Ex-bank regulator says major social change coming

[Amelia]

Ex-bank regulator says major social change coming

October 18, 2008

Associated Press

SALEM -- Former Federal Reserve Board vice chairwoman Alice Rivlin says major social changes are coming to America with the economic meltdown that has crushed financial and housing markets.

Rivlin said too many Americans were living beyond their means, including holding large mortgages with no down payments approved by unscrupulous lenders.

She also blamed a failure to modernize the nation's regulatory framework and overborrowing by the federal government.

"We need to modernize financial regulation and keep doing it and to recognize that there is no permanent fix," Rivlin said.

"Market participants are very smart," she added. "They will continue to innovate, find new wrinkles around whatever the regulatory rules are."

Rivlin, an economist and former New York Stock Exchange board member, told an audience of about 200 people at Willamette University she remains optimistic about a recovery.

"I think the situation is fixable," Rivlin said. "But it will mean a transition to a society that spends less and saves more."

She said some obvious things that need to be done include:

--Stricter regulation of mortgage markets;

--Uniform standards that call for minimum down payments and proof of ability to pay;

--Eliminating adjustable mortgage rates;

--Granting power to bankruptcy judges to renegotiate mortgage loans;

--Require rating agency fees to be paid by people who buy securities, not by those who sell them.

Her Thursday visit to the university came as Wall Street saw a reprieve, with volatile trading turning toward positive territory and oil prices continuing to move downward.

"The good news is that the collective actions of governments and central banks has probably avoided a total meltdown of the financial systems," Rivlin said.

But she said she disagreed with predictions by some that the economy could return to normal by the middle of next year.

"A healthy skepticism about what any economist says these days is probably in order," Rivlin said. "We are in uncharted territory."

[Dr. Shane]

Obama is going to save us all. He was born on Krypton and has a red S on his chest. We can all sleep well tonight.

[fccool]

What does above stated article have to do with Obama?

[Dr. Shane]

It deals with the economic crisis he is going to save us from.

[fccool]

I think even superman would be powerless in this situation,unless he can do his earth rotation backwards trick... way back to the Christmas of 1913.

[John317]

It deals with the economic crisis he is going to save us from.

The thing about Obama up to this point is that he has been top-heavy on the talkin' and very light on the leadin' and the doin'.

[Bravus]

Could we perhaps discuss the points made in the article?

I saw a graph of the savings of the average American as a proportion of earnings over the past 30 years or so recently. It started at about 20% and ended negative. Americans have no net savings, all debt (Australians are just the same, I'm not pointing fingers). That's an unhealthy and unsustainable economy, which is Alice Rivlin's point. It's going to hurt a bit in the short term to stop living beyond our means, but reduce the pain to be suffered in the longer term.

[Dr. Shane]

I think Obama is the solution to that problem.

[Neil D]

I think Obama is the solution to that problem.

Shameful hijacker.....

So, what do we intend to cut back? I'm afraid that I will have to move my bee's closer to home, and eliminate the storage shed charges....

[fccool]

The popular view is that if we pay off the debts that we have then all will be well and dandy. The reality is that almost all of the money supply that exists, exists as borrowed money. So, when the money is paid off, the economy experience contraction.

This was the reason behind the 1929 depression. While saving is a great thing, because it is the key to the GOOD capitalism. On the other hand we have to re-evaluate the financial system, and the issuance of money as debt to the people. I'm not referring to the borrowing money from individual who saves and by individual who needs it.

This is sound banking... when money saved by one individual is borrowed by another, and bank is simply a mediator that lives on difference of interest borrowed. But then banks would not reap the immense revenues they do now.

Instead, we have banks lending out money they don't have, while at the same time assuring people that they can cover the missing 90% at any time they need to. And all of this false lending, creates false demand bubble, and when the bubble reaches its peak (pops), the economy suffers depression (contraction) to the normal.

While savings are important, these will not solve the problem until the people who save are rewarded and not punished in this inflationary economy.

Also, consider the effect saving would have in such economy. It would polarize the wealth, as banks suck the money from the supply by means of interest. This is the reason why crashes through bankruptcies are inevitable. If all debts are paid off by means of money that was issued as debt... where will the interest payments come from???? Someone will have to borrow, or go bankrupt.