It's truly amazing: the Bush administration has presided over such a grand breakdown of our economy (and incidentally, the global economy) that even bankers are begging for government insurance.
Credit Suisse Group is urgently shopping around a 20-page proposal requesting that the Federal Housing Administration be expanded to cover many more delinquent mortgages than it already does. If this plan is adopted, homeowners that are behind in their mortgages will be able to refinance into loans backed by the FHA.
Things are quite serious in the housing sector. Some 1.3 million borrowers were either seriously delinquent or in foreclosure by the end of 3Q 2007. More than that amount are expected this coming year.
See today's article in The Wall Street Journal
Banks are turning to the safety of an agency created during the Great Depression. The FHA provides mortgage insurance. Homeowners pay premiums into an insurance fund.
That's not the only echo of the 1930s:
[Senate Banking Committe Chairman] Chris Dodd (D-CT) is working on a plan that would resurrect a federal agency created during the 1930s to buy up distressed mortgages at a steep discounts and help borrowers refinance into more-affordable loans.
From Reuters,another expert who has suggestions derived from FDR's strategies:
Bernard Connolly, global strategist at Banque AIG in London, worked for the European Commission analyzing the European monetary system in the run up to the introduction of the Euro. Forecasters chortled at the time saying the euro would never last. He sees parallels between the 1930s and now, except he believes that the current central bank is more proactive now than it was back then and therefore will probably avert a repeat of that scenario.
But he recommends that the U.S. government act NOW and RADICALLY, which may entail buying up stocks to stave off deflation and stabilize the economy. He outlines the similarities between the 1920s and the 2000s:
The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression.
Then, investors were very optimistic about new technologies, and stocks rose against a backdrop of low inflation, and a trend toward globalization. There was even an equivalent of the modern day subprime mortgage debt meltdown in the form of U.S. loans to Latin American countries which had to be written off.
Connolly noted that FDR restored agricultural prices to their pre-slump levels. That was only one of many ways FDR bolstered the economy.
Poor free market economists. It looks, at least to Connolly, that the only way to avert another Great Depression is immediate government action:
Beleaguered housing, non-governmental fixed-income securities and even the now overvalued Treasury market have little hope of generating substantial returns for investors over the next few years, he said.
"If we don't avoid depression, the only thing worth holding is cash," he added.
How much more damage can these ideologues inflict? Even the home builders lobby has shut down campaign contributions until further notice because they feel the government isn't responsive to their needs.
The whole country (nay, the world) could rot and the fat cats will sit anxiously in their McMansions in their gated communities awaiting the second French Revolution with Blackwater operatives in their turrets.