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Unhappy Days are Near Again
On the occasion of President Obama’s inauguration, we are publishing pieces on the two elements of the economy that we believe require the most urgent attention by the incoming administration – the repair of the banking system and, in this report, the unemployment crisis.
Highlights
- Much has been written on the similarities between the economic afflictions of the present day and those of the Great Depression. A frequent refrain sung in such contrasts references unemployment rates of the earlier era, followed immediately by the happy verse “of course, we don’t see anything near those levels today.”
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Mandatory Mortgage Modifications and the U.S. Constitution
Highlights
- The Bush administration’s failure to articulate or enact a comprehensive solution to the enormous debt overhang homeowners face is rooted not only in free-market ideology, but also in fundamental constitutional law and case history dating back to the Great Depression.
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The Freedom Recovery Plan for Distressed Borrowers and Impaired Lenders
Overview
With the passage of the Emergency Economic Stabilization Act of 2008 (“EESA”), the twin housing and mortgage crises have now forced the government to directly battle, with massive financial intervention, the systemic implications for our banking (and shadow-banking) institutions. Notwithstanding the magnitude of government support that EESA will bring to the resolution of the credit and banking crises, the financial and social implications arising from the housing bubble, for homeowners and the broader economy, require the consideration of additional unconventional solutions that are not inconsistent with the rubric of our system of laws and property rights. Such solutions must also place less reliance on direct intervention from a heavily extended government (and its taxpayers). The Freedom Recovery Plan (the “Plan”) is a structured package of government and private-sector measures that amount to a national “workout” of the residential real estate elements of the overall crisis in the capital markets. The housing sector’s ongoing meltdown presents unique challenges that were not front and center in prior boom and bust cycles. Accordingly, special actions are necessary to limit the damage to vast population segments and the knock-on effects of such damage to our normally resilient financial sector and economy. That such actions should endeavor to maximize the role of the private sector should be self-evident to those with lingering concerns about the total costs to which the government has already committed.
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Dense Smoke on the Horizon
Let’s take a step back. We are all becoming so focused on the individual policy “trees” of the continuing crisis that its time to take a broader look at the forest. The forest, regretably, is burning – and localized, helicopter-ed water drops aren’t sufficient and are taking too long to get to the source of [...]
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Falling Back to a New Redoubt
Overview The new line in the sand drawn by the U.S. Treasury and Federal Reserve after this week’s collapse of Lehman Brothers held successfully—for two whole days. Notwithstanding Treasury Secretary Henry Paulson’s unambiguous statement that he never even considered, and will not consider, crossing the line (again) into the uncharted territory of moral hazards and [...]
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The Housing and Debt Crises: Intractable Problems and How they can be Resolved
Highlights A failure to fully understand and appreciate the causes and likely magnitude of twin housing and debt crises may result in inadequate solutions, economic stagnation and a diminishing of the traditional resiliency of American markets. The easy money policies of the first half of the current decade resulted in the unprecedented doubling of mortgage [...]
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Putting a Floor Under American Homes: How Low Do We Go?
Highlights Current estimates of total deterioration in home prices run the gamut from “we’re almost through this” to “we’re only in the early innings.” Westwood has concluded the nation is in the middle of the sixth inning of home repricing, with the ballgame having started later in some markets and earlier in others. Westwood expects [...]
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Reading the Entrails
Highlights After a series of “it could have been worse” corporate announcements this earnings season, we are left reading the entrails of an economy still critically wracked with disease. Leading indicators—including loans to borrowers with questionable credit, the value of certain homes, default rates on consumer and residential loans, and the share price performance of [...]
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The Re-Regulation of the Financial Services Sector
Highlights Apparently forgetting that they failed to exercise proper oversight of financial institutions for much of this decade, members of Congress and regulators have been clamoring for new regulatory regimes and bureaucracies. New regulation isn’t nearly as critical as stringent enforcement of existing capital adequacy rules. Reliance on evaluations by credit rating agencies led institutions [...]
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10 Things to Understand About the Housing Bubble and the Debt Crisis
Highlights In time, history will provide a fulsome overview of the twin housing and debt crises, perhaps the most challenging debacle since the Great Depression. At this early stage, however, Westwood tallies a “top 10” list of underlying causes and considers what can be done to reverse the situation. Ranging from an unprecedeted level of [...]
