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Friday, September 14, 2007

SUB-PRIME PROBLEMS REVISITED

SUB-PRIME PROBLEMS

MoneyNews.com published the following today:
Thursday, Sept. 13, 2007 2:50 p.m. EDT
“WASHINGTON -- Former Federal Reserve Chairman Alan Greenspan acknowledges he failed to see early on that an explosion of mortgages to people with questionable credit histories could pose a danger to the economy.

In an upcoming interview, Greenspan said he was aware of "subprime" lending practices where homebuyers got very low initial rates only to see them later jacked up, causing severe payment shock. But he said he didn't initially realize the harm they could do.”

So what do we do now, folks. In my book: How to Benefit from Stress, I wrote that no problem has ever been solved by looking back. How many games were won on Monday morning looking back at what we could or might have done on Saturday? The answer is: NONE. Greenspan is finally admitting that he did not have the insight to have prevented the problem. I believe that he did the correct thing in lowering interest rates when he did. This, I believe, is the first time I have given credit to Greenspan for having done something correctly. He was faced with a bubble bursting situation which we all know in like a black hole. Black holes in the Universe are situations where the internal gravity at a particular point is so great that it pulls light into itself leaving a black hole in space. When a major market bubble bursts the same thing happens. The entire market is drawn into itself collapsing leaving almost nothing behind. Although I believe Greenspan contributed to the bubble bursting, I do not fault what he subsequently did for he was forced to do something to correct the situation. Afterwards, of course, the financial markets recovered.

What he did not foresee, and probably should have because he is supposed to be the expert, was that when situations arise, especially in the financial market, there will be creative opportunist/predators who will devise ways to profit and scam the public. The sub-prime instruments were promising the so-called ”pie-in-the-sky” dessert to the public who could ill afford the dessert when interest rates went back up. There is a saying: “what goes up will come down.” The reverse is also true in our dynamic Universe: “What goes down will come up.”

The problem of the sub-prime collapse was not the decreasing interest rates, it is the rapid increase in the interest rates so rapidly the market did not have a chance to adjust. Why cannot these assumed educated loons see this? Yes, decreasing interest rates created the situation for the predators to create their scams, but it did not create the collapse.

So looking back will not correct the problem. We need, in a way, to look back to look forward. I have suggested it here before that decreasing the interest rates significantly might correct the problem, if it is not too late. It is difficult to stop the snowball from rolling down the hill when it gets too large. But decreasing interest rates is the LOGICAL thing to do because increasing the rates initially caused the problem. The poor unfortunate Fed members are always concerned about inflation that they cannot see anything else. So suck in your guts and live with a little bit of inflation. After all, inflation is a artificially created figure anyway. They take out of the inflation figure the two most important items, food and energy. Incredibly these goons want us to believe the figure remaining makes sense. Gosh, the nuns taught me better math in grammar school! Inflation figures are also like the National Debt. Who in the devil’s name has ever worries about the National Debt. The government does not so why should we?

As I have suggested before, decreasing interest rates will create a situation where the problem might correct itself, as I said if it is not too late. Each week the Feds delay in akin to digging the hole deeper. The Feds do not need to infuse money into the market under the situation I suggest. Besides, when they do infuse money, they only print more money not backed up by tangible items of worth such as gold. This is what really causes inflation – the printing of worthless money.

I know that I might be compared to St. John the Baptist – you know that biblical guy who was described as: “A voice crying in the wilderness.”

If the Feds would like I am available to help them out – Ego and all!!

nicola michael c. Tauraso, M.D.

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