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The graph tell the story, in early 2007 there were close to 4 million homes under water, in early 2008 closer to 8 million homes and in early 2009 closer to 16 million homes under water, close to doubling the number of homes under water. This is why more of the morgage securities become bad assets with each passing year, as their underlying assets the mortgages become high risk for default. During the third quarter the number of homeowners under water, or owing more than their homes were worth, were 11.8 million, and by the end of 2008, 13.6 million, according to Moody's Economy.com They are growing at close to 1.8 million every quarter, or at the rate of over 7 million a year. Which at this rate would reach 21 million homes under water by early 2010, if one assumed that government help only worked to offset the impact of further deterioration of housing prices, by lowering payments for some homeowners. A new housing rescue plan was announced March 4, 2009. This will supplement the $75 billion announced earlier. This plan announced March 4, 2009, is expected by the Obama administration to cover 9 million homeowners. Borrowers who face severe financial hardship that may cause them to lose their homes, are required under this plan to sign affidavits attesting to this. They will in then see their loans modified, payment periods lengthened, and interest rates dropped to as low as 2%, to bring the monthly payment down to 31% of income, the number that experts say is appropriate for sustainable payments. Only first lien mortgages, and homeowners who live in these homes and not homeowners who use them as investments, will qualify. The outstanding principal balance cannot be over $729,750. As incentives loan-servicing companies will get upto $3500 from the government, and the government will also match a portion of the ender's costs dollar for dollar. Homeowners get $5000 in government money to reduce their outstanding balances, as an incentive to them to stay current on these modified mortgages. The administration plans to announce plans to those holding second mortgages on their homes, who have difficulty modifying them. The other component of the plan is for Fannie Mae and Freddie Mac to refinance loans for borrowers who are under water, owing more than their homes are worth, even if they are wealthy enough to afford current payments. There is no income ceiling for this part of the plan. And these mortgages have to be held or guaranteed by Fannie Mae or Freddie Mac, with homeowners not owing more than 105% of the current value of their homes. ...

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The NYT editorial says the summit came up short on both the Stimulus that Europe was asked by the US to commit to, and the global regulation that the Europeans asked the US to agree to. The regulatory reform is not what it needs to be to address the many issues raised by this crisis says the NYT. And Germany it says needs to see that deteriorating conditions will require a strong stimulus. By committing to $1 trillion in funds to backup international trade and to help emerging countries fight the crisis, the summit did achieve its other goal of helping the vast majority of people in the world in the emerging countries deal with this crisis, including countries in the EU.

