Problems and Solutions The Economy/ Economic News

REAL SOLUTIONS FOR THE ECONOMY'S PROBLEMS
I'm writing with a plea: DO SOMETHING TO FIX THE PROBLEMS! Sorry for shouting.
The U.S. economy's problems aren't a soap opera. (Ah, the stock market went down yesterday. Ugh! did you see the hit the dollar took? Oil's gonna hit $100, wow!)
We don't need spectators.
We need activists who will try to come up with innovative economic solutions.
And we can't wait until there's a new president in the White House in 14 months.
The reason the economy is in trouble today is simple: too many people - elected officials, as well as common citizens - took the easy way.
The folks we elected wanted to spend money the country didn't have - on war, on policies wasteful and not.
So did people who did the electing - on houses they couldn't afford, vacations they didn't need and lifestyle amenities that most of the world couldn't even imagine. Read More Economic News for Economic Solution.
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Problems and Solutions The Economy/ Economic News

The Housing Market. Prices are falling. Mortgage resets are forcing refinancing decisions. Falling prices make refinancing difficult or without a solution.

The "old" Mortgage Market. Structured investment vehicles including both performing and non-performing assets were improperly rated by agencies. Trading in these securities is now illiquid. Financial institutions are scrambling to deal with this. They are holding distressed securities rather than selling because current market situation do not reflect the likely payout prospects. Meanwhile, the market for securitized mortgages has seized up.

The Existing Mortgage Market. The absence of securitization has disqualified many potential buyers. The limitations on Fannie and Freddie exacerbate the problem. Those seeking loans of over $417,000 pay a penalty rate of a point or more, if a loan is available at all. Other willing buyers who qualify for loans, albeit at a lower level than before, have difficulty in getting loans.
Interaction Effects. Falling home prices exacerbate the problems of refinancing, shifting supply curves to lower price levels. Mortgage unavailability shifts demand curves lower. Falling prices cause potential buyers to hesitate, also shifting demand curves lower. There is an interaction effect making each trouble worse.

The "new" Mortgage Market. There is and will continue to be a demand for securitized mortgages. The market will emerge another time with cleaner products and better ratings. It will probably not happen until the "old" market has stabilized. It is a good idea, which was poorly implemented.

How Long to a Solution?
Our vision is that the "static" analysis of the number of homes in inventory and the number of possible foreclosures overstates the problem. This approach looks at the problem without any view toward possible solutions. It is a worst case. We take a critical and analytical eye to anyone who asserts that a bottom will not be found until "late 2009" or similar forecasts. Without idea about possible policy reaction, how can one possibly answer such a question?
Problems and Solutions The Economy

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