The Collected Works of Author and Blogger Larry Roberts

Archive for June, 2013

Crony capitalism has replaced free markets in America. We instituted too-big-to-fail banks during the Great Recession partly because the financial interests have become so powerful in Washington that nobody dared suggest we let these behemoths fail and let the bonuses of incompetent bankers disappear. The relationship between corporations and the government is closer than any time since the late 19th century. Perhaps we could use a little Teddy Roosevelt type trust-busting to clean up our broken financial system. Until the next TR comes along, we get to watch scandal after scandal were former government officials go to the private sector to peddle their influence and get outsized paydays (like Robert Rubin at Citibank). The latest abuse of power and influence…[READ MORE]

One of the side affects of Quantitative Easing (QE) and the Zero Interest Rate Policy (ZIRP) has been ability of homeowners with debt to refinance at lower rates with shorter mortgage terms like a 10 year, 15 year or 20 year fixed rate mortgages.   Even the loan mods for loanowners have cheap teaser mortgages rates.  The result of this side side is homeowners are being dividend up into loosely dividend groups.  1) loanowers that will have no equity on their homes after 10 years. 2) Homeowners that have refinanced into 10, 15, or 20 year mortgages that nearly paid them off after 10 years.  This have implications for retirement for these two different groups of indebted  homeowners. The other key…[READ MORE]

The federal reserve sets policy in meetings of the Federal Open Market Committee (FOMC), a group of bankers. The FOMC sets target interest rates and directs its traders to either buy or sell securities to meet interest rate targets.When the federal reserve buys Treasuries, the price goes up, and interest rates go down. When the federal reserve sells Treasuries, the price goes down, and interest rates go up. Prior to the financial meltdown in 2008, the federal reserve only bought short-term Treasuries, but in an effort to rescue housing, they began an unprecedented campaign of buying 10-year Treasuries and mortgage-backed securities in order to drive down mortgage interest rates. It's important to remember that the federal reserve had never done…[READ MORE]

Language has a powerful influence on our perceptions and beliefs about reality. The current meme on the housing market is that prices have "recovered." Financial recovery suggests the return to a natural equilibrium from and undervalued state. In the case of housing, this suggests the peak of the housing bubble was the fair market value and restoring peak prices means housing has "recovered." The reality is far different. A bubble is a financial condition where asset values become greatly detached from fundamentals and inflate beyond any reasonable measure. When a financial bubble bursts, asset values crash back to fundamental values and often overshoot to the downside. The deflation of a bubble to fundamental values is the recovery. Reflating asset prices…[READ MORE]

Banks don't want to modify borrower's loans. They would far rather be paid back the money they borrowed with interest at the terms originally negotiated in the promissory note. The only reason banks are even considering loan modifications is because the collateral backing behind the loan no longer covers the original capital amount. If it did, banks would foreclose, boot out the delinquent borrowers, and resell the house to someone who was ready, willing, and able to make payments under the negotiated terms. It should be obvious that banks don't want to modify these loans. If this were something they wanted to do, they would make it much easier, wouldn't they? Have you ever seen someone opening a savings or…[READ MORE]

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