Sep 11

This is a great video that gives a authoritative, globally-focused perspective on the sub-prime real estate crisis in US and its global impact on banking, mortgages, home loans and financial services, and why the banking system remains at risk from complex processes that most people don’t understand.

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Aug 11

Ruth Lee

So is inflation a natural occurrence as we have all been led to believe? According to Aaron Krowne of ML-Implode, no…

Just where does inflation come from – outer space, perhaps…?

NOBODY LIKES INFLATION, writes Aaron Krowne of ML-Implode, but inflation is a “fact of life” – a natural disaster, like a hurricane or earthquake.

Right?

Wrong. That is the impression policy makers and politicians have worked very hard for almost a century to create. But it is a bold-faced lie, meant to deflect your attention (and anger) away from the real culprit – them.

Read the full article, The Truth About Inflation.

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Aug 11

Ruth Lee

This article, by James Quinn, Senior Director of Strategic Planning, The Wharton School, University of Pennsylvania, gives and in-depth rude awakening concerning the economy’s future with regards to the banking industry:

“Last week, bank stocks, which had been falling fast, suddenly soared higher based on earnings reports that were horrific, but not catastrophic. Talking heads were calling a bottom in the financial crisis. The bank with the largest increase in share price was Wells Fargo. Their earnings exceeded analyst expectations and the stock went up 22% in one day. Wells Fargo owns $84 billion of home equity loans, with half of those in the two leading foreclosure states, California and Florida. Coincidently, Wells Fargo decided to extend its charge-off policy in the 2nd quarter from 120 days to 180 days in an effort to give troubled borrowers more time to reach a loan workout. Or, did they reduce their write-offs for the 2nd quarter to beat analysts expectations.

“Many people are still living in houses twelve months after making their last mortgage payment. Their banks have not started foreclosure proceedings. Is this due to incompetence by the banks, or is this a way to avoid writing off the loss? The Financial Accounting Standards Board (FASB), the little-known national agency responsible for establishing standards of financial accounting and reporting, has seemingly joined the cover-up by delaying the implementation of new rules that would have made banks stop hiding toxic waste off their balance sheets. New rules would have made banks put these questionable assets on their balance sheet and require a bigger capital cushion.

“Is anyone surprised that bank regulators, the Treasury and Federal Reserve urged a delay in implementation of new FASB rules. They can manipulate the facts because the average American doesn’t understand or care.”

Read the full article: Is the U.S. Economy Safe? What Banks And The Government Are Not Telling Us About 2009—The Next Shoes You Hear Drop May Be Very Loud Ones

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Jun 20

Despite the side-stepping of Labor Secretary Elaine Chow and others in Washington, there are very few people in the real world that don’t recognize that the economy is sick. And we just can’t spin it away. Unfortunately, we can’t even rely on the accuracy of the numbers produced by the Bureau of Labor Statistics to create sound policy. At issue is the slow and steady erosion of the meaning of these numbers by changing the formula, while leaving the definition unchanged. The entire country cringed when Clinton tried to debate the definition of the word “is.” It is because at our core we have to believe in the truism… by definition right? However, what if you could turn that into naiveté not by adjusting the definition but by adjusting the formula? Most econometric models rely on the sanctity of specific numbers, like the CPI, for setting COLA, rates, etc… and finding the real numbers involves editing out that spin.
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Jun 17

Ruth Lee

Kevin Phillip’s article in May’s issue of Harper’s (Numbers Racket: Why the economy is worse than we know) gives an excellent analysis of the underlying and less obvious factors that have led to our current economic situation:

“…the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.


The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits.”

Click here to read the article. While you can look to any media source for a complex discussion of how the mortgage originator was the cause of the meltdown, the Phillip’s article takes an interesting look at the critical statistics, like Consumer Price Index (CPI), unemployment and Gross Domestic Product (GDP), underlying our entire economy and how they have been systematically “adjusted” over the last 25 years. Seen in the harsh relief of the current crisis, the Harper’s article addresses a number of interesting economic conundrums and laws of unintended consequences that are involved in economic policy.

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Apr 17

Ruth Lee

I have said it before:

“…I could not help but cringe when I saw the proposed legislation for FHA to purchase and refinance “underwater” mortgage loans. It would essentially make FHA the largest scratch and dent lender in the market.”

I will say it again.

This story from the Wall Street Journal reinforces how much our industry is interconnected with both the US economy and the global economy. Our industry needs to be educated about global economics and understand just how extensive the effects of our actions are. These types of reports also demonstrate how critical a return to quality in lending and a renewed focus on quality control are to the total recovery and future viability of the mortgage market and our industry:

A new report from Standard & Poor’s indicates that a government bailout of Fannie Mae and Freddie Mac would cost upwards of 10 percent of gross domestic product (GDP) and jeopardize the United States’ AAA rating. According to the credit rater, “Even though . . . credit damage from GSEs is unlikely, the greater risk to the U.S. lies with them than with broker-dealers.” The report notes that a bailout of broker-dealers would cost the government less than 3 percent of GDP, with the bailout of Bear Stearns by the Federal Reserve pegged below 1 percent of GDP.

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