwloh on Thursday,April 4th,2013

… Making credit more available to those of average ability is not a bad thing . Making it far more available to those of less than stellar credit is a bad thing . Doing it with Fannie Mae (ie taxpayer) support to guarantee the mortages is a very bad thing …

… Even worse is to use Fannie Mae et al. as a funnel to send taxpayers’ money from the U.S. Treasury (via its borrowing capacity) to Fannie Mae , and then from Fannie Mae , in effect , to the banks . It is also illegal . Congress ‘ intent was never to use Treasury ‘ s borrowing capacity in such a way to subsidize such sub-prime not so credit worthy potential customers …

… the easiest ways to get the market to revive and work :

[-] bring the needed credit score(s) to qualify for a mortgage down from “earth orbit,” and allow other folks a decent chance to qualify . What the ObamaCraps want is to send things plunging thru the floor , again , ..

[-] get off the banks ‘ back , in term of oversight and regulation , and allow them to do what they do best , make loans and take deposits , ..

[-] bring our national debt and budget under control . It would help available credit for banks to not have to invest in treasury securities all the time . they may be low risk , but it is not their job . the credit should be going elsewhere , ..

[-] privatize Fannie & Freddie & the FHA , and get their hands out of the government till . the true cost of the banks’ bailout is not yet known , because of the immense spending on the Fannies …


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