The Real Cause of the Credit Crisis

Politicians and other talking heads (and thus the general public) seem to agree that the current credit crisis was caused by lack of governmental oversight of the big bad bankers. In actual fact, it was just the opposite. The cause of the crisis was Government pressure (mostly but not entirely from Democrats in the White House and Congress) imposed on the mortgage lending industry as far back as the beginning of the Clinton era. Semi-government institutions, Freddie Mac and Fannie Mae, caved in to the pressure, and by readily buying ever-increasing numbers of shaky loans, they made it highly profitable for loan originators (mostly local brokers and bankers) and loan "bundlers" ( Wall Street) to willingly go along.

Starting in 1992, a majority-Democratic Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, became aggressive and creative in stimulating "minority gains." The Clinton administration investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae's and Freddie Mac's portfolio were made up of loans to low-to medium-income borrowers by the year 2001. The Clinton administration criticized the mortgage industry for looking at " outdated criteria, "such as the mortgage applicant's credit history and ability to make a down payment. Threatening lawsuits, Clinton's Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn't a joke – it's a fact.

By 1999, liberals were bragging about extending affirmative action to the financial sector. A Los Angeles Times reporter hailed the Clinton administration's affirmative action lending policies as one of the "hidden success stories" of the Clinton administration, saying that "black and Latino homeownership has surged to the highest level ever recorded." After 2001, a major new market was found for these loans-illegal immigrants.

Meanwhile, a few economists (but no politicians) were screaming that the Democrats were forcing mortgage lenders to issue loans that would fail as soon as the housing market slowed and overly-stretched borrowers couldn't get out of their loans by refinancing or selling their houses. In Bush's first year in office, the White House chief economist, N. Gregory Mankiw, warned that the government "implicit subsidy" of Fannie Mae and Freddie Mac, combined with loans to unqualified borrowers, was creating a huge risk for the entire financial system . Rep. Barney Frank denounced Mankiw, saying he had no "concern about housing". The New York Times reported that Fannie Mae and Freddie Mac were "under heavy assault by the Republicans," but these entities still had "important political allies" in the Democrats.

During the 2004 presidential campaign, George Bush bragged about the fact that a greater percentage of Americans owned their own homes than ever before, but (except for praising low interest rates) he did not explain how or why this happened. President Bush pushed even farther; he asked lawmakers to eliminate the down payment normally required for FHA loans. So Republicans have dirty …

Financial Crisis Affects Timeshare Industry

The current global financial crisis has created a troubling situation for timeshare owners. As most sectors of the economy are feeling the squeeze, the nation’s timeshare industry is being pounded from both sides as banks cut back on lending and consumers cut back on spending.

As a result, at the same time as individuals have to deal with stagnating or falling incomes, deteriorating retirement funds, and a higher cost of living, timeshare resort companies that are feeling the pinch are passing their financial burdens on to the consumer.

Consumer Spending

Currently individuals, families and companies are severely cutting back on leisure and travel spending faster than was anticipated, reports Bloomberg.com. The October 23rd article notes “forecasts [show] that the deterioration in leisure and business travel is accelerating as corporations and consumers contend with higher food prices, declining home values, job losses and scarce credit.”

Lisa Ann Schreier, author and expert on the timeshare industry, says that people simply do not have the disposable income right now. “People are scared, “says Scheirer. “And with the credit crunch, it will be harder and harder for people to finance timeshares. I think the time-share industry for too long has thought itself recession-proof, and I don’t think so.”

The Frozen Credit Market

If the timeshare industry did at one time consider itself recession-proof then that is certainly no longer the case. The timeshare industry is strained not only because consumers are spending less but also due to the fact that this industry has largely relied on mortgage-backed securities.

David Siegel, Company President of Westgate Resorts, the largest privately held timeshare company in the world, attributes his company’s “financial squeeze” to the fact securities are no longer being bought.

In a September article in the Orlando Sentinel, Siegel explains that the timeshare companies “[keep] money flowing through lines of credit that are then paid off when [these companies] bundle and sell their mortgages as securities” says Siegel. “All of a sudden no one is buying those securities.”

Siegel’s Westgate Resorts employs more than 10,000 individuals nationwide and has had to recently shut down much of its sales and lay-off hundreds of workers.