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The first significant action to help homeowners threatened with foreclosure comes from Sheila Bair, Chairman of the Federal Deposit insurance Corporation, one of the few people after Bernanke and Paulson who have shown initiative and foresight in the current crisis. Bernanke and Paulson had the foresight to open the Fed lending window to investment firms like Lehman Brothers and others but little has been done for homeowners to have significant impact. When interviewed on television in the days surrounding the Bear Stearns crisis Sheila has shown a good grasp of the issues and courage to take the initiative. This action is similiar in line to what Martin Feldstein has suggested on the pages of the WSJ for some time now. Martin wanted the Federal government to step in to loan homeowners the 20% of their outstanding loan and work towards bringing the homeowners payment to an affordable sum. According to Feldstein's calculation this would be about the right amount as a percentage of their loan so that homeowners rationally would not be better off walking away from the loan as the best possible decision under the circumstances. If the rational option was taken under a scenario that homeowners would get no direct help here is what would happen even though it may be intuitively read in one's mind. Homeowners would walk away in increasing numbers, it would become the popular option, one that has happened in prior housing crises in Colorado for example but this time it would be spread out across America, making it dangerous. This would launch a downward spiral or cycle in which the more homeowners walk way, or default the more house prices drop, and the more house prices drop a new group of homeowners who previously had enough equity in the house now because of the last price drop enter the category of homeowners who would be better off just walking away as a rational option. During the next wave this gorup would default and set the spiral or cycle moving again to lead to further price declines and another group of homeowners finding not enough equity in their homes to justify making payments and this group would walk away. At each turn of this spiral another cycle would be set in motion which is why it is so dangerous once it gets started, and the need for timely but also well thought out plan and good execution. This cycle is that of the economic system as a whole. As house prices drop at each turn of this cycle, it would have a serious impact on consumption for an already indebted American consumer. A drop in consumption means fewer product purchases by consumers, and the falling demand means factories would close as companies consolidate operations around the remaining factories to keep capacity utilization at reasonable levels, and this would mean layoffs and cuts in investment and other spending. The layoffs in turn would add another layer of homeowners leaving their homes through foreclosures adding to the pool of homeowners who have left their homes, and adding to the downward pressure on house prices. The pickup in inflation would bite at exactly the worst time as this would mean consumers would have to spend even more carefully. The price of oil which normally would respond to changes such as a fleet of cars with higher mileage on American roads would take a longer time to respond as this fleet change would take a few years to occur. It would respond to lower demand for oil in American factories but the considerable demand in Asia and other countries where the economies are likely to slow down but still be growing at rates to accomodate the large number of people who have not benefited from the market economy, would make the price decline in oil a gradual affair. The weaker dollar would add to the price of imports adding to the inflation. This bite from inflation would lower consumption even further in the economic cycle. And this would mean lower production in factories and even more layoffs at the next turn of the economic cycle. The Federal Reserve would find itself having difficult choices between maintaining confidence in the dollar, for which Capman and McKinnon argue on the pages of the WSJ recently and lowering rates but not achieving much in terms of stimulating either consumption or investment as this would take time to work itself out and all the Fed could achieve by its interest rate making tool is to buy time to weather these adjustments in an orderly manner. There is almost a consensus among experts that interest rate reductions in the current climate of inflationary movements in prices and the current currency exchange rates moving towards a loss of confidence in the dollar is something to be done very carefully and each action taken only with careful understanding of the possible consequences. A look at the proposal itsel shows that it gets around the whole issue of moral hazard by having the cost paid for in this manner. The mortgage investors will pay for the 5 years of interest on the 20% of the loan the government provides. The homeowner takes over after that. The mortgage investors cannot add deferred interest, prepayment penalties or other ways to make the homeowner pay some of the interest charges. And the homeowners payment has to be afforadable so mortgage investors have to show that the payment is not more than 35% of income of the homeownercalled the debt to income ratio (DTI). And only homeowners with mortgage payments above 40% DTI are eligible. And the government would raise the money needed through a $50 billion offering. To show there is no moral hazard that is the government bailing out any of the parties involved, the government will get back all of its money or intends to do so, the government will have the first rights to the money should a home foreclose and before anybody else is paid. ...

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On October 30, Sheila Bair heading the FDIC, the main advocate for reducing foreclosures by reducing the mortgage payments is in discussions with Treasury officials for a plan whose details are still being worked out. A key part of it is for the government to assume half of the losses on home loans that are incurred if mortgage companies agree to lower monthly payments for at least 5 years. The cost to the government is about $50 billion that would come from the $700 billion bailout fund. Right now loan companies are reluctant to reduce monthly payments because homeowners might defaul again or the owners of mortgage securities might file law suits. The funds would go to shoulder half of any future losses on default. For example if under a loan modification program 40% redefault and losses on loans are 55%, and $500 billion in loans are modified under the program, the total losses government would bear are $55 billion. This scenario is possible in a deep and prolonged housing and economic slump. This would be a gradual program if mortgage companies or companies with home loans or servicers of loans have to decide if they want to take advantage of this program, and time is critical as the foreclosures are accelerating and thisputs downward pressure on prices....

