How Long Will The Recession Last?

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  ennyman10/03/08 Report as spam
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  RE: How Long Will The Recession Last?

  It is impossible to predict how long a recession would last because none of us knows the truth about what is really happening. In 1975 futurist Alvin Toffler wrote a sequel to Future Shock called Eco-Spasm. I believe I still have this out of print book which speaks of a gloom and doom moment in the future when there is a convulsive global economic meltdown due to the interconnectedness of everything. You didn't need to read the book to get the gist. Essentially, it predicted things that we simply don't want to see happen.
  
  A lot of people have a vested interest in keeping our economic boat afloat and one can only hope these "worst case scenario" thoughts remain science fiction and not a part of our future realities.

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  Joe.enlight10/03/08 Report as spam
  2

  RE: How Long Will The Recession Last?

  By definition, we can't be in a recession until two quarters of negative growth.
  
  These pinheads have been predicting recession since the '06 midterm elections. There's a reason they call it the People's Republic of Cambridge.
  
  This government got out ahead of the mess, when it would have been in their party's best interest to pretend everything was fine until after the election. They have receive no credit for that. Over communication may be the problem, but certainly not a lack of it.

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  Michael Fitzgerald10/03/08 Report as spam
  3

  RE: How Long Will The Recession Last?

  You're right that we aren't formally in a recession. The unemployment numbers are accelerating at a rate not seen before without one occurring, but it hasn't happened yet.
  
  as for dealing with the problem, perhaps the government is out in front of this, but it seems to me like its hand was forced. I didn't say this in the post, but the economists seemed to agree that when Lehman was allowed to fail, it set off a panic amongst lenders. Johnson's document argues this as well (and by the way, he's British, and he is a business school professor, usually the bastion of conservatism at a university).
  
  That aside, do you really think that the government is not getting credit for trying to act? I don't feel like I've seen anyone accusing it of leaving the problem for the next Administration, and I've seen very little suggesting it should.

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  Joe.enlight10/03/08 Report as spam
  4

  RE: How Long Will The Recession Last?

  The actions that Johnson proscribes are on target, although I personally disagree on step three. He certainly knows his stuff.
  
  I really don't believe that the administration is getting enough credit for this from either side of the aisle. The media describes it as a bailout. Legislatures are demanding extra perks for "spending" the money (but that is how sausage is made). People are angry that we are bailing out Wall Street. What the administration is doing is providing liquidity as the money markets seize. Without this liquidity, the whole system freezes. They took a political risk to do so, when the 'easy' track would have been to keep increasing the Term Auction Facilites through next January.
  
  I give all the credit to Paulson for this. Imagine if McNeil or Snow were still the Treasury Secretary - wakling disasters!

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  Michael Fitzgerald10/03/08 Report as spam
  5

  RE: How Long Will The Recession Last?

  I agree with you on the liquidity.
  
  do you think paulson/bernanke were making a negotiating gambit with that initial request for $700 bn in unfettered dollars?

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  Joe.enlight10/03/08 Report as spam
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  RE: How Long Will The Recession Last?

  I think they wanted to ask for more, but had to come in under $1 tillion. Paulson's inexperience in Washington horse trading may have played a part. Their argument was that the money wouldn't be 'spent', just 'invested'. Of course, that got lost on most Americans (including Congress), who don't seem to know the diffrence.
  
  Really, how much is $700B going to help? Citi and WF are arguing over who gets $122B in option ARMS from Golden West. By the time the get to Nat City, Key, FITB and HBAN, there won't be anything left.

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  guyz03/09/09 Report as spam
  7

  RE: How Long Will The Recession Last?

  USA?s FAST ECONOMIC RECOVERY IN 2 STEPS
  
  Step 1 - STOP THE BAILOUTS and FIX THE BANKS
  - Solve the loan problem.
  - Solve the derivative problem.
  - Reassemble whole loan mortgages
  
  The U.S. economy is shrinking fast, because businesses cannot get loans that they need to operate normally. Banks and lenders already own $ billions in bad loans, and they are afraid to make new loans. The government gave $ billions in bailout money for banks to start lending, but banks hoard the money to save themselves.
  
  Our financial system became untrustworthy, because it mixed $ billions in bad loans in with the good loans. Now, banks do not trust any of the loans, and the entire credit market stopped working.
  
  The U.S. economy will continue to shrink until we untangle the loans. Once the bad loans are isolated, they can be fixed one at a time. Then trust will be restored. Credit will flow, and the economy will grow.
  
  So far, our government is spending $ trillions on bailouts and pork projects, out of ignorance and political ideology. The real solution is much less expensive than that.
  
  The USA has fixed this problem before, and it is not hard to fix again. This is how:
  
  A) Start with the Resolution Trust Corporation (RTC), which the federal government setup to solve a Savings and Loan problem in the 1980s.
  