Two other major players in the timeshare industry that are worth noting here, Starwood Hotels & Resorts Worldwide Inc. and Wyndham Worldwide, have seen profits and sales fall, with Starwood’s timeshare sales falling 11 percent in the third quarter. Starwood, the third largest US lodging company, has cut employees, shut sales centers and trimmed expenses at Starwood’s Sheraton and Westin hotels.

Wyndham Worldwide has laid off hundreds of employees, ranging from marketing directors, to managers, to financial analysts.

All of this has prompted the timeshare industry to ask the government to step in.

As reported in an October 29th Orlando Sentinel article entitled, “Time-share industry seeks relief,” American Resort Development Association (ARDA), a timeshare trade group, is asking the federal government to step in and guarantee time-share mortgages in exchange for an insurance fee.

Howard Nusbaum, CEO of ARDA, warned that the timeshare …

The Effects Of The Financial Crisis

The financial crisis is an ugly situation that no sane person would want to experience because it comes with very drastic results that can reduce wealth and standard of living. Unfortunately, recession is sometimes unavoidable. Unavoidable cases come as a result of bad government policies, unemployment, and unfavorable economic conditions. The good news is that human beings can find solutions to any problem they face, so when there is hyperinflation, it's still very possible to survive.

In the past, top countries in the world have witnessed several economic recessions. Their downfall also affects other countries, especially those that depend on them for the supply of goods and services. Just recently in 2008, America faced a similar situation, though the country is already making efforts to recover from it. If they don't employ the correct procedures, it is possible that they may witness the recession again. European countries are not exempted from this as countries such as Spain and Portugal are experiencing unfavorable economic situations. Greece is almost unable to pay its debts and Italy's story is also frustrating. If the right steps are not taken soon, these problems may even become worse. Hence, the EU and American government are considering various bail-out plans and strategies for reforming their economies.

One of the indicators of recession is hyperinflation. Hyperinflation is a situation where the prices of goods and services rise to unreasonable levels. The situation is usually caused by currency debasement. This happens because currency's value depreciates and salary earners find it more difficult to buy products since they have risen higher in price. In most cases, people doing business usually cope better than salary earners because they can increase the prices of their goods and services. In fact, those in the middle class face more trouble because most of their earnings come from salaries and since their salaries are not high, they are unable to get what they want during hyperinflation. Another problem that the middle class may face is that their savings will depreciate in value by the time they make a withdrawal. Interest rates on deposits are low at this time so people who have been saving in the bank for years will lose a lot of money.

Unfortunately, economic recession lasts several years and government strategies to effect reformation can take years before the results are seen. The government may also face a challenge from the population unable to believe in their policies even when sounding great. Some governments still make things worse by implementing the wrong policies. For instance, printing fiat currency in high amounts will make the economy worse because this can cause inflation.

When inflation is caused by too much money in the hands of people, printing more notes is simply a bad idea. Instead, a better strategy would be to reduce the money in people hands by implementing reasonable programs. More so, the government can increase interest rates so that people will be encouraged to do business which in turn can cause economic …

Crisis Point

Thinking back to the financial crisis of 2008, one would think that another such economic catastrophe would somehow elude us. It was just ten years ago that the United States plunged the world into the worst financial disaster since the Great Depression. Yet here we are, a decade later, no wiser and even more foolish. You would have thought that we would have learned from our mistakes, but time and time again, history proves that we are still prone to repeat mistakes of the past. When will we ever learn? Today, what we have is déjà vu of the 2008 financial crisis. So what we have now are almost the same set of circumstances that are poised to unleash an economic debacle more sinister and more devastating than the one in 2008. To understand how this is happening, we first have to look at what transpired leading up to the 2008 crash.

Long before the financial crisis of 2008 occurred, there were continuing factors already taking place that led to the eventual collapse of the financial, real estate, and auto industries. One of the most prominent factors in contributing to this crisis was the fact that the banking institutions from 1980 onward began a series of policy changes that began to undermine the financial security and stability of those same institutions. When banks threw the book away on prudent fiscal policies that worked for generations and relaxed standards for mortgages in order to generate more revenue making mortgages, like the United Auto Workers Union, they got too greedy.