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Standard and Poor's changed its rating of U.S. Treasury securities from stable to negative. U.S. Treasury securites are still rated AAA. Moody's made no change in the rating. U.S gross debt as a percentage of GDP is 91.6%, with the comparable number for Germany at 80%, France 82%, Canada 84%, the UK at 77%, Japan 221%. The U.S. budget deficit as a percentage of GDP is 10.6%, the comparable number for Germany is 3.3%, France 7%, Canada 5.5%, the UK 10.4%. John Chambers, the head of the sovereign ratings committee at Standard & Poor's stated that "the sign of political gridlock was a key determinant in our outlook change." The budget deficit will go up to $1.5-$1.65 trillion, or over 10% of America's GDP in 2011. The gross debt for the U.S. is at $14.219 trillion, just short of the $14.294 trillion cap. With rising entitlement costs and the interest on debt this is expected to go over the debt ceiling as early as July 8, 2011. Again political gridlock and the divide between Republicans and Democrats about deficit reduction is causing concern about the delay in raising the debt ceiling....

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This article in the NYT explains why the loss of jobs particularly in the auto industry to Mexico, with the experience of NAFTA passed by president Bill Clinton, has caused widespread opposition to the TPP trade agreement proposed by president Obama. Both Hillary Clinton and Donald Trump in 2016 oppose the TPP.

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Economic progress in South Asia may finally put behind it simmering political tensions is evident from nature of this proposal on Kashmir by Pakistan. This proposal by President Musharraf is for India and Pakistan to recognize the "line of control" as a de facto border, gradually withdraw troops, and support a new body to run the government in Kashmir. Musharraf say Pakistan then "will have to, yes," give up its claims on Kashmir. The region would have to be given more autonomy to run its affairs. Musharraf would still have to win support from the political parties for this proposal to take shape and be able to control militants in the region who oppose a settlement.

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China's trade surplus increased to $18.4 billion in April from $5.4 billion in March. Exports were up 4.9%, slower than expected and down from 8.9% in March. But imports went up by only 0.3%, much lower than March's 5.3% increase. The hopes for improving the trade balance in recent months may be dashed because of slowing imports for infrastructure development, as economic growth slows in China, even as export growth declines from its earlier high levels.

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A draft of the "Common Vision of the World Bank Group," posted online by Government Accountability Group provides details on how the World Bank sees its mission in 2013. The question relates to what the World Bank's mission should be in a world where develping countries such as China and India have made signficant progress. The fragile and conflict ridden states in Africa and in parts of Asia and Latin America will be critical parts of this mission. Yet a lot remains to be done in China and India, and the World Bank sees its role as facilitating the development of needed infrastructure in India and efforts to control pollution in China, better manage the growth of cities in both countries, and also work in the poorer parts of Europe such as Greece. World Bank president Kim sees the World Bank working with the private sector to ensure that infrastructure projects have "a transformational outcome" to help improve incomes of people struggling to join the middle class.

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Feldstein says that the $700 billion plan to buy impaired assets will not prevent an overshooting downward in house prices, as more people have negative equity in their homes, rising to 40% of all mortgages at some point; and leading to a cycle of foreclosure and further price declines. This will only decrease the value of the mortgage securities that Treasury seeks to take off the hands of banks. And without direct government help in form of lowcost loans, say 2%, the cost of capital for the government, for 20% of the loan upto $80,000; more and more homeowners will have negative equity in their homes. This will lead to more foreclosures as housing loans are not full recourse, so that only the house is lost and the homeowner can move to an apartment and carry on from there. Thw size of this program would be $1 trillion but it gives the government income from the loans made and these would be full recourse loans so the taxpayer is protected. In Feldstein's view the current plan does not address declining house prices which is the root of the problem. ...

