Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

WASHINGTON – The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way

Shlack the way I heard it was that the Democrats forced Fannie and Freddie to loan money to the high risk borrowers and are thus responsible for the meltdown.

The traditional causes of foreclosure, even before there was subprime lending, were job loss, divorce and major medical expenses. And the national foreclosure data seem to suggest that these issues remain paramount. The latest numbers show that foreclosures have been concentrated not in places where real estate bubbles have supposedly been popping, but rather in places whose economies have stagnated — the hurricane-torn communities on the Gulf of Mexico and the industrial Midwest states like Ohio, Michigan and Indiana, where the domestic auto industry has suffered.

Nigel Gault, chief US economist at Global Insight, described the unemployment numbers as "horrendous".

"This is an economy that is in absolute free fall right now," Mr Gault said: "Confidence has collapsed."

More than 1.5 million Americans have been made redundant in the past six months.

Following the steeper-than-expected decline and a $1.43 fall in the price of oil to $42.24 a barrel, the Dow Jones industrial average lost 224 points or 2.6 per cent, to 8,153.... [yo-yoing, unstable Dow-Jones Index]

The US car industry is also expected to lay off thousands of workers, taking the unemployment rate to an estimated 8 per cent by the end of the year....

Ian Shepherdson, chief US economist at High Frequency Economics, said: "This is almost indescribably terrible. In the past six montsh, the US has lost 1.55 million jobs, almost as many as were lost in the whole 2001 recession, which included 9/11 and the two months after. The pace of job losses is accelerating alarmingly."

As a business owner my prediction has been for the economy to bottom out right about now and after Obamas inauguration to begin a slow upturn. By the end of the first quarter and halfway through April(tax time)we should start seeing an upswing towards whatever the new normal is going to be.