Back in the 1950s, up until the late 1970s, the most efficient, prudent, and reliable policy of obtaining mortgages and the criteria was quite simple. The amount a person could qualify for in obtaining a mortgage was equivalent to only 25 percent of their gross income. All this changed with the advent of credit bureaus and new banking concepts such as Adjustable Rate Mortgages or ARM's as they are still called today. Ever since the 1980s, a new era of banking was ushered in. Eventually, corruption, fraud, and malfeasance resulted as fast as the ever changing ways banks reworded individual mortgage policies.

What also occurred during this transition in banking policies was that the Federal Government, in their attempt to spur economic growth, passed NAFTA. Little did our elected officials know that this trade agreement did the exact opposite of what it was designed to do. Consequently, ever since 1994, the United States has lost millions of middle class wage earning jobs. It seems that overnight, the United States, our strong manufacturing base economy, was almost eradicated. In the end, this left millions wallowing and languishing in desperation, hoping that, somehow, those jobs would return. As a result, our society has suffered through the millions of jobs lost, leaving families so impoverished that the once strong family unit in so many cases deteriorated. Our once stable economy was now no more.

Since the 1980s, more Americans were being lured into ARM's thinking …

Genuine Crisis and Tricone Prices: What's the Link?

When the poet John Donne observed that "no man is an island", was he referring to the impact of world events on tricone prices? We'll never know for sure, but we DO know that oil and tricone prices, like anything in a free market economy, do not exist in a vacuum.

Generally speaking, greater demand leads to higher oil prices, sparking more drilling activity. This increases the need for drilling supplies such as tricone drill bits, and likely increases their cost as well.

There are several factors that impact oil and tricone demand and prices. One of the most significant is a crisis in the form of war, economic upheaval or disaster.

War

Not all wars are created equal. A conflict in Belgium or Paraguay is unlikely to affect tricone demand. Shift the scene to a major oil-producing country, however, and it's a different story. Yet the influence of war on oil and tricone prices is not a simple formula:

War = Higher prices.

Actually, it's two formulas:

War + uncertainty = increased prices

War – uncertainty = decreased prices

As an example, in the two weeks preceding Operation Desert Storm in 1991, oil prices jumped 12.5%. On January 17, 1991, the day after the United Stated began airstrikes in Iraq, oil prices suffered one of their largest one-day drops, plunging 33%.

What caused the dramatic shift in price? Among other things, it was the level of uncertainty:

Prior to the war: Prospect of decreased oil supply = increased uncertainty

After the bombing: A sense on global markets that the conflict would be short-lived = decreased uncertainty

Had the war been prolonged, prices may have remained inflated until order was restored.

Economic Upheaval

Oil and tricone rates tend to mirror the state of the economy, both in North America and overseas.

The global recession that began in late 2008 saw a significant decline in oil (and thus tricone) demand, forcing oil prices down from a peak of $ 147 per barrel in July 2008 to just $ 42 per barrel by late December of that year.

Looking closer to home, the threat of a US government shutdown in September of 2013 reduced the demand, driving oil prices to a three-month low. If the shutdown were to proceed, the issuance of permits and leases for drilling would effectively stop, further curtailing the demand for tricones.

Disaster

With their high profile in the media, natural and man-made disasters appear to have dramatic effects on oil and tricone prices. In truth, the fallout is often less than from war or economic upheaval, for one reason: The amount of oil involved.

Hurricane Katrina affected 19% of US oil production, increasing demand for oil and tricones and thus boosting prices.

By contrast, the Exxon-Valdez oil spill, which many assumed would cause prices to skyrocket, had little effect, as only 250,000 barrels were involved. It was enough to do significant environmental damage and cause a public relations nightmare for Exxon. But it was essentially a drop …

The Corporate Crisis: Executive Misconduct

How a corporation responds to a potential crisis involving allegations of an ethical lapse on the part of a senior executive has the potential to shape its corporate image long after the initial event is over. As Toyota and the Subway corporation are currently discovering, despite all best corporate governance efforts, including expertly crafted corporate compliance programs and codes of conduct, no corporation is immune from the damage that can be sustained from the alleged ethical lapse or misconduct on the part of a senior executive or corporate spokesperson. Mitigation efforts can be especially challenging when the senior executive’s alleged unethical or illegal conduct is unrelated to the corporation’s operations.

