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There is strong cirticism from many quarters about low interest rates as a prime culprit in causing the bubble in housing prices. In comments before the American Economic Association, America's Fed Chairman Bernanke defended his role as Fed governor in 2003 when he along with Greenspan was an advocate of the decision to cut the Fed's target interest rate to 1%, and to leave it here for a year and raise it only slowly. Bernanke says countries like Britain, New Zealand, and Sweden had tighter monetary policy but there home prices rose more, and monetary policy explains only 5% of the variation in home prices. Analysis has shown he says that capital inflows such as those the U.S. received from China and other Asian countries explains 31% of the variation in home prices, supporting a contrasting theory that that its these global imbalances that drove the crisis. He also placed the primary fault for the housing bubble on relaxed lending standards and views that housing prices would rise forever. Alongside these comments Fed chairman Bernanke also said that bank supervisors and other financial regulators of which the Fed was one, has a better ability to contain the excesses that led to the economic crisis including housing bubble and other excesses, than the Fed as a monetary policy maker. By saying this Bernanke is acknowledging that the failure of regulation was a key part of what happened in the economic crisis. The failure to fix the regulatory system even now leads Bernanke to say that he is open to using monetary policy as a supplementary tool for addressing risks should another bubble develop, if the regulatory system isn't reformed. Still Bernanke and Greenspan were quite complacent at the time of the low interest rates and did not point out the dangers of global capital imbalances which were evident at the time, preferring to say that the United States could benefit from the inflows of capital from overseas without serious risks. And the Fed did not exercize its role of vigilance in alerting the country to excesses in the way the housing industry operated and in exercizing its own powers to that effect. Instead the Fed as regulator and in role as asafeguard for serious risks let itself become part of the cheering section as the worst excesses in housing were being exposed....

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Anxiety in financial markets about exposure of French banks to Greece pulled down French bank stocks on August 10, 2011. Societe Generale shares were down 15%. A British tabloid the Daily Mail published an article on Societe Generale saying that it was in a perilous condition, and on the "brink of disaster." The Daily Mail later retracted its report. The rumors spread quickly in a jittery market, reminiscent of the rumors that affected Morgan Stanley at the height of the U.S. financial crisis in 2008. Sanford Bernstein analysts say in a report that the selloff in French banking stocks was based more on anxiety and the rising price of insurance of thinly traded credit default swaps, and not based on rational concerns about earnings and raising capital. Societe Generale says it has no exposure to Greek bonds maturing after 2020 on its books- to deflect fears of additional bank bondholder haircuts beyond 2020- and has taken a 395 million euro provision against losses on Greek sovereign bonds maturing upto 2020. The jittery condition of markets was also affected by rumors that France was about to be downgraded. Moody's, Fitch, and S&P reaffirmed that French credit ratings of triple A and stable outlook would not change....

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With huge losses at RBS, Prime Minister Brown says he is angry at RBS for the excessive risks taken by the bank. A big chunk of losses of 28 billion pounds for 2008 relate to the deal to acquire ABN-Amro. ABN Amro had on its portfolio a loan to chemical maker LyondellBasell, owned by Len Blavatnik a Russian-American industrialist, which filed for bankruptcy protection in January 2009. Says RBS CEO Stephhen Hester, "we doubled up at the wrong time". Now RBS shares have fallen to 11.6 pence or less than the price of a candy bar. And Brown's administration faces growing criticism that the earlier bank rcapitalization and lending plan has not worked, even as new elections are due by May 2010. With the new deal with RBS government ownership goes up from 58% to 70%, and the next step may be nationalization of RBS. In an effort to limit banks losses and help capital needs of banks, the UK government will insure a majority of losses after the banks assume a first portion of the losses.

