Allen Greenspan or the Federal Reserve did not cause the housing bubble. It was the policy of using interest rates to manage the money supply and credit use. The economic crisis started in the United States and spread to the rest of the world. Our financial intuitions and the world financial intuitions invested in our mortgage securities. When the housing bubble burst, the collateral’s value decreased. The banks did not have sufficient capital reserves to be sufficiently capitalized. They turned to governments and the the central banks for help.
Our economy has become so large and electronically sophisticed, the old ways of managing economic crisis no longer work, as we have seen in the housing bubble and the recent energy bubble in the commodities market. The Fed could not do anything about these two bubbles. WHY? We need new policies to cure economic crisis and control inflation and inflation psychology.
I wrote an article presents some of the economic policies needed to guide our economy into the future. These policies will cure the currant economic crisis. Enclosed you will find the article
"Stimulate the Econo.Without Huge Deficits". It solves the problems of the economic crisis, foreclosures. foreclosure inventory, unemployment, underwater mortgages, high interest rates at the banks, capitalizing the banks, toxic assets, recession, stock market decline, auto industry woes, and inflation expectation in the future.
There isn't any reason to spend 2 trillion dollars to create a jobs program or for the government to buy the toxic assets from the banks and investors
How can all this be, when the government has not been unable to make the economy better. One person with the correct idea can make an army of people with the wrong idea, to their knews. You can find this through-out history, starting with Albert Einstein.
I am asking the news media and the blogers to please inform the nation about the needed policy changes to stimulate the economy, before we spend a two trillion dollars in the wrong way!
STIMULATE THE ECONO.WITHOUT HUGE DEFICIT
Analyst Finds Cause and Cure for Economic
Crisis
By Leonard C. Tekaat
Main points
1.In the modern world our homes have become the gold
standard of our currency!
2.The government has been injecting money directly into
the banking industry. This policy is wrong!
3.Large federal government deficits are unnecessary to cure
the economic crisis!
4.The toxic assets, at the banks, do not have to be
brought, by the government!
5.Lower interest rates are the answer. Lower than what
Banks, Freddie Mac or Fannie Mae can offer!
6.It will be the refinancing of 90% of the homes that will
cure the economic crisis. It will help the 10% unemployed
more than any government jobs program!
7.It has been the misguided tax laws of the government
and the interest rate policies of Federal Reserve that
created the currant economic crisis!
CSUB Professor of Economics Mark Evans was quoted as saying, “We are going to have to live with large deficits for a long time, and there is no other way.” I disagree with that statement. I believe there is another way out of the Economic Crisis. I have over 40yr of being in the financial world. President Obama and Professor Evans are relying on Keynesian Economics. John Maynard Keynes created these economic policies in the 1930s. Many economist of his time disagreed with him, but it turned out he was correct, in his time and in an inefficient way. His policies, put governments into massive debt, more government programs are created. Over the years, larger and larger governments are developed. His policies work but he did not leave a handbook behind on how to correctly slow down the economy when it is so strong that it is creating an economic crisis. Our economy is in economic crisis. Not from being too strong but from being too weak, after a very strong period.
President Obama is once again applying Keynesian Economics to the problem. Our economy has changed tremendously since the Great Depression. The economy has become so large and electronically sophisticated, that we need new methods of correcting economic crises. People have become more aware of credit use, which expands the money supply without government deficit spending. The Government just has to have the right policies in place at the right time in the economic cycle for the economy to work efficiently. The old ways do not work any more. We have to try something different. What the government is doing is not working!
What is recession? A recession is caused by excessive supply created by over production. Recession is also created by insufficient demand because of insufficient available cash purchasing power. Recession is also caused by the inability or desire of people to obtain credit because of a lack of confidence in the future or it has become too expensive or restrictive. This causes an insufficient amount of money value in the economy, resulting in people not having sufficient cash purchasing power to exchange for new produced value. It feeds upon itself further decreasing economic activity every time some one loses their job. The idea is to increase economic activity so people can go back to work and take care of themselves and their families, increasing their purchasing power there-by increasing demand. A majority of Americans enjoy their freedom and want to earn a living without government interference. If you are going to say people abused the credit system. I agree with you. A home should be valued for the protection it gives you from the weather and the security it gives your family.
