Stephen Russell wrote: > On Thu, Mar 12, 2009 at 2:35 PM, Leland F. Jackson, CPA > <[email protected]> wrote: > >> The Bush Administration, through the federal reserve, which was lead by >> Allan Greenspan, repeatedly lower the Fed interest rate to contain the >> housing bubble and otherwise repress a recession to keep the economy and >> war on terror going. Somewhere along the way the relation between risk >> a lender takes for providing captial to a borrower, and the interest >> rate the borrower pays the lender for the loan disappeared, and is so >> out of balance today, that the Fed interest rate have nowhere to go form >> here but up, However, if Fed interest rates go up, it will aggravate the >> credit crisis and housing foreclosures as mortgages would reset at >> higher interest rates. >> >> Its very predictable what happens to bond/debt face values as interest >> rates move up and down, and newer bonds come out that reflect the >> current economic conditions. It looks to me like the Bush >> Administration has painted the Obama Administration into a conner by >> removing the option to lower the Fed rate, as it has no where to go but >> up from here. >> >> The Bush Administration encouraged the current mess by manipulating the >> Fed interest rates, and many an investor was rewarded as they watched >> the value of their bonds appreciate, as newer bonds came out paying much >> lower returns, because of the predictable lowing of the Fed interest >> rates which everyone anticipated. >> > ------------------------------------------------ > > Actually raising the rate to 2.0 would probably be the best statement > that could be made. It will force the banks out of the idea that it > is all FREE money for a day or two. > > Our country needs to change the mindset of our investors and super > bankers, currently we are trying to help them evolve. Raising the Fed > rate will freak out many but for the nation as a whole it will be much > faster getting us out of our hole. > >
The Bush Administration and Allen Greenspan should have let the housing market make an ordinary correction, rather than repressing a downturn. By repressing a correction with interest rate manipulation, among other thing, they allowed the bubble to continue to grow, and as the pressure built, they kept pressing it back down, until it finally exploded with catastrophic consequences. The Bush Administration should have allow a normal correction/slowdown to occur, and confronted potential problems in the housing boom. For example rules should have been in place that prevented loans to borrowers that resulted in mortgage payments greater than 1/3 of borrower's monthly income, oversight with checks and balances that required lenders to obtain honest financial information necessary to make lending decision only to credit worth borrowers, and realistic interest rate to insure a proper relationship between the lenders risk and the borrowers interest rate for a mortgage. This would have allowed the home builders to slow down and adjust, instead of way over building homes that were place with risky borrowers with the inevitable high default rates on loans, and the corresponding sever recession that put so many builders out of business. Also, Wall Street practices that allowed credit derivatives, like CDS, to be freely traded in the OTC market, perhaps passing through 15 or 20 investor's hands, most of whom had no vested interest in the underlying debt upon which the derivative were priced, should have been made illegal. The big banks that sold CDS had no way to value their liability from the CDS exposure, so they didn't even bother to provide a reserve on their balance sheets for potential CDS losses. Things like CDS should have be classified and regulated as a kind of insurance with proper reserves maintained to meet potential obligations, and a program to re-insure, (eg buy CDS from other insurance companies from around the country, and seed, (eg sell the CDS written to other insurance companies around the country), would have spread the risk, so a single company would not be overly exposed/extended if a downturn occurred, and forced into bankruptcy. Regards, LelandJ --- StripMime Report -- processed MIME parts --- multipart/alternative text/plain (text body -- kept) text/html --- _______________________________________________ Post Messages to: [email protected] Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/[email protected] ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. This statement is added to the messages for those lawyers who are too stupid to see the obvious.
