Category Archives: Banks

No Place Like Home

As the housing market continues to slog along, many American’s are facing foreclosure, unable to sell their homes, and recent reports have shown banks are not willing to help people lower their monthly payments. On top of that, the Washington Post completed a yearlong investigation into the Department of Housing and Urban Development (HUD) showing many of the funds allocated have not been used.

According to the Post, $400 million dollars has been allocated for 700 projects across the country, but many of those projects have not been constructed because managers could not get funding from banks, land codes had been violated, or just plain old politics (Not In My Back Yard). Many of these grants were to be used to build developments for people living below the poverty line. This makes it a two edge problem; not having the money spent hurts the area it was supposed to be spent in, and it leaves people who need those homes looking for places to live.

The article described how HUD was having trouble enforcing their own rules because they did not have enough lawyers, and even while the majority of states tell HUD that the projects are not able to take off, the process is very slow because it goes through a lot of red tape. This left millions of dollars in accounts that have been sitting there for years. In the meantime, these funds could have been transferred for projects that are ready to be built, which would have created jobs and helped to keep the economy moving.

Some of this shouldn’t be that big of a surprise considering the state of the overall housing market. And enforcement has always been a problem when it comes to government programs, usually because agencies are understaffed. One way to raise revenue and lower the debt would be to hire more IRS agents. But if there is a lack of communication between local, state, and federal officials, there is an easy fix: the internet.

With all the work being done to make the federal government more transparent, and releasing data from within the agencies with, why not create a program that shows all the players involved within a project what step they are at? Agencies at HUD can look for the last time someone updated the project within the program, and if it has been a while they can get in touch with local authorities and ask for an update. There are plenty of programmers and companies that figure out how best to create these collaborations which, if done right, can make sure everyone is on the same page and build the projects that will benefit the families that need a roof over their heads.

The recent recent floods in the south have destroyed a number of houses, and even though the Post points out that some non-profits do not have the expertise to properly build them, there are plenty of organizations that do. In fact, many of them can be found working in New Orleans as I’m writing and you’re reading this post. Many of the houses being built are green houses where so family that lives in the house will save money on their heating and electric bills.

A major hurdle in this effort will be to get the banks to loan money to landlords and managers of these projects. But in a recent interview with, Bob Simpson, Head of Fannