Wednesday, March 11, 2009

"Big Ben" speaks!!!

Fed Chair Bernanke's comments at the Council on Foreign Relations outlined potential new regulations for the financial markets which seemed to be confidence-inspiring. How is the US Fed Chief 'newsworthy' as it relates to foreign relations? Prior expansion in the US fed a desire for investments in our economy from overseas. Where financial crises in the 1990's (case in point-Japan) were largely regional, this current mess is global. So a lot of $$$ came to the US, and fueled a lot of risky investments. Well, we all see what happened. Big Ben (Bernanke) noted that we obviously have to have free-flowing credit and stability. He also outlined (in specifics!) what needs to happen. In a nutshell-oversight and regulation. He addressed several factors. "Too big to fail" is not a good thing. Large financial monsters grow so big that their tentacles reach into all aspects of our financial markets. Their success breeds additional risk-taking as they have the resources to 'roll the dice' that smaller concerns can't try. BB feels that risk-management practices must be implemented in large companies across all aspects of their inter-related businesses--even non-bank divisions. This authority needs to reach across the entire company-not limited to one division, for example. A second focus would be to strengthen the financial infrastructure (his analogy was to work on the "financial plumbing"). Specifically, the mechanisms that allow trades to occur need to be tightened. Temporary fixes in light of the Bear Sterns collapse and Lehman bankruptcy need to be clarified, expanded and made permanent. He suggests the Fed Reserve system may be the best resource to oversee payment and settlement systems. Next, the word of the day is "proclivity", which means a natural propensity or inclination or predisposition. In simple terms, banks have to keep a lot of reserves. When things are good, they lend a lot of money. When things are bad, they don't. SO, things are bad, which means... no credit. He recommended changing some accounting standards to allow banks to 'go out on a limb' and actually LOAN money without angering the Gods (the bank regulators). Another recommendation was to allow FDIC to build it's reserves over a longer period (from 5 years to 7 years). Finally, he notes that there needs to be a new Sheriff in town, in order to regulate and oversee the entire system in the US, which may take some tweaking of existing authority, as well as new legislative authority from Congress. It appears that he feels that regulatory authority in the US is currently too decentralized and it is time for someone to set the standard(s) and it appears that the Fed is the one to do it! Last shot-all of the above will help smooth the global impact of financial problems, but it cannot end domestic or global crises. It will (hopefully) serve to cut the current tidal wave of market ups and downs to smaller ripples on the world pond. Go Ben, go!

For the text of the entire speech, click this link.

Thursday, March 5, 2009

Rate report/Sales idea!

Freddie Mac's weekly report notes that 30-year mortgages bumped up a bit this week, from 5.07% to 5.15% this week. A negative? Not if you think about rates a year ago, when they were averaging 6.03%! So again, rates remain low so go buy today!

Another thought on the Stimulus plan (specifically my ranting about the $8000 tax credit for 1st time home buyers ONLY). I know it's not what we want, I know that it really isn't very helpful. HOWEVER, I have to think about all those young buyers out there. THAT is the big target-Gen X or Gen Y buyers that are renting. If you can find some of them, you can create some sales! Go hunting! Look in Starbucks or something :)

Last Newsletter info

Are you stimulated?

Well, the government keeps throwing money at problems and nothing is working. When will this madness stop? What intrigues me is how we've lost focus. Let's go back in time--what is this mess all about? HOUSING. Yes, banking is a mess, AIG is "too big to fail" and unemployment is like a cancer on our country right now. With that being said, Housing was the problem that brought our economy to a screeching halt. Housing prices up, sales stopped. Loans a mess, banks fail (or need to be bailed out, while cutting the credit lifeline). AIG? Wouldn't you know that it sold insurance to banks for loan defaults (sort of). Well guess what? Those 'great bets' started losing and AIG lost a ton as well. But again, where did this start? Housing. Stimulus? I think not. The bill put forth an $8,000 tax credit for first time homebuyers--not enough. I've said all this, so let's move on. The 'latest and greatest' plan is the "Making Homes Affordable" program that was officially unveiled today. If you are a good boy or girl and have been paying your mortgage, you may be able to 'refinance' so that your payments are more affordable. There are many 'what-ifs' concerning this and I'm not sure how it will work out. For more information, check out I will dig into this further and talk about it on my Economics blog, at right. Bear with me as there is a lot of info to digest! What's next on the horizon? Potential "Cram down" legislation could be coming this week. For reference, a bankruptcy judge may 'cram down' new terms to a mortgage company if the legislation passes. For example, a judge may be able to change/lower payments, interest rates and even principal balances! Again, this one is not ready yet, so stay tuned! My only comment to all of this? I am worried that people are going to just say to heck with it and stop paying their mortgages--not because they can't pay, but because they WON'T pay. This article seems to think it's due to negative equity--What I fear is a paradigm shift of borrowers giving up and saying "Who cares". Not a pleasant thought!

By the numbers
Recovery in 2009? Think YES!

Again we hear doom and gloom daily. Every once and a while the media 'censors' allow something positive to escape and actually make it into print. At the same time, however, any good news is currently tempered by some bad news. The current Fed "Beige book" report noted that conditions worsened in January and February (did you hear the auto sales reports yesterday? bleah!) When can we expect improvement? Unfortunately it appears late 2009/early 2010. Housing is stable more or less and there are hopes that purchases will pick up this Spring as buyers (what does that word mean? I forgot) start looking for homes. Foreclosures are a wild card right now-we should have many unfavorable re-sets (ARM rate adjustments) THROUGH 2010 and beyond. Not only that, the new legislation may keep some people on the fence. Then again, now that it has been passed, perhaps people can get a better feel for the current climate and finally BUY. Another issue? Many economists note that unemployment will continue to rise in the months to come. Even an optimist like me has to take note of the fact that someone without a job cannot buy a home, no matter how cheap it is or how low the rates have dropped. Georgia State's economist thinks that losses will drop for the next two years and paints a pretty bleak picture. Well, for this NON-economist, I am betting he is wrong! I wish I had some extra cash (don't we all??). I would love to purchase some stocks (just ask the Prez!) or better yet-some REAL ESTATE! Go get 'em!

Tuesday, March 3, 2009

Oink Oink Oink! These little piggies LOVE earmarks!

Congress should be ashamed--House, Senate; Republican, Democrat. All are to blame. My disgust can be summed up with one word: EARMARKS. What happened to President Obama's campaign promises? Looks like we're back to business as usual as evidenced by signing a bill laden with these earmarks (though I think his patience will drop and he will call the "leaders" (quotes and/or sarcasm fully intended) to the carpet). What of all this spending and earmarks? It's true that Republicans blew it by spending too much over the past 8 years. I heard something today about these earmarks--a 60-40 split based on party lines. While 60% of the earmarks were from Democrats, I was intrigued to find that of the top 10 pork spenders SIX are Republicans! Shame on ALL of you! If we truly need stimulus, this isn't the way to go. Change? I'm still waiting! Our economy needs jobs, not more government. What's the old joke about the scariest line in the world? "I'm from the Government, and I'm here to help." Ha.