Blogs & Podcasts for the Financial Crisis

Plan­et Mon­ey is so great. For fans of that pod­cast here are three oth­er sol­id, rel­e­vant pod­casts and their links in iTunes (not sure what their site links are):

A great video pod­cast from Mar­ket­place, called White­board, gives con­cise visu­al descrip­tions of key con­cepts like “cred­it default swaps”:

http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=294809115

A new one from PRI’s the World, called Glob­al Econ­o­my, which is, at its title implies, ded­i­cat­ed to a world per­spec­tive on cur­rent finan­cial issues:

http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=303781468

A prac­ti­cal one from NYTimes, called Your Mon­ey. It’s obvi­ous­ly more per­son­al finance focused, but they make it clear that their goal is to offer advice amid the crazi­ness of the cur­rent macro-cri­sis:

http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=306082189

Hi, I’m not say­ing these are all ide­al for fol­low­ing the finan­cial cri­sis, but I start­ed (but nowhere near enough) to com­pile a page­flakes page for ones I was look­ing at dur­ing a recent finan­cial visu­al­iza­tion project:
http://www.pageflakes.com/AydinDesign/25623485

Oth­er ones which I have not put in there yet but read every­day are John Kay (on his web­site, sep­a­rate from his FT col­umn), Nathan’s Eco­nom­ic Edge, Any­thing Peace­ful, Econ­Tech,

Hi, apolo­gies, did some re-organ­is­ing yes­ter­day and for­got that I was chang­ing links — page­flakes page is now — http://www.pageflakes.com/Nicolaa/25623485
but the best ones I have found on there are Paul Kedrosky, Paul Wilmott, Tim Har­ford for over­all com­men­tary and dis­cus­sion too.

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.