Friday, May 23, 2008

The Ongoing Economic Turmoil

In the editorial Teeing Up the Mortgage Bust, the New York Times warns us about the next round of mortgage defaults: "a category of risky adjustable-rate loans — dubbed Alt-A, for alternative to grade-A prime loans — is scheduled to reset to higher payments starting in 2009, with losses mounting into 2010 and 2011. Distinct from subprime loans, Alt-A loans were made to generally creditworthy borrowers, but often without verification of income or assets and on tricky terms, including the option to pay only the interest due each month. Some loans allow borrowers to pay even less than the interest due monthly, and add the unpaid portion to the loan balance. Every payment increases the amount owed. In coming years, if price declines are in line with expectations, Alt-A losses are projected to total about $150 billion." That, they write, is in addition to the 11 million Americans who are in danger of defaulting on their mortgages now.

They add, "The housing bust is feeding on itself: price declines provoke foreclosures, which provoke more price declines." And conclude that the mess may go on into 2011.

In What Ever Happened to (the Good Kind of) States’ Rights?, Adam Cohen writes, "several years [ago], state attorneys general noticed a spike in predatory lending that the federal government was doing nothing about. When the states tried to rein in abusive mortgage lenders, the Bush administration finally did something. The Office of the Comptroller of the Currency issued rules nullifying state predatory lending laws over the objection of all 50 state banking superintendents. The clampdown, which paved the way for the subprime mortgage crisis, was done by “pre-emption,” a little-understood doctrine that allows the federal government to wipe away state laws."

On areas outside of lending laws, Cohen writes, "The 2003 Medicare law was a disturbing case in point. It blocked states from regulating most abuse by private Medicare insurance plans — an area the administration is not properly policing." and "the administration has quietly rewritten more than 50 proposed or adopted federal regulations to make it more difficult for consumers to sue makers of unsafe food, drugs and other dangerous products." and "Last year, the Environmental Protection Agency blocked California from curbing greenhouse-gas emissions from new cars and trucks by denying it a waiver that was once granted routinely."


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