I have developed new policies that correct economic crisis, such as recessions, inflation, and depressions, in a more efficient way. My desire would be for you to read the Alternative Economic Stimulus Plan. It is posted at www.americansolutions.com Put “happyashell” in the search box or www.economysflaw.wordpress.com There are several articles. I would start with VULTURES ARE CIRCLING U.S. HOUSING. By reading those articles and this one, you will find answers to the questions. How did we get ourselves into this economic crisis? How will we get ourselves out of this economic crisis? I believe that unless Congress hears from the people we will continue reliving history with gloom, boom, and doom economics.
On 2-24-09 the Fed Chairman Bernanke, appeared before the Senate Banking Committee. Senator Bob Corker stated during the meeting, “He had not yet heard a definite way out of the economic crisis. That it seems to me that we are continuing to do the same thing as we have been doing. That is, giving large amounts of money to the banks, to capitalize them and nothing happens that benefits the economy.” I agree!
The Fed is currently acting as a bank, regarding commercial paper. This morning in his question and answer session the Chairman stated that, “Because the banks were not confident enough to loan businesses money, the Fed, by paying the banks .25% interest on their deposits, the Fed was borrowing the money from the banks and lending it to the large corporations. I believe that the solution to the economic crisis is that the same policy should be applied to the housing problem.
If the ARM mortgage starting interest rate is low enough to jolt the economy back to life, the toxic securities will become valuable again. The borrower would qualify at the highest rate of interest it could go up. It would cap off at 5%. The 5% cap is possible because we will no longer be relying on the Fed to totally manage economic crisis. The new mortgages will become performing assets. The banks will make huge amounts of money rewriting the mortgages and servicing them. Thereby becoming profitable and help capitalize them. We are currently trying to capitalize the banks by infusing the money directly into them. This policy is wrong because the collateral is losing value. This situation means the banks will need more and more capital to remain viable. The value of the collateral must be stabilized first, for the banks to be confident enough to lend money against it. The value of the collateral must be pushed up towards the banks until they are willing to make reasonable qualifying loans.
I want you to ask yourself three questions?
1.What is the first thing the Fed does to stimulate the economy? Answer: Lower interest rates, this permits people and business to refinance their debt at a lower rate of interest, which in turn lowers their monthly payments, freeing up monthly income, which increases their disposable income. With more disposable income, people have money to spend on other things, other than interest payments.
2. Why did it not work this time? Answer: Collateral prices were going down. Banks or investors cannot refinance people’s loans until the price of the collateral stabilizes. When the banks did not follow the Fed’s lead of lowering interest rates it made the deflation worse.
3. How do we solve this problem? Answer: The banks cannot lower their interest rates low enough because of the risk factor of the collateral’s price going down. They have to make a profit and pay a high enough interest rate to keep their depositors satisfied. The US Treasury, which is a not for profit government agency, can borrow the money from the Fed, just like the banks do, and fund the refinanced mortgages, at near cost, until the collateral’s price stops decreasing and investors start investing in the new mortgage securities. The Treasury would receive the cash flow to fund more mortgages. When the economy is up and running again the Treasury would sell the mortgages to investors. The banks and other financial institutions would arrange these new loans and mortgages or modification agreements.
It has always been the 90% of the population who spend their money and pay their bills that brings the economy out of the recession. Helping the other 10% is a noble effort, but it is not enough economic stimuli to bring us out of recession. When the disposable income of the 90% increases, with their good credit rating, they are able spend money on household goods and services, big ticket items, autos and trucks ect. When the economy comes out of recession this will help the other 10% the most.
VULTURES ARE CIRCLING U.S. HOUSING
The value of our homes has been the backbone of our money supply. If you presently owe more than your home is worth the vultures are circling. The bankers and investors servicing your loan want you to make payments on a loan that may be more than what your home will sell for. The vultures are waiting until you default on your loan, to pick the economy’s bones clean. The housing bubble has burst and prices are coming down. This has led to federal action to stabilize and re-inflate the housing market.
The government (your representatives in Washington) should change the tax policy for bank business losses, so banks are motivated to lower the principle balance of your loan. We should support President Obama as he tries to lowers interest rates. He also wants to pay banks or investors one-half of the amount that is forgiven on each home loan. If interest rates are lowered low enough, the mortgage reduction policy is the only part of his plan we may need. We may not need that policy either, if the banks and investors come to realize that marking down the mortgage is in their best interest, tax and capital wise.
