Recently the news has been dominated by developments with the 700 billion dollar bailout package, and rightfully so. 700 billion is an astronomical sum of money. The first problem is that the 700 billion dollar bailout adds a huge amount of money to the national debt. Not only that, some have hinted that the bailout is so large it could actually lower the US Credit Rating. The second problem is just as serious. There is no guarantee that the bailout will work.

The idea behind the bailout is that by taking on billions of dollars of toxic loans the government hopes to "influence" banks to start lending again. The past attempts of the government to "influence" banks have all failed. The fed lowered the fed rate to influence banks to lower mortgage rates. While the banks were appreciative of lower rates they did not lower mortgage interest rates. In fact after the fed cut rates the banks increased mortgage rates because they saw negative prospects in the housing market. In a similar way, after the US government takes over the toxic loans away from them the banks could continue to see negative prospects in the housing market and therefore would continue to have strict lending practices. The idea of spending 700 billion with no guarantees seems like a poor use of capitol.

When people hear the word "National Bank" the first thoughts are of a socialized banking system. A national bank would not replace the current banking industry. It also does not "introduce" government involvement into the banking industry. With the Fed influencing interest rates and the government rushing in to bailout every bank that runs into problems the government already has a large hand in the banking industry. I don't want to argue whether the government should have a role in the banking industry. Currently the government already has a significant role in the banking/mortgage industry. My argument is that if the government does have a role it should be effective and cost efficient.

A national bank would be a cheaper and more cost effective way to steady the financial markets. To understand how a national bank would work lets first talk a little more about what is currently causing the housing crisis. The mortgage market operates a little like a basketball game. Lenders go from one extreme to another. For awhile lenders will lend to anyone that walks in the door with a pulse. During these periods lenders accept less and less qualified applicants in an attempt to gain market share. Then the lenders get freaked out (often because someone realizes they have been giving out billions in loans to unqualified applicants that are unlikely to pay their mortgages) and lenders run to the other extreme and practice extremely restrictive lending practices (the insurance industry sees the same cycles but that is another topic). If you haven't already guessed currently we are in the second scenario with lenders practicing extremely restrictive lending practices. The problem with the second situation is that such extreme changes shocks the housing market and basically causes a financial crisis. The banks are in a catch 22. If collectively the banks don't lend the housing market will continue to deteriorate. But no one wants to lend because they are worried the housing market will continue to deteriorate because collectively they are not lending. It's kind of like at a party where you don't want to be the first person to jump into the pool because if no one else does you look foolish. Substitute looking foolish with going bankrupt and you kind of see where banks are coming from.

The great depression and the S&L crisis were both basically examples of this same problem. Initially during the great depression the conventional logic was the government should not intervene. As the stock market continued to drop (it dropped over 80% in less than a year) and people realized how bad an economy can get (pretty bad) the idea of government intervention seemed more palatable compared to the alternative.

So now during periods where lenders are freaked the government attempts to "influence" lenders. The problem is its extremely expensive. Currently the government is taking on years and years of bad loans in an attempt to "influence" lenders to loosen their current restrictive lending practices for the next 6 months to pull us out of the housing crisis. This is kind of like trying to influence your local school to spend money on new textbooks by building them a new school. Not only is it ridiculously expensive after you build the new school you have no guarantee they will buy the textbooks. It's not simply a poor use of government funds it's utterly outlandish.

So how would a national bank operate? During periods where banks are giving out loans to everyone that walked in the door the national bank would practice have average lending restrictions with interest rates slightly higher than what is available at most banks and give out very few loans. When the banks became ultra restrictive the bank would again have average lending restrictions. During these periods it would give out more loans.

So the government would not practice the outlandish lending practices we saw during the boom they would not be as restrictive as the banks are now. In fact this would probably do more to influence banks lending practices than the 700 billion giveaway. Remember how we talked about banks not wanting to lend money because no one else was lending money therefore making them nervous about the prospects of the housing market. Knowing that money would always flow provides some stability to the market. Also it would be much less expensive. Having the government provide some loans over the next 6 months with average restrictions during a low point in the market would be much better than taking on years of crappy loans given out during the peak of the market to very unqualified home buyers.

