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Archive for the ‘Mortgage Meltdown’ Category

Unemployment Rising and Economy Still in Decline

For much of last week, it was possible to think that the economy was looking up. Various indicators, though weak, were not as bad as expected.

On Friday, reality bit back with the news that the unemployment rate spiked in March, to 8.5 percent, a 25-year high. The government’s report also showed that employers had shed 663,000 more jobs in March. Nearly two million jobs have vanished this year — 5.1 million since the recession began in December 2007. The ranks of the unemployed now stand at 13.2 million.

There is no longer any doubt that the current recession will be the longest yet in America since World War II. The previous record-holders — the contractions of the early 1970s and the early 1980s — each lasted for 16 months. As of now, the economy already has been in decline for 16 straight months.

The questions now are how much longer the recession will be and how much worse it will get. Measured by the labor market, the answer to both questions is “a lot.” That is because employers will continue to cut jobs as long as the economy is weakening and will resume hiring only once they are sure a recovery is under way.

In this recession, the traditional paths to recovery are especially blocked. Economic rebounds — especially from steep declines — are generally led by recovery in the housing market. This time, housing is unlikely to provide the spark. By prudent estimates, housing sales and prices will not begin to turn up appreciably until 2010 at the earliest.

Why Not Just Let AIG Go Under?

Last week’s outrage over big bonuses paid to executives at AIG has more than a few readers wondering: Why can’t we just let these big companies go out of business?

Roughly half of the $180 billion the government has given AIG has already flowed, indirectly, to the “counterparties” that bought what amounts to financial insurance policies. The list includes big banks, other financial institutions and governments.

The state of California, for example, collected $1 billion it invested in what’s called a Guaranteed Investment Agreement. That’s a kind of interest-bearing savings account where states and cities stash money they’ve raised from a bond offering until they need the money. More than $12 billion in federal bailout funds paid to AIG went to more than 20 states that invested money with the company.

Some $80 billion in AIG bailout money also went straight to banks and investment firms around the world that did business with AIG. It’s possible some of those banks might be able to absorb those losses. But given the current fragile state of the global banking system, it’s entirely possible that AIG’s failure could bring down one or more big banks.

Why not let those banks fail, too? The problem is that the world’s banks are interconnected in a kind of global river of money that we all rely on to keep the economy moving. If too many banks fail, that river starts to dry up. With the economy in a steep decline, we need money flowing through the system faster — not slower.

AIG’s Financial Products division wasn’t regulated. After Congress passed a law in 2000 deregulating the kind of paper bets AIG was making, the company was free to write as much of this “insurance” as it wanted without demonstrating it could cover any and all bets that went bad. By some estimates, the company made about $500 billion in paper bets with little or nothing to back them up.

Taking back bonuses paid to the people who made the mess does little to fix the underlying problem. Some of the members of Congress now expressing the loudest outrage were among those who approved the rules that let AIG get into the casino business in the first place.

Then again, maybe the failure of Congress to act sooner isn’t all that surprising. AIG was one of the biggest contributors to key members of Congress in charge of making the rules. The company, like the rest of the financial services industry, got some of the best laws money can buy.

Obama Unveils Home Mortgage and Foreclosure Prevention Plan

NEW YORK (CNNMoney.com) — President Obama unveiled a $75 billion multi-pronged plan Wednesday that seeks to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments.

The long-awaited foreclosure fix marks a sharp departure from the Bush administration, which relied mainly on having servicers voluntarily modify troubled mortgages.

Obama, on the other hand, will make it easier for homeowners to afford their monthly payments either by refinancing the mortgages or having their loans modified. The president is vastly broadening the scope of the government rescue by focusing on homeowners who are still current in their payments but at risk of default. And he puts billions of federal funds into enticing servicers to modify the loans of those who’ve already stopped paying.

Wayne County Sheriff Halts  Home Mortgage Foreclosure  Sales

DETROIT – Wayne County Sheriff Warren Evans announced today that his office will halt all mortgage foreclosure sales.

Evans said a review of federal law has determined that to continue foreclosure sales would conflict with a recently enacted law that provides protection for homeowners.

“To proceed with sales without assuring that homeowners have been able to avail themselves of those protections would put me in a position of violating federal law,” Evans said during an 11 a.m. press conference.

“I cannot in clear conscience allow any more families to lose their homes through foreclosure sales until I’m satisfied they have been afforded every option they are entitled to under the law to avoid foreclosure.”