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The Hulme Company mail order catalog business in Minnesota may not be representative of small business, considering the errors and the scale of the debt taken on. But even if a small fraction of this debt taking tendency is representative of small business, it means that small business will not generate jobs as it did in the past. Small business will actually layoff people. And small business will not be able to provide the bounce the economy will need in years to come. The following is an an anaysis of this venture. The owners of this small business Bidwell and Ms. Guarino bought a luxury goods maker that was losing money for $600,000. Their business was to sell $500 garment bags and $1200 duffel bags. The experience of Bidwell was with Target, Tonka Toys and a cigarette distributor. Ms Guarino had a $130,000 job with a magazine publisher, running regional magazines like Minnesota Parent, which she quit. She had some experience as a handbag designer in California before that. They had never seen hard times, no, they had only seen good times. And were willing to spend heavily on the business like the $600,000 for a business, Hulme Company, that lost $150,000 on sales of $450,000 making duck hunting gear, the business they bought in 2003. All this for a tiny factory employing 3 seamstresses, and with no brand name for luxury goods like leather duffels. Their lender's experience- Kassim who founded Maple Bank in Champlin, Minnesota, considered it pretty typical of small business in those days to do everything on debt and loaned $550,000 over 5 years. So the lender was in for the ride. Another bank Stephens bank loaned on SBA approved loans which were later cut off. Guarino had no experience in this business, and simply relied on Bidwell's experience. The borrowing went on and on from friends, taking in debt with total lack of understanding of what debt means, from their daughter, the entire $50,000 savings of Bidwell's wife, and finally with banks refusing to lend after having friends put up their CD's and collateral on loans. Debt to equity ratio gets to 5 to 1. Second mortgages on the house getting Bidwell and extra $130,000. Even in the best year 2006 sales at $1.4 million, and earnings before taxes and other items at $325,000, not enough to pay the interest and other payments on loans that later totaled $2 million by year end 2007. $500,000 from friends and family including $20,000 from his daughter or two thirds of their savings. 600,000 catalogs went out in 2007. With the Hulme Company behind on payments in 2008, the catalogs mailed in 2008 dropped to 175,000. It is a very capital intensive business from the standpoint of catalog cost. $1 million in inventory at year end 2007, or two thirds of sales of $1.5 million in 2007, was a sign of how expansion preceded even getting the financing in place, and going out into the dark thinking sales wil materialize. So even in the best year 2006 the business was not viable, and would have collapsed even without the financial and credit conditions of 2008, ruining the owners in the process. By 2008 it led to the usual things in this kind of business failure, Bidwell's divorce, loss of his home as he falls behind on mortgage payments, Guarino's loss of job and friends whom she borrowed from, and both deeply in debt. Evaluation of the failure is as follows. Seamstresses and the small factory space could be obtained for a fraction of the cost in an emerging market country, even in an eastern European country, and no cost needed to be incurred for the purchase of Hulme Company or for sending out catalogs. Only travel expenses to meet high end retailers who might carry this merchandise, and go to the country where the plant was setup. Sales would come first, and expansion to meet sales very carefully done so that the plant could be downscaled if sales dropped. Even then scores of small luxury goods makers in China or other emerging market countries could put the owners out of business. The lesson if you can't watch costs, if you don't understand what debt means, then you don't pass the most basic of tests. You cannot run business on savings, home equity or credit card loans, or business loans with personal guarantees. Costs tend to just run up to the money one has artificially created. It will ruin you. If you don't have experience with the business and the product area, or can't put together a group of people with the experience to guide you on the pitfalls and what to watch for, you don't pass the next basic test. Only then does one get to the other tests about whether there is a market, the price and value of the offering and so on. This is before the current economic crisis. Now all these tests become more important than ever, or it will kill you and quickly. One has to be paranoid and very careful after 2008. Stephens Bank loaned money on SBA loans ...

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Alan Blinder calls for something better than Social Darwinism to tackle the problem of foreclosures in the U.S. economy. Martin Feldstein has made the same call repeatedly. Homeowners under water need help from the government to avoid foreclosures. Rising foreclosures reduce the chances of a recovery in housing markets and U.S. economic recovery.

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Martin Feldstein renews his call for new policies that channel significant government aid to homeowners under water. He says this is the only way to stem the decline in home prices. Letting the forest fire of foreclosures burn itself out is simply not an option, as it would only damage the economy further.