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U.S. Federal Reserve chairman Bernanke, says the Fed will keep interest rates low till unemployment reaches 6.5%, as long as inflation remains at about 2%. If unemployment reaches 6.5%, and this is because more people are dropping out of the labor market, he will take this into account. If unemployment stays high the Fed indicated in its statement that it would tolerate a higher inflation of 2.5%, as long as the longer term outlook was for inflation to be at 2%. Bernanke said this doesn't mean monetary policy is on autopilot, because the Fed will watch conditions carefully and will leave room for flexibility- keeping an eye out for new asset bubbles that could develop, and monitoring labor market conditions and inflationary pressures and inflation expectations. If inflation falls well below 2%, or unemployment rate falls mainly because of people dropping out of the labor market, the Fed may continue to keep interest rates low. This policy was announced as U.S. fiscal cliff deficit negotiations continued in Dec. 2012 with one scenario being considered by both political parties being going over the Jan. 1 deadline before coming to an agreement. Bernanke pointed to this, saying "this is a major risk factor right now." The Fed's activist policy in economic policy has given financial markets and business a measure of stability not provided by government and Congress. Fed policy is to buy $40 billion of mortgage securities, and $45 billion of long term Treasury securities for each month in 2013. It will fund the purchases by adding reserves to the banking system, which is to say that it will print money to buy more bonds. This is a major decision by the Fed in that the Fed has shied away from unemployment targets in the past. Bernanke described this action as a new"automatic stabilizer" in the U.S. financial system- if unemployment rises investors know this pushes the Fed's interest rate increases further down the road and would drive interest rates down, if unemployment drops sooner than expected, investors anticipating Fed's rate increases would drive long term interest rates up, to keep stable growth....

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Leonhardt points out in the NYT that Hillary Clinton actually won in the popular vote by a substantial margin, by more than 2 million votes and more than 1.5 percentage points. He says that Democrats need to pay more attention to the working class in midwestern states- the job losses, crumbling infrastructure, and the plight of communities such as Detroit, Michigan which suffered through the bankruptcies of Chrysler and GM, and again with the foreclosure crisis, the financial crisis of the City of Detroit. With a similar situation in the neighboring states of Wisconsin and Ohio, in places like Toledo and other parts of communities facing industrial decline. While the Silicon Valley centred region powered the economy in California, and the financial industry and real estate powered New York, older midwestern communities never really recovered from a long decline stretching over 2 decades. The result was the loss of faith in Democrats among union workers and young people, leading to the loss of Wisconsin, Ohio and Michigan. For most of its history the Democratic Party was based on its union and working class base including a large number of white voters. Only under Obama because of his unique candidacy was the coalition so dependent on the minorities vote. Before minorities were part of the Democratic coalition, but not in the way under the Obama candidacy. A return to its historic and normal base among whites in unions and working class communities, liberals, minorities, is a way to go back to the historic and natural base of Democratic support. In a sense dependence on tech communities for election funding and the tech booms, globalization, may have distorted Democrats sense of their historic role as champions of the working class and middle class communities throughout the country. There is now an opportunity to restore this lost mission of protecting the interests of the middle and working class who have seen huge drop in net worth as reported by Janet Yellen of the Federal Reserve at the Inequality Conference on October 17, 2014-"62 million households with a net worth of $11,000 for the year 2013." Poorly covered in the media and not made the utmost priority by Democrats (or Republicans). In the words of Janet Yellen, this was in the past several decades "the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality since the Great Depression." She added the shocking words "by some estimates, income and wealth inequality near their highest levels in the past hundred years, and probably much higher than much of American history before then." Even discussion in the media goes back to the Obama coalition and treats it as a way forward for Democrats, when history shows it was different and the situation described by Yellen calls for a serious response. ...

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Declining manufacturing wages in the U.S. and the return of manufacturing jobs. Indiana's experience with new manufacturing plants.

