Sunday, March 14, 2010

Kommentary on the Economy 5


This is what stalemate looks like.

Where consumer demand, the largest component of the economy, is concerned, it’s a period of intense wheel-spinning. I saw a report the other day in the WSJ that said people can’t refinance their ridiculously underwater mortgages. The piggy bank is empty, but the upkeep on the porcine porcelain keeps growing. Though mortgage rates are extremely low, many people have no equity left in their homes, having seen that market plunge deeply into a tank from which it has yet to surface. Unemployment rates are still way too high, stranding many people in extremely perilous cashflow positions. Inability to refinance mortgages keeps the monthly interest payments at unsustainably exorbitant levels for most households. Banks—hyperconservative in the wake of late 2008’s meltdown--remain reluctant to extend credit to any but the safest risks. So loan delinquencies continue to mount. The Obama administration said it would extend for a year a program launched last April to help homeowners with little or no equity to refinance, though the program helped fewer 2,000 borrowers its first time around, not the millions it would need to have the desired impact.
How to extend credit where it’s needed in a hurry in an economy that still smarting from excessive risk-taking in the last several years of the last cycle?