A comprehensive understanding of the underlying relevant facts is critical to the corporation’s decision making process. As well as a proactive and focused mitigation protocol that provides the corporation with the ability to demonstrate a good faith response to the misconduct.

All too often, C-suite executives believe that due to their organization’s robust and comprehensive compliance programs, their organizations are well protected from such ethical crises involving their key executives. As a result, integrity mitigation protocols tend to be assigned a low priority at the senior executive level.

Research studies have indicated that on average upwards of 60% of CEO’s and corporate boards have failed to successfully embrace integrity mitigation protocols into their overall corporate strategic planning. Given the potential consequences to the organization if such events are not proactively mitigated, it is essential that an organization has an effective risk mitigation program in place so that senior management can be prepared as best they can be. This is particularly true in today’s 24/7 news cycle and sound bite journalism. In the current environment, where instant access to the news is so readily available, a corporation cannot afford to play catch-up.

In the event that the senior executive’s alleged unethical or potentially illegal conduct is unrelated to the organization’s operations, the potential fallout and reporting obligations may not be readily apparent to the organization. This is particularly important to corporation’s that are publicly traded and heavily regulated, in which case, the alleged misconduct may require certain reporting obligations on the part of the organization.

Failure to comply with the mandatory reporting requirements, has the potential to increase the organization’s civil and criminal liability exposure. The FCPA, SOX and other statutes and regulations all impose varying levels of disclosure requirements.

In instances where the corporation learns that a senior executive is the subject of a government civil or criminal investigation, the corporation should take steps to monitor and if possible manage the company’s cooperative efforts with investigators. The goal here is to demonstrate the organization’s good faith response to the misconduct and more importantly, attempt to shape and focus the investigation away from the organization. In all discussions with investigators or prosecutor’s, the corporation’s should attempt to underscore the organization’s incidental connection to the matters under investigation.

While dealing with the crisis, the organization must take care to avoid ant inconsistencies …

Current Economic Crisis (Bailout Or Buyout)

Lately, it seems as if we are living through history every day. Not since the Great Depression has the United States seen such turmoil in the financial markets. What started in the subprime mortgage industry has now bled over into Wall Street.

When investment houses that have been around since the Civil War close their doors, it's a sure sign that something's gone terribly wrong. First Bear Stearns, then Lehman Brothers and then Merrill Lynch and Washington Mutual.

We all can't help but be a little rattled by what's going on. But while I and others have been pointing out that the markets are only going through a "correction", you may be asking, "Denise, how much of a correction do we need to make?"

Obviously, a big one. Too much money lent to too many people who couldn't afford to pay it back is a surefire recipe for disaster. Now it's time to pay the price.

Some analysts are even comparing what's going on now to the stock market crash of 1929. However, there is one major difference between then and now-we aren't even close to being in the same economic hole our great grandparents fell into back then.

Case in point: The $ 700 billion bailout (or is it a buyout?) Being debated by lawmakers as of this writing is a giant sum of money, the equivalent of which was not available in 1929.

Today, we are better prepared to handle such challenges as they arise-partly because we've learned from history. When the Great Depression began, there was no backup. The US Government was in a much more "hands-off" position than today.

While some like to argue it's a good thing for government to stay out of the free market, the new and upcoming legislation promises to bring at least some security back to the United States economy. The time for argument from political principle is over. Something has to be done-and thankfully our leaders are finally stepping up to actually do something about it. The question is will these leaders help the problem or add to it, only time will tell. As of this writing they still have not been able to get it together.

After four (or more) years of unsupervised lending, exotic loans, predatory practices, and the ensuing subprime mortgage meltdown, the government is finally taking measures to step in before it all spirals into oblivion.

Of course many are asking why Treasury Secretary Hank Paulson and Fed chair Ben Bernanke didn't do something before this mess happened. While it's true that nobody could predict how bad the fallout would be, it's clear that when banks start handing mortgages out like candy, something is amiss.

Two to three years ago, every time I heard a mortgage ad on the radio touting low numbers for adjustable rates, I winced. I wondered how long this could last. During the boom, it seemed like we could never run out. Now we're suffering from a huge reality check.

So what …