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Annamaria Andriotis does enormous service to millions of borrowers for student loans by putting down in simple payments terms everybody can understand the approach to take for a university education. She points out the pitfalls in taking federal loans and following the advice of the student loan office. The federal student loans have an origination fee of about 4.2%, so even if you pay off the loan early you are stuck with the origination cost, which private lenders such as major banks do not normally charge. On a $100,000 loan this could be $4200 right off the beginning, reducing the loan to $95,800. Private lenders offer fixed rates also at attractive terms of about 4%-4.25%, with added reduction of 0.25 to 0.5% for loans with automatic payment. The lenders include Wells Fargo, Suns Trust. It is important to have good credit ratings. Scores of over 700 or 720 in credit ratings provide the most attractive rates, yet a good credit rating is also acceptable. FICO scores range from 350 to 850 for credit ratings. Added reduction of quarter to half percentage point for automatic payment. A loan for $100,000 taken with Federal PLUS loan and government guarantees could run 7.21% for fixed rate. Andriotis points out that compared to the $4586 payment on a $100,000 student fixed rate private loan at 4.25% for 10 years, a federal guaranteed PLUS loan at fixed rate of 7.21% for 10 years would cost $3541 more over the life of the loan. Mortgage loans for 30 year fixed rate jumbo loan is about 4.14%. In September 2014, the rates for jumbo mortgage loans offered by private banks are now converging at the 4.18% for conventional mortgage loans. For auto loans zero percent financing from auto company lenders such as Toyota Financial are a better option. Rates of 2% on auto loans may be available from private banks and credit unions. SunTrust Banks has an online lending division LightStream that is offering personal loans to borrowers having good credit ratings scores, with interest rates of as low as 1.99%. The borrowers with excellent scores can get the unsecured option at the best rate of 1.99%. Credit unions are offering lower auto loan rates of 2.64% and 2.74% compared to banks charging average of 4.79% and 4.9%, according to data from SNL Financial. Millions of borrowers with good credit ratings, especially for student loans, need to start early in checking out the rates and shopping for the best rate. A good credit rating of parents can enable a student to make a huge difference in payments for undergraduate or postgraduate education, and avoid the unnecessary burden of high interest rate loans in a low interest rate environment....

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The S.E.C. proposal for regulation of credit ratings agencies in the U.S.

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Luis Gutierrez, Charirman of the subcommittee on Financial Institutions and Consumer Credit, has a bill in Congress that is presented as a reform effort by the lending industry, many Republicans and some consumers. It would allow payday operators in the $50 billion payday lending industry, to charge what amounts to an annual percentage rate of 391%. Rep. Maxine Walters described the bill this way, "we've got to resist any attempt to make it look as if we are cracking down, when in fact we are opening the door to more abuse." This is what Countrywide's Mozilo does in a interview with BW, that he gave at the time the housing and mortgage crisis was breaking open in 2008. And this is the way those in both political parties in Congress, lobbyists, and businessmen who profited from all the unethical things that went on in the housing lending industry, all worked together to undermine the foundations of the country's economy by putting toxic assets at the centre of the credit and banking system of the US. They did this by saying that they were helping the poorer classes get access to housing, and used the term "a piece of the American dream," which seems to be the phrase that opens all sorts of caves in the American imagination, like Ali Baba and his magic lamp and his magic phrase did in Arabian times. And so the NYT editorial writer, facing the greater evil suggests that a smaller evil, an usurious rate of 36% that is an option afforded to military families is a desirable option, when at that rate the loan numbers would double in less than 3 years. All this when the government at federal state and local levels could assume this among the many activities it already undertakes, because it does best those activities, such as some of the public transportation and other services. The government bank could require proof of desperate need, and provide loans for purposes of medical care, care of elderly, care of children, educational needs, food and shelter needs, at rates of 10-15% to make up for losses in loans not repaid, and run it as a nonprofit. Capitalism is also of the good kind and the bad kind, the 391% payday loan capitalism or the loans at pricing that made them unaffordable to low income people, or loans to low income people who did not have incomes to afford housing (where the risk was then passed on to the owners of the securities after a false sertification of A rating had been obtained by undermining the rating process) is a bad kind of capitalism, and the 36% usurious rate for military families is of the tolerably bad kind of capitalism, and the 10-15% kind of payday government sponsored loan is of the good kind of capitalism. And critical to its understanding is what experience has taught us in the last 100 years- that for this good kind of capitalism, there is a critical social role for the government to play. ...

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Failure to provide principal reductions to millions of U.S. homeowners under water and the prospect of further price declines in housing in 2012-2013. This would prevent a recovery in the U.S. economy.

