Busted: Bankers and The Global Economy

July 30, 2009

Video: The World of Planet Finance

Filed under: banking, economy, inflation, money — Tags: , , , , , , , , — digitaleconomy @ 1:13 am

ascent of moneyEpisode Four of the Ascent of Money illustrates the spread of financial practices across the globe including the bad, the American real estate bubble and the consequences of the subprime mortgage fiasco. The series, hosted by Professor Niall Ferguson is not exactly perfect and leaves out some details along the way. However, the presentation is worth your while and contains some nuggets of understanding that you can take to heart. At the end, this episode clearly shows what happens during hyperinflation, using the plight of Argentina as an example. America faces a similar plight, but has been immune so far because the dollar is the prevalent world currency, bolstered by foreign investment. The dollar as the chief currency could change and when it does, so will the fortunes of the nation.  Right now we have a mighty wrestle going on between central bankers and many nations that could benefit mightily from a global currency change. A shift in that balance will mark the end to  the status that the nation enjoys.      video link

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August 12, 2008

U.S. Mortgage Defaults Spike

For some the United States has been dealing with high default rates in subprime and alt-a loan configurations. Now the U.S. economy and banking community has something to really fear with the increase of defaults in “prime” mortgages. There is an interesting wrinkle here.

The problem with prime mortgages is showing out in style for loans made in 2007. The default rate on 2007 prime mortgages is three times higher than loans made in 2006. This potentially dashes any hope that bankers had for prime mortgages as a stabilizing force to pull the economy out of the doldrums.

What is the cause for increasing prime mortgage failures? Did bankers hastily rush loans through in an effort to promote and heighten their own mortgage incomes? Could it be that many more 2007 home buyers were first time buyers or not as financially well-heeled, facing economic fallout from a faltering U.S. economy. In the next few weeks, better determinations are certain to be discovered.

Right now, the appearance is that increased defaults are simply a symptom of a greater economic malaise that is making inroads into an increasing number of households across the board. Bankers are now increasingly fearful of a long dark period of declining housing numbers, further threatening the banking and mortgage recovery and the recovery of the nation as a whole.

We’ve known for some time that the housing market has been ripe for a major adjustment. The continuing increase in mortgage default rates coupled with the downward U.S. economic spiral could see a much greater decline in home prices than has generally been considered. The rosy real estate projections that “anytime is a great time to buy a home” has likely been proved wrong, since declining house prices are a bust to the mortgage credit market.

Initially, the greater problem for the market is the decline in housing prices until they are low enough for buyers to become interested in buying again. How long that will take is anyone’s guess. With a contracting market, getting an affordable loan to buy a new home is becoming more and more difficult, putting increasing downward pressure on the market as a whole in a kind of self-fulfilling vicious cycle. The cycle will ultimately end, but planning for the economic carnage ahead remains the largest issue in the United States economy.

Many Americans have sold themselves into slavery to get a home that they hoped that they could afford. Bankers have sold themselves into slavery to their own devices, always hoping for a quick way out to make another quick buck. Nobody loves economic pain, but pain is the only way to grow past our collective economic ignorance. In many ways, both bankers and home buyers have reaped what they have sown, sometimes in the Biblical sense. Learning the lesson that life teaches will enrich America if the nation takes the lesson to heart. The Federal Reserve has not been quick to chastise bankers for a lack of financial literacy as the pseudo-governmental body seeks a collective middle ground. That is about to change. ~ E. Manning

May 13, 2008

Housing Crisis Over?

If the Wall Street Journal says it, it must be true! The brilliant economist and author Cyril Moulle-Berteaux declares that “most people forget that the current housing bust is nearly three years old.” He bases the supposition on evaluation of latest trends.

He’s right that affordability ultimately created the mortgage bust. How high can real estate prices go while undergoing the intense misuse and abuse of the banking community? Affordability was created by “false affordability” through unsound practices. You cannot finance the world in a never-ending upward spiral.

The doctor of Wall Street declared that “the boom made housing unaffordable for many American families, especially first-time home buyers.” The fact is that abusive and overextended lending practices lead to (more…)

April 28, 2008

U.S. Mortgage Economic Analysis

It’s different in the United States. This time in history is different. The Federal Reserve won’t let deflation happen. Belief in the Federal Reserve and the avoidance of economic pain is nearly universal. The Fed is a legend in their time. The Federal Reserve won’t suffer. The U.S. economy and citizens will.

There are a handful of realistic economist-type people that see deflation coming. The sophisticates laugh aloud: “For almost thirty years people like you have predicted that our economy will collapse and it hasn’t happened.” (more…)

March 14, 2008

U.S. Foreclosures Up 60%

Filed under: banking, federal reserve, government, investment, money, politics — Tags: , , , , , , — digitaleconomy @ 6:55 am

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Foreclosure filings nationwide jumped 60% in February compared with the same month last year, but they decreased slightly versus January.

The report from RealtyTrac suggests that efforts from government and consumer groups to combat the rising number of foreclosures have not had a significant impact, according to Jared Bernstein, a senior economist at the Economic Policy Institute.

“I don’t see evidence that any of the interventions we’ve been implementing are having any effect,” Bernstein said. He claims the report “doesn’t show that measures have failed but it’s pretty clear that nothing we’ve undertaken is slowing foreclosures.”

Meanwhile, the Fed continues to print money unabated with the net effect of increasing inflationary pressures, while reducing the value of the dollar on the world market in an effort to sustain the economy through volume. ~ E.M.

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