  B) RTC buys up securitized mortgages and derivatives to reassemble whole mortgage loans.
  1. ?Securitized mortgages? are home loans that have been bundled into large groups and sold to investors. A group of about 4,000 mortgages can be ?securitized? and sold just like a stock or bond. Investors like to buy groups of mortgages because they receive all the monthly house payments.
  2. Some groups of securitized mortgages were subdivided into smaller pieces, called ?derivatives.? However, both of the fancy names refer to mortgage loans.
  3. The problem is that many bad loans (with no payments) got mixed in with good loans. That turned the all the securitized mortgages into bad investments, which are ruining our banks. It is a huge problem, and the government has to fix it, before our economy will recover.
  4. Total securitized mortgage and derivative market is estimated at $1.3 Trillion by a Professor of Economics at Ohio State University. (Also see the graph from Deutsche Bank at ?The Death of Securitized Mortgages? http://www.nakedcapitalism.com/2008/06/death-of-securitized-mortgages.html )
  5. Government should buy up securitized mortgages and derivatives at the lowest market price, which is set via a reverse auction. (Google on ?reverse auction?.)
  6. Squatters, who sit on their mortgage derivatives, in order to extort big $ from the rest of the system, can be forced to sell. (Law is analogous to eminent domain, or sales forced on cybersquatters that registered the domain names of well-established companies.)
  7. Government pays mortgage derivative squatters at market price set by previous reverse auctions, perhaps with a penalty to the squatters.
  8. Sellers give up all rights. No new law there.
  9. Banks, investors, and insurers now have cash instead of questionable mortgage loans and derivatives. So, the banking system is healthy with cash to lend.
  10. Credit will flow, and the economy will grow.
  
  C) Government reassembles whole loans from securitized mortgage components and derivatives.
  
  D) Government sorts the newly reassembled whole loans (mortgages) into groups according to risk/quality.
  1. Government uses traditional mortgage experts and guidelines to sort the home loans into quality groups, for example, a high quality group would include homeowners with 20% (or more) equity in their house at today?s market price; and house payments that are 25% (or less) of homeowners monthly income.
  
  E) Government (RTC) sells the reassembled whole loans to traditional mortgage banks.
  1. This solves the problem of renegotiating home loans with homeowners. Read on.
  2. Law must be changed so that reassembled whole loan mortgages cannot be securitized into derivatives, again.
  3. An important purpose is to reconnect each homeowner with his lender, and vice versa.
  4. It eliminates incentive for mortgage lenders to make predatory and junk loans. If the loan fails, the lender is stuck with a bad loan.
  5. Government recovers much of the $1.3 Trillion purchase cost, because government auctions off the reassembled mortgages.
  6. The lower quality, more risky mortgages would fetch a lower price at auction.
  7. Mortgage companies, that buy the risky loans, will have more room to negotiate with the homeowners.
  8. Some homeowner negotiations will not succeed. Those homeowners will move into affordable rentals. (The government does not owe everyone a free house.)
  9. Other renters would like to buy those empty homes at reduced market prices.
  10. If the government gets stuck with some homes, the government could profit by selling the homes when the housing market recovers.
  
  F) Insurers like AIG may be reorganized through bankruptcy.
  1. Securitized mortgage pools never made business sense, unless they were protected by various insurance schemes.
  2. Those insurance schemes always were a scam.
  3. Insurance only works when most of the insured assets are never hit with a disaster. That is why flood insurance does not work very well. A major flood ruins all the buildings in a large area, all at the same time. So, the insurance company goes broke, and people that bought the insurance are not protected. That is the problem with securitized mortgage insurance. In an economic downturn, the ?disaster? hits all the houses at the same time. Securitized mortgage insurance was doomed to fail, and the insurance companies went broke in 2009.
  4. Companies that ran the insurance scam may have to go through bankruptcy.
  5. Never ending government bailouts for insurers like AIG are just throwing good money after bad. So, stop the bailouts.
  
  This plan is inexpensive, tried and true. It leaves the banks healthy, with cash to lend. It restores trust in the credit markets, so loans will be made. It reassembles mortgage derivatives into whole loans, and restarts traditional mortgage lending. People can get loans to buy homes. Credit will flow, and the economy will grow.*
  
  
  Step 2 ? STOP THE PORK and START THE RECOVERY
  
  *The economy will grow if President Obama?s massive tax, borrow, and spending plans can be stopped, before he creates another Great Depression. Presidents Hoover and Roosevelt already tried to tax, borrow and spend their way out of a recession in the 1930s. Instead, they created the Great Depression, which lasted 12 years. Straight as he goes, President Obama is doing it, again. Nevertheless, cleaning up the securitized mortgage mess is a necessary first step.
  
  If President Obama announced Steps 1 and 2, today, the stock market would go up within hours. Investors love a real business plan, instead of a political pork plan. Millions of people will be wealthier, feel wealthier, and have more money to spend. That will jump start the economic recovery within days.
  

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  SkylaH05/14/09 Report as spam
  8

  RE: How Long Will The Recession Last?

  That is the question of many Americans. But no one can answer that even the economist. The only thing I know about this recession is that, it is a way to remind us that we can?t live ?high on the hog all time?. For the past years, many people have lived on credit, but now that the recession is here, what is happening? People are returning to good financial practices of saving, and living on less than they earn. This is just a challenge to all of us that we have to face and overcome. Anyway, the automakers have been among the hardest hit by the economic recession but it seems that the U.S. automakers are in far more trouble than others. Well, they did get a lot of bailout money, and they're looking for even more installment loans to float them in the recession. General Motors is in some of the worst trouble. They are looking for a lot more in gap financing to keep them above water, yet they have obviously lost a lot of money as evidenced by their recently posted first quarter figures. Ford is the lone wolf of the automakers, as they have only asked for stand by credit instead of direct debt relief.