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Steven Mnuchin, a former Goldman Sachs executive is the new Treasury Secretary in the Trump administration. His ties to Goldman Sachs go beyond his own work at the firm. His father joined Goldman in 1957, and worked for his entire career at the investment bank. Steven's brother Alan also worked at Goldman. During the campaign Trump was severe in his criticism of his opponents Cruz and Clinton's ties to the bank. Ironies abound, not only is the new Treasury Secretary from Goldman, his connections go back a generation. The Treasury Secretary under Clinton was Goldman Sachs executive Robert Rubin. Under Bush who followed Clinton the Treasury Secretary was Goldman Sachs executive Henry Paulson. Under Republican and Democratic administrations Goldman Sachs executives have held key positions. Mr Mnuchin was campaign finance chairman for Trump for 6 months leading to him being chosen for Treasury Secretary. Mnuchin joined Goldman in 1985. During the campaign Trump was also severe in his criticism of financier George Soros, making this a key point in a debate with Clinton for taking Soros's support. This report by Das and Ensign points out that in 2002 Mnuchin left Goldman to run a credit fund set up by George Soros. In 2004 Mnuchin founded hedge fund Dune Capital Management LP with Soros support.  When IndyMac bank collapsed a deal with the government was arranged that covered a part of any future loan losses being taken by FDIC, and Dune was one of several hedge funds and private equity funds including Soros funds that acquired it for $1.5 billion. The renamed IndyMac bank was called OneWest with Mnuchin as chairman. OneWest was sold in 2014 at a large profit to CIT Group Inc. This report says CIT Group took a $230 million charge in July 2015 for accounting problems at OneWest.  During the latter part of the Trump campaign after he joined it in May 2016, Mnuchin set up a joint fundraising agreement with the Republican National Committee. This made it possible for major donors to give to the Republican party and Mr Trump. The head of the Republican National Committee is Mr. Lewis Eisenberg. Having run the technology division at Goldman, Mnuchin was prominent in Goldman and investment banking circles in New York.    ...

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David Stockman was Budget Director under President Reagan and known for his prodigous grasp of statistics in the national budget. Here he takes on what he describes as disproportionately large and destructive banking system for the U.S. economy, which he says the nation desperately needs less of. He supports the small tax of 0.15% of the debts other than deposits of financial conglomerates. His words are some of the strongest yet to come from one of the most prominent people on Reagan's economic team about how the nation's banking system has beome unproductive in supporting economic activity which is its reason for existence. The destructive effects on social cohesion and the middle class is emphasized. He says for years the Fed has run an insanely loose monetary policy that has encouraged this behaviour and socially detrimental profit seeking by the banks and other companies. He sees the big banks as dangerous institutions in today's economy engaged in a bull market culture which believes in entitlement and profitseeking behaviours regardless of its detrimental nature for the national economy. The recent profits of the banks in 2009 and the resulting bonuses are a result of the Fed's easy money policy and bank's gambling at the Fed's monetary casino as he puts it, with money obtained at little cost from Fed-controlled money markets. This article helps to eliminate the distorted perspective in today's climate that paints criticism of splitting up the banks, or otherwise restricting banks in engaging in proprietary trading and risky behaviours, as government interference. As Stockman puts it these banks are already in some sense wards of the state and not private enterprises and this issue is not relevant. The question now is how to set things right and this involves possible solutions such splitting up banks that are too big to fail, restricting risky behaviours and preventing proprietary trading, and other actions as unusual steps for unusual times to get things working back to normal. In other times Stockman would not have said this in an op-ed piece if this were not so....

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Spain's finance minister, Luis de Guindos, announced a two year plan in which Spanish banks are required to set aside 50 billion euros for losses on bad real estate and other loans. This is part of the effort to restore the flow of credit in the economy. He told a news conference: "At the moment credit is falling by around 5% or 10%." Banks have been slow in Spain to get rid of bad assets and proceed with a bank cleanup.The provisioning for losses required under the plan is by type of asset- for undeveloped land this will be raised to 80% of value from the 31% used currently, for new homes this goes to 35% from 25% used currently. The idea is to get banks to sell these properties at today's prices and give Spaniards an opportunity to buy these homes as opposed to letting this remain on the bank's books. Banks that merge will be given one year, other banks will be required to do this in one year. The cleanup will make it easier for Spanish banks to obtain financing in international markets, and in turn improve the flow of credit in the Spanish economy. ...