Greenspan Said Today That the U.S. Economy is in Recession

Posted on April 9, 2008
Filed Under Business | Leave a Comment

Former Federal Reserve Chairman Alan Greenspan said today that the U.S. economy was in recession, and said it would be appropriate to tap public funds to resolve the mortgage-related crisis that has helped pull the economy under.

Greenspan went on to say that the U.S. economy will not stabilize until housing markets recover. He also said, “To speed that process, the Bush administration should look to the 1980s savings and loan crisis for lessons on settling the crisis by committing taxpayers’ money to the project.”

“I think if you’re going to deal with a situation like this it’s an issue for appropriated funds of the Treasury to set up something like the Resolution Trust Corporation, which as you remember was very successful in resolving the S&L crisis,” Greenspan said.

The RTC was set up to liquidate assets of troubled savings and loan associations that had been declared insolvent by the Office of Thrift Supervision. It operated between 1989 and 1995 and closed or helped resolve hundreds of thrifts, many of which had gotten into trouble through sloppy lending practices.

The Bush administration so far has adamantly refused to commit public money to help settle a housing crisis in which millions of Americans are expected to lose their homes through foreclosure.

In retrospect:

Applications for U.S. mortgages rose higher last week with increased activity for government backed loan programs.

The average rate on a 30-year fixed loan rose to 5.78 percent last week from 5.75 percent the prior week. It has fallen from a five-month high of 6.37 percent in early March. At last week’s rate, monthly borrowing costs for each $100,000 of a loan would be about $585, compared with $561 a year earlier.

The average rate on a 15-year fixed mortgage increased to 5.39 percent from 5.27 percent, while the rate on a one-year adjustable mortgage rose to 7.06 percent from 7 percent.

A general rule of thumb to consider when purchasing a house is to limit the purchase amount to 2 ½ times your gross household income.

As little as 6 months ago a person with a $30,000.00 annual gross income could find somebody willing to finance a $200,000.00 home for them.

The important thing to remember is that just because you can do something does not mean that you should. In the absence of personal restraint the economy seems to have a way of balancing things out.

A lot of people will lose their homes but I hope we learn something from all of this. The homes will change hands from those who can not afford them to opportunist who are in position to take advantage of this fact.

If we only purchase what we can afford we should be in good shape. Stay away from hype and get rich quick schemes.

From wikipedia:

A Get-rich-quick scheme is a plan to acquire high rates of return for a small investment. Most such schemes promise that participants can obtain this high rate of return with little risk.

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