Would some banks go under? Yes. But you know what they should. Bailing out foolish banks that threw caution to the wind and had wildly risky lending practices almost guarantees that we will be faced with another housing crisis in the future. Instead we should allow some of these banks to die. First it prevents these banks without a sense of risk from causing these problems again. Secondly, it influences other banks to exercise more caution during boom times. The bailout sends a message to banks that during the boom they should ignore caution because the government will come in and take all their bad loans away like some kind of bizarre magical bad loan tooth fairy.

I realize this article might bother people that want the government to have no role in the banking/mortgage market. But if we accept that the government already has a role in the banking industry (the possibility of the government taking itself out is pretty much nill for the next decade) to stabilize markets at the least it should do so in a way that is effective and cost efficient.

Escapeso Realty is a small company in central Texas. Their site has up to date information on the Austin real estate market. It also has a search of the Austin MLS for visitors and a tool that tracks mortgage interest rates.

On April 30th, the Federal Reserve announced a cut in their main interest rate by 25 basis points, to 2% from 2.25%. This is the seventh such cut by the US central bank since the beginning of the credit crunch some eight months ago, totaling 3.25% in cuts to the key rate that banks charge each other for overnight loans. These cuts have been made in an attempt to lower mortgage rates to help bolster the real estate market. As the fragile US economy staggers towards recovery, two major agents are working against American consumers: record inflation in food and energy. What can we expect in the future for these troubled yet lucrative markets?

In the short term, volatility will probably continue to dominate, but in the middle term inflation may take precedent over combating the slowdown, both for the central bank and regular consumers. Just as the Fed began to cut interest rates, the dollar's 5-year slide accelerated, pushing commodities that are priced in dollars like oil down relative to other currencies. This self-reinforcing process means that their futures markets are cheaper to buy in other currencies, which has led to a massive increase in speculation by flustered investors looking for a safe haven for their assets.

If the Fed were to continue to cut interest rates further, this process could keep consumer spending, which accounts for two thirds of the US economy, tamped down for some time. In March, spending only increased more than projected (0.4%) because of highly inflated energy and food costs. In addition, businesses have continued to feel the pinch of higher secondary costs that affect many other prices, even as output continues to fall. Nevertheless, the strong March activity index from the Institute for Supply Management was still stronger (48.6, with 50 meaning zero growth) than many economists had expected, implying some underlying resilience.

The lingering question remains: what is the Federal Reserve doing by cutting an inter-bank interest rate? It appears now that they are stoking inflation through price distortion, if the positive effects thereof (some stabilization of the troubled financial sector) is ignored. By making dollars cheaper, the value of oil and food is cheapened and necessarily must rise accordingly. Now exchange rates between the dollar and the euro have statistically matched fluctuations in oil prices for 52% of the last six months, compared to less than 1% for the years between 1999 and 2004. Investors and speculation have turned commodities into a superb place to dump cash, but such simplistic reasoning should be setting off alarms in the wake of the credit crunch.

In Washington and abroad, few have challenged the Fed's decisions, which have not been as noticeably correlated to price increases until recently. That may change as eurozone inflation remains stubbornly above target levels, mostly because the European Central Bank takes energy and food into its purview. While the Fed are still supposed to fight inflation first, their smaller focus means that their culpability is limited. As the election looms over Ben Bernanke's head, he is likely receiving pressure to stabilize first and ask questions later. However, a housing bubble and top-teir mismanagement led to the credit crunch now dragging down global growth. No one is looking to repeat this experience, especially because a commodity bubble is surely the worst kind.

Ki has a site dedicated to covering Austin Texas real estate. His site provides a graphical search of the Austin MLS for visitors along with providing up to date commentary on his blog about Austin real estate.

I usually write about real estate. But every so often I like to throw in something completely different. So now for something different

Two months ago the Democrats were looking at numerous positive signals for their chances in the November election. First the polls of a generic Democrat versus a generic Republican showed Democrats leading by a spread of over 10 points. The leader of the Democratic field, Barack Obama, enjoyed a substantial lead over the presumptive Republican nominee John McCain.

