Our leaders are missing the issue

Our leaders are missing the issue

the economy is in the tank because people do not spend

People are not going to spend
they can not, until an outside force gives them more cash

we have primarily a service based economy

a service based economy can only operate for so long -

to explain the point to your children, try this

envision a self contained community
the baker uses the barber that uses the laundry that....etc

even if everything one needs for day to day function is available in the community,
and utopia spending is reached, where no one holds a dollar

only if the value of purchased breads, haircuts, washes matches perfectly will it work perfectly
there is a natural lag and lid on the community controlled by the least spending person

if: something has to be sold out side of the community, and something has to be bought and brought into the community, then the dollar flow also has to balance

the moment the bought items exceed the sold items (trade deficit) a financial disparity exists

soon the dollars passed around the community decrease, so the community has to print more

since there is a natural loss of value, when that happens, it creates a cycle of printing more, and them having less value outside the community

that's what we have

and we are progressively eliminating our manufacturing options, thru legislation, higher scale of wages, etc

so - although we could delay the inevitable, and print more dollars

unless this country produces something the rest of the world will pay for,

we are done - the only discussion is when

An "We were told this would happen" moment

the full story is here:
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=all

ahhh what fools we were!!

the bold is mine

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

and

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

and

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

And we wonder why they are broke!!!

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