Why things will never be the same....

Ah the good old days. Money was plentiful and credit was easy. Where have they gone? Why was it that way then and not now.

The answer is CDO's - collateralized debt obligations. Money was plentiful because every time a mortgage was written it was packaged up and sold as bonds. But not any longer. The market for CDO's has vanished and along with it trillions of dollars of liquidity and readily available credit.

But what about the banks? We can't expect the banking system to make up for losing the multi-trillion dollar CDO credit system.

Yes, contrary to popular press the banks are lending, albeit with tighter lending standards, but once the money has been loaned it has to be repaid before it can be loaned again. Think about it. In the old days (last year) the mortgages would be sold as bonds and the money would be available for another loan - sometimes in as little as 30 days. But now, that mortgage has to be paid off before it can be loaned again. Say, aren't most mortgages at least 15 years?

So how long will it take to right the ship that once was the mighty USA? Well my friends a lot of that depends upon our leaders. And unfortunately many of those in the house and senate don't know anything about banking or finance - and some should be in jail for their actions. Yes, it could be a long, cold winter of discontent. Let's not even begin to think about getting back to where we were. Let's think about how we can just stop the ship from sinking.

But wait, there is good news - the Fed and the Treasury. Like knights in shining armor there is a chance they could come riding to the rescue. How you say? Well behind a stimulus here and a stimulus there could be hidden a dramatic increase in the money supply. I'm not talking about the trillions in bailout handouts. I'm talking about paper currency - printing it - lots of it. If the banks can't loan additional money because it is sitting in your house then what is a Federal Reserve Chairman or a Treasury Secretary to do? Print money.

Will it work? Yes. But is there a price to pay? Yes, inflation, not today but someday.

The inauguration is greeted with a 332 point drop in the Dow

We have a new president but we still have the same economy with the same issues as before. It appears that we are now entering the 2nd phase of the meltdown -where the impact of the financial meltdown reaches well into the rest of the economy. It hits the neighborhood restaurant that was barely making it before. It hits the retail stores who were counting on a good Christmas season and didn't get it. It hits the car dealer because people aren't buying cars. It hits far, wide and deep. It strikes fear in the hearts of men. And that is the problem. Fear. People are afraid and so they don't want to spend money. They don't want to take risks. They won't open a new business. They don't want to buy that new piece of equipment that will make their business more competitive. It is the fear that is holding the economy in this downward spiral. So what's going to get them out of it? It all goes back to the housing market. People need to feel safe and secure about their largest investment. We need to stop the free fall in housing prices, but how? It's easy give anyone who wants to purchase a home an interest free loan plus the rate of inflation up to $100,000. It was increase the demand for housing which will stop the free fall in housing prices. When people feel good about their home and its value they'll stop being afraid. They'll know the bottom has arrived.

A New Year

Ahhh, 2009. At last. 2008 wasn't a very good year by any means you measure it. With nearly $7 trillion of equity wiped out in the stock market you could say it was the worst year in the history of the US. We've now gone through the first phase of the meltdown - layoffs in the financial services sector, foreclosures, tightening credit, bank and financial institution failures. So what does the future hold? The second phase where the ripple effect from the first phase moves across the rest of the economy. Some of the first to be impacted will be the industries that rely on discretionary income - restaurants, entertainment, charity, etc. Hopefully the second phase will be quick and we'll be finished by the end of 2009 so that we can move to the third phase - rebuilding. Although the second phase may be quick it won't be painless. Just the opposite, it could be quite painful for many Americans. We've already seen the first signs of the second phase with the auto industry. As consumers purchase less it will impact virtually every segment of our economy. Those who are strong enough to survive will emerge stronger. Those who aren't will fail. There is a bright side. We have historically low interest rates. If you own a home this is a good time to refinance. If you own assets such as land this is a good time to borrow against those assets - you may never see rates this low again in your lifetime. Eventually the low rates will rise and that will be because the economy is heating up. Let's hope we don't Greenspan the economy by raising rates too many times too quickly. When rates begin to rise you'll know the soothsayers believe the worst is over. Another bright spot is the cost of gasoline. At $1.50 a gallon it will help many Americans balance the family budget.