To make matters better for the Democrats the Republicans were going through an ideological schism. The conservative wing of the Republican Party was split over two nominees Huckabee and Romney allowing for a moderate, John McCain, to take control of the primary. And the right wing of the Republican Party was uneasy with John McCain over his moderate political views and a perception that he thumbed his nose at the party on occasion. Uneasy might be an understatement considering Republican voice pieces like Rush Limbaugh were issuing almost daily attacks on McCain who had all but wrapped up the nomination.

On the opposite side of the aisle Democrats for the most part seemed relatively happy with their two choices of Barack Obama or Hillary Clinton. Their were some in the party that talked of a dream ticket with Barack and Hillary running as president and vice president the only question was who would be at the top of the ticket.

Fast forward a few months. John McCain has secured the nomination. While the conservatives have not fallen in love with John McCain the heated exchanges have lessoned. On the other hand the contest between the former Democratic dream team of Clinton and Obama has turned into a bare knuckle fight. While pleasantries still exist they are simply the occasion respite from an increasing acrimonious fight. To make matters worse the primary fight is increasing drawn along race, gender and income lines. Women and poorer Democrats are going with Clinton. More affluent democrats and African Americans are siding with Barack. Many woman feel Obama is a johnny come lately smooth talking guy that is stealing the title role from a woman that has worked long and hard. Which in some cases parallel feelings they have about what has happened to them in the workplace in real life.

On the other hand suggestions by people in the Clinton campaign that Obama has gotten a free ride because of his race has certainly turned off many potential voters. Also if Clinton wins the nomination its likely she will do so by winning more superdelgates but losing in the race for delegates that are elected by popular election. Leading democratic primary voters to feel they elected Obama but the party elite ignored their voice and put Clinton into the driver’s seat instead. In addition, there are problems with two states that will play an important part in the general election, Michigan and Florida. The Democratic Party is not counting their primary results because they violated rules and held their elections early. Now the primary is so close some voters in those states feel that their votes are being ignored. All of this is to say that many voters in the Democratic primary election might not go with the eventual nominee either because they might have hard feelings against the party or the eventual nominee.

To make matters worse the two candidates are ripping each other to shreds and providing sound bites and lines of attack for the Republicans to use in the general election. In fact we are already seeing this reflected in the polls. The CNN Poll conducted on 2/1/08 had Obama leading McCain 52 to 44. The CNN Poll conducted on 3/14/2008 had Obama leading 47 to 46. All of this has happened while Clinton and Obama are spending money hand over foot and McCain is quietly raising money.

So what should the Democratic Party do to stop the bleeding? First they need to hold rehold primaries in Florida and Michigan. Howard Dean has said they need to save money for the general election. But if the primaries are not held they risk annoying voters in two states that will have very important roles in the 2008 general election. Second the super delegates need to switch to Obama and end the primary. This is not to endorse the policies or leadership ability of either candidate. But simply that at this point its very unlikely Clinton can win the primary. Although Obama lead is not huge at this late stage its probably insurmountable. Even though Clinton has more super delegates she needs to win 58.8 percent of the remaining delegates to secure the nomination while Obama only needs to win 43.5 of the remaining delegates. Adding to the fact that Obama has won more delegates in 13 of the last 15 contests. Otherwise the Democratic Party will keep damaging itself before the general election.

Escapeso Realty is a small realty company helping buyers and sellers in Austin real estate market. Their website provides monthly real estate statistics on their Austin Real Estate Blog along with a free search of the Austin MLS.