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Roosevelt say experts was a great crisis manager but not great when it comes to policies to create jobs. His achievements were stabilizing the banking system with deposit insurance, government investment in banks, and restrictions on banking practices, creation of the SEC, and fireside chats that steadied the national mood. Unemployment when he took office in 1933 was 25% from 3% in 1929, and industrial production had dropped 40% since 1929. So FDR took office when a lot of the damage had already been done, compared to that Obama takes office earlier in this downturn. And Roosevelt did not fully grasp John Maynard Keynes's advice when he visited the White House in 1934. Keynes complained to Labor Secretary Ms. Perkins that he had thought the President was more literate economically speaking, while the President felt Keynes had a rigmarole of figures he did not understand. Roosevelt said of Keynes: "He must be a mathematician rather than a political economist." It took some time for government spending to take hold. Throughout the 1930's government spending remained around 20% as a share of the economy. Today its 35%. And the average unemployment stayed at stubborn 17% on average for the decade of the 1930's. It was not till the 1940's that things changed. Total government spending as a share of the economy reached 52% in 1942 with the onset of the war, and peaked at 70% in 1944 when the unemployment rate dropped to 1%. One lesson experts say is that its easier to stem unemployment and job losses by action earlier in the downward spiral through vigorous action by government. In retrospect because industrial production fell by 40% during the 1930's experts say Roosevelt was actually timid in his response. U.S. Fed chairman Bernanke is a student of this period and draws a similiar lesson from that period for vigorous action early in the crisis....

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The Guardian sends its reporters along with UN special envoy on poverty Australian Prof. Alston as he spends two weeks in the world's richest country looking at poverty in urban areas.  They look at some of the 55,000 homeless people in Los Angeles, homelessness exacerbated by the tech boom in California that has sent housing costs skyrocketing. LA saw homeless people increase by 25% in 2017. The safety net is not being reinforced as the Trump administration cuts many social safety net programs. Next they visit the Tenderloin district in San Francisco where homeless people can be found at St Boniface Church sleeping in the pews. As the Guardian points out the cuts to social programs disproportionately hurt people of color who make up 39% of the homeless in the U.S. This report looks at the incongruity between the tax cuts that are likely to hurt poor whites who supported the Trump administration, as well as hurt the social protections that are part of today's democracies across the western world. This is most evident when one looks at the European Union. They were put in there in Europe for a reason- fairness is good for all classes, and most of all it protects democracies. Authoritarian regimes arise out of social dislocation from wars, or from lack of social protections and ineptitude of elites. Which is why a Lincoln or a Theodore Roosevelt from the Republican party supported fairness and social protections as much as FDR and Truman from the Democratic Party. The view expressed in this report in the Guardian is that the U.S. may have moved in the wrong direction under the Reagan and Clinton administrations creating the "me first" culture that prevails in the U.S. today. ...

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Average land prices in China in October 2011 are down 40% from the peak in Sept. 2009, when real estate companies purchased large amounts of land. This means large losses for companies that bought when prices peaked. When this happened in 2008 companies were rescued by the large Stimulus by the Chinese government. It is uncertain what will happen this time as a similiar Stimulus effort is not expected. Prices nationwide for residential land were down 8% in October from the prior year, and transaction volumes were down 37%, according to property firm Soufun. In October and November 2011, land auctions at a number of major cities in China failed, with either no bidders or low bids. According to CLSA property analysts, China Overseas Land & Investment Ltd. and Longfor Group have reduced prices of homes by 20% -25% for projects in Shanghai.

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Manuel Barroso, president of the European Commission, tells Italian newspaper La Repubblica on September 1, 2014, that Russian president Putin made some abnormal remarks in a phone conversation. Responding to Barroso's question about whether Russian troops had crossed into eastern Ukraine, Putin is reported to say: "That is not the question... But if I wanted to, I could take Kiev in two weeks." The WSJ editorial on September 3 referred to an earlier editorial on "Putin Bonaparte," giving some idea of how such comments by Putin are seen in the media, and how Putin's actions in Ukraine are creating new tensions with the NATO alliance and the U.S.