Thursday, August 12, 2010

Mortgage Debt Solutions - Alan Greenspan makes the case

Alan Greenspan said it best on Meet the Press (click on heading above for full interview) recently:

"It's a critical issue because, as you point out and as I've always believed, we underestimate the impact of stock prices on economic activity. Asset prices are having a profoundly important effect.What created the extent of the contraction globally was the loss of $37 trillion in market value. It collapsed the value of collateral in the system and it disabled finance. We've come all the way back--maybe a little more than halfway, and it's had a very positive effect. I don't know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we've been talking about today or anything anybody else was talking about."

The whole mess started with the unravelling of mortgage values used in plain vanilla CMO's and their highly complex derivative securities. Fix the value of mortgages by arresting the drop in property values and voila! a Greenspan fix.

I have been recommending for more than two years now, that Government has an obligation to step in and underpin the value of the most important asset worldwide: the stock of real estate.

A very large number of companies with exchange listings of their stocks are in a real estate related business; bolstering the value of their collateral the right way by refinancing mortgages at a Federal Agency, can rocket the price of the collateral, and hence their stock prices.

It can also save some vital corporations with huge exposure to mortgages (GE)that when properly accounted for, must unmask their bankruptcy.

And the greatest benefit: preserving the American Dream of home ownership at an affordable level for homeowners. Who knows, a renewed sense of security migh change sentiment around and ignite the economic growth we all want.

The truth shall set you free!

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