Thursday, March 20, 2008


Sooner Fed bail-outs than the 1930s revisited
We should be thankful that the man now heading the US Federal Reserve - Ben Bernanke - spent his early career immersed in the details of that catastrophe. He has written books showing how a credit crunch can set off a vicious downward spiral, and do so with lightning speed. You do not mess around in such circumstances.

1 comment:

Deborah said...

I don't think the solution is dealing with the problem after such insane exuberance has been allowed.

I think the studying has lead to strategies that just made the bubbles bigger and bigger rather than letting the market correct.

If you look at how the housing bubble was dealt with, with people over extended on their loans, well, the lending standard was 15 years and it was increased to 30 years which frees up about 20-25% of what was being paid.

We've got 30 year mortgages as the norm, and to make it worse, negative amortization mortgages, mortgage resets, interest only mortgages.

The type of debt people have today has almost zero room for making it less burdensome. So what now, 40 year mortgages to free up 5% of the monthly payment? It isn't going to work, which is why there is all this garbage with reducing the loan amount and/or rates. But, everyone of these deals hurts the foundation of the economy as the holes get bigger.