Let me explain the capital advantage. When a bank has a non-performing asset the value of the asset decreases more than if the bank discounts the mortgage. After discounting the asset’s value, the asset becomes a performing asset and is worth twice as much. An investor will pay more for a performing asset than a non-performing asset. If a bank waits and allows the property to go to foreclosure they can now sell the collateral, perhaps at market value, but if the sale price does not cover the cost of foreclosure and lost interest payments, (unless the mortgage is insured), the bank not only loses money but a customer forever. www.seekingalpha.com/article/12394-the-end-of-the-credit-crisis?sourse=article_1b_artic…
The homebuyers, our elected representatives, the investors, the bankers, we all have equal responsibility for this economic crisis. We must all understand this business fact. That until the excess amount of the mortgage is forgiven, in some manner, the real-estate market and the economy will not recover. The economy will remain in recession and could move into a depression. To encourage banks, investor and servicing companies to lower principal amounts, the policy of claiming a business lose, when banks or investors write down the value of an asset, should be changed. (Asset meaning your mortgage) The business loss should not be allowed until the amount of the mark down is passed through to the homeowner.
Housing Investors are buying 75 % of the houses that are selling in CA., NV. AZ. FL. The foreclosed properties are selling because the loan amount to buy the house is equal to the value of the home. We must send the vultures packing by changing the policies our economy is guided by.
The advantages to banks and investors are: The economy will start working again. They will make more money with a working economy, than by having their money in treasuries.They will be allowed to take the business loss tax deduction.
STABILIZE YOUR HOME’S VALUE.
All across this nation people have seen their home values decrease. There are three things that must be done to maintain the price of your home.
1. Enact the Zero Inflation Taxation policy. This policy will increase confidence of investors to make long-term money investments, creating a market for 30yr mortgages. It will automatically change the income tax, as economic conditions change in our economy, from recession to the inflation cycle.
2. Interest rates are too high. All through the 1930s the banks kept interest rates 400 to 600% or more above the inflation rate, making the Great Depression worst than it should have been.
(www.Crestmont/Reach.com) After World War II, interest rates have not been over 100% above the CPI. Currently mortgage interest rates are 750% above the CPI, and increasing, as deflation increases. We must create mortgages that have interest rates that are no more than 300 percent above Consumer Price Index. Maintain mortgage interest rates with Adjustable Rate Mortgages at no more than 50 to 100% above the C.P.I. As stated before banks cannot lower their interest rates low enough. The U.S. Treasury would fund these mortgages, at cost, until the banks have the confidents to lower their mortgage rates and investors start investing in mortgages securities. This would stimulate the economy. By decreasing mortgage rates by 50%, mortgage payments would decrease. A $1500.00 monthly interest mortgage payment would decrease to $750.00. That is a $750.00 stimulus check every month for 30 yrs. Nov.’s 08 C.P.I. was a negative 1.7%. A 3% starting mortgage rate would be 470% above the deflation rate. This policy will make housing affordable. It will bring more buyers into the market and eliminate the foreclosure problem. With safe guards included, the chance of another housing bubble occurring is practically nil. When the economy is correctly guided it will produce more tax revenues for federal, state and local governments without raising taxes, as the California Congress has done. The tax increases can then be eliminated.
3. Call! President Obama 202-456-1111 Fax 202-456-2461 Treasurer Tim Geithner Fax 202-622-2000 Opinions? http://www.bakersfield.com/ or http://www.contactingcongress.com/ Please blog this article across the nation.
I am the author of INFLATION THE ECONOMY KILLER (Amazon.com). I had to reverse my policies for inflation control to correct the currant economic crisis. High inflation and deflation are both economic crisis, which are created when the economy becomes unbalanced. The policies to correct them are opposite of each other. Our concern now is the deflation that is occurring in the real estate market, mainly the housing sector of the economy. The housing sector is so important because it is the consumer and household formation that creates 75 to 80% of the economic activity in our economy
I have petitioned the U.S. Congress to hold open meetings to discuss and debate the Alternative Economic Stimulus Plan. As of today I have not heard back from Congress, about this basic right of American citizens to petition their government. My Plan does not rely on a trillion dollar government Jobs Program. In fact the Alternative Stimulus Plan will not cost the American people anything over time. The Alternative Stimulus Plan also includes a policy that will help those people that owe more on their mortgages than what the house will sell for. This policy is outlined on the web site. Free info. www.americansolutions.com Search articles/comments by “happyashell” or www.economysflaw.wordpress.com
President Obama’s foreclosure plan is destine to fail. It does not take into account that most homes in CA .NV. AZ, FL. has decreased in price by 40% or more. The rest of the country an average 20 to 30%, His plan only allows for homes to be 5% underwater. The real estate market will not recover until the other 90% of homes that are more than 5% underwater have their excess mortgages adjusted. They cannot be sold or brought until they go through foreclosure or the banks and servicing companies forgive, in some manner, the excess portion, of the loan. I present one idea in my Alternative Economic Stimulus Plan.
The economy needs the real estate market because our homes are the backbone of our money supply, just like gold was many years ago. I do not want to re-inflate the economy. The reality of the modern world is that we no longer barter to exchange our goods and services. We use paper money or credit. They are both based on promises. If it is credit that you use as a means of exchange, the collateral must maintain its value over a long period of time, similar to gold. Our homes have served this purpose for many years until people changed policies to create more available credit. Human history has shown us that the borrower must be at risk of losing something of value as much as the lender and the terms of the loan must be affordable. This is not the case of the people who are losing their homes. The lender made the loan unaffordable, because of the change in the interest rates and the homeowners looks at the house as having no value, only an excessive burden. I realize there are a lot of people that should not own their home until they are educated and are more financially able to.
On our Federal Reserve notes read IN GOD WE TRUST it should read IN THE FED WE TRUST. When the government with its misguided policies and the Fed with its interest rate policies cause the economy to be guided in the wrong direction, they are responsible. If you divert a stream and it does damage to people, you are responsible for paying for the damages. Since this is a government by the people I guess we are all responsible. The government gave its power over the money supply to the Fed. The Fed with its interest rate policies and the government’s misguided tax policies are the one that created the currant economic crisis. It is not the responsible homeowner’s fault if their mortgage is underwater. A lot of people put 20% or more down and they are in financial trouble today because of the government and the Fed. It does not do anybody any good, except the people who created the problem and got out; to have housing prices go up as fast as they did during the housing bubble. It is better to maintain the economy at a pace that allows as many people as possible to participate in the economy, so they can provide for themselves. What we do not need is for the economy to slow down so much that people lose their jobs and become government dependent, as the millions of the unemployed are doing.
When the Republicans want to increase people’s disposable income, they want to lower taxes and reduce regulation. When the Democrats want to increase people’s disposable income they want to deficit spend, create jobs and government programs and increase regulation. Both of these policies increase the national debt and the government’s deficit, in the beginning of the recovery cycle. Lowering interest rates does not cost anything and increases more people’s income, by a greater amount, much quicker. This policy puts people back to work faster and the problem does not get out of control. The government’s liabilities are decreased. We do not have to increase taxes to pay down the national debt or to decrease the deficit. With the correct policies enacted the chance of another housing bubble occurring is practically nil.
Please e-mail your thoughts about this very important matter to me, or leave post your comment here. If you can help us (you and me and our posterity), the little people, by increasing the sound of their voices, please do.
Home prices are decreasing all over the country. The news media has been covering the economic problems. How about a solution? I challenge the news media to pickup this article and broadcast it across the nation. This recession has lasted long enough. It is time to eliminate the misery.
Leonard C. Tekaat is a retired economic Analyst, Financier, Investor, businessman, author, and a former Candidate for California Congress. He has experience in the financial world of over 40 years. If you agree with any part of the plan, write or telephone the newspaper, your friends, Congressman or anyone else that will help spread the word. You can also send a copy of this article to the editor.
Just maybe, if the little people stand on each other shoulders and shout loud enough, we will finally be seen and heard!
Copyright by Leonard C.Tekaat All rights reserved. Everone has my permission to post or reprint this article to inform the people of our free nation. We are responsible for what policies and laws we want to live by and guide us.
Contact:E-mail http://www.leonardc@earthlink.net/http://www.economysflaw@yahoo.com/
P.S. be sure you read the other articles and comments to get the complete picture.
Leonard C.Tekaat Fax 661-588-7954 economysflaw@yahoo.com http://www.leonardc@earthlink.net/