Recent elections have rarely been as heated as the '08 race for the Democratic nomination between freshman Illinois Senator Barack Obama and New York Senator Hillary Clinton. From the televised bickering of their national debates to the recent jabs over NAFTA, the fight has hung on tiny margins several times throughout their respective campaigns. March 4 was a significant day for the primary candidates because Hillary Clinton managed to, for at least the second time, defy the odds and win the key states of Ohio and Texas, taking the less important Rhode Island to boot. While Barack Obama still holds the lead in overall delegates, Hillary found out about the election results in Ohio in time to have an evening press conference in time for the news, which enabled her to capitalize on a phenomenon that has generally been directed at her opponent: momentum. In a speech more reminiscent of Obama's previously engaging "message of change" than of her own stump, Clinton played her underdog card better than she ever has before. As far as rhetoric goes, Obama has long held the advantage, relying on his emotional appeal to rally confidence. Yet his tone was somewhat subdued and mathematical at his victory party in San Antonio, as he repeated the facts on how the numbers are on his side, and that his delegate lead will still be hard for Clinton to beat. The tables were turned, albeit briefly, despite Obama's momentous winning streak of 11 states in a row and the national attention that has focused on his campaign as a result. Americans are increasingly focusing on the issues where the candidates have differing stances, as much of their literature shows their platforms to be about 90% the same, with healthcare and the economy emerging as the most important in recent days. Ohio voters have blamed the North American Free Trade Agreement as being responsible for outsourcing jobs to foreign countries, and its creation by Bill Clinton in the early 90's has proven a complicated feat for Hillary to spin. Stating that she has always thought that NAFTA was fundamentally flawed, Clinton has recently gone on the offensive after one of Obama's staff members allegedly told a Canadian foreign minister that the agreement wouldn't be renegotiated under his administration. Even if the remark was offhand, or not meant to represent Obama's true stance, as he has stated in recent days, neither candidate would likely have much leeway in regard to the agreement because of how generally beneficial it is to America's consistent oil supplies, which would be the biggest bargaining chip in Canada's pile. Since Canada is required to provide oil to the US whenever there is a perceived danger of deficit, they would be able to use this leverage. Since both candidates are mostly paying lip service to populist sentiment, the real question is: Who will be able to turn this into a nomination? Ohio and Texas have both complicated matters for Obama, who now has a tough campaign in front of him, and the Democratic Party as a whole, which will surely be weakened by a united Republican attack. Ki works as a real estate agent in Austin. His website covers the Austin real estate market along with providing a graphical search of the Austin MLS and updates on the state of the market on his Austin real estate blog.

The US appears to poised on the very brink of recession. Investors are reacting as news of a contraction within the service sector for the first time in five years, an FBI investigation into predatory lending, and increasing unemployment statistics, has sent shock waves of panic through stock markets worldwide. Who wins out in a crisis of this magnitude? And how can an individual take advantage of such a difficult scenario? While volatility in recent months is hardly a comforting phenomenon, recognizing its continued presence (within relatively unstable areas of the economy such as the stock markets) is key to weathering such a crisis. Even though most areas of the US economy are contracting in some fashion, the saying that the US's sneeze makes the world catch cold is less true than ever before. As China and other Asian economies become increasingly decoupled from America, the tendancy of compensating mechanisms to come into play should increase. Someone will be able to profit from the US shoring up spending, even if it is only oil companies for some period of time. Most of these companies are reinvesting the money they make in stable companies like American financial institutions, thus tying their fate to that of the US without risk of takeover bids or boardroom posturing. While the transmission of wealth from the American middle class to wealthy overseas oil giants is gradually becoming a less attractive proposition to the average American (with increasing energy prices helping this along), the climate crisis may be able to facilitate a reduction in dependence on foreign oil that balances this feedback loop in the future. Americans are right to begin saving on a more realistic scale, if a bit slow to react. Most of America's weaknesses in this regard are only sustainable if nothing goes wrong, and the sub-prime crisis is destined to affect many other industries such as credit card companies. If a significant amount of consumer spending turns into savings, Americans will be hurting. But like an unpleasant vaccination, they will be safer in the long run. Perhaps a lesson or two in solubility and risk management has been learned. As far as an individual's best chances for taking advantage of these weakened sectors, buying a house couldn't be smarter now as the glut of unsold houses in many areas continues to drive down prices. Emerging economies will continue to grow even if America stagnates for some period of time, so investment in these regions is a safer bet than ever before. Global GDP will still grow, even if the rest of the world no longer wants to hold the West's hand while they cross the street. In fact, the complex financial instruments that have fueled the credit crunch were created in order to minimize risk. As we can see, they have only made it less obvious and harder to bring ontol a balance sheet, which costs much more. If layoffs begin to increase, government action on a larger scale is practically inevitable. The Federal Reserve is obviously prepared to drop interest rates considerably further, which means there is still some breathing room (even if it is shrinking). Ki works as a realtor helping people interested in Austin real estate mostly central. His site is filled with information such as profiles of the downtown Austin condos. He also has a blog devoted to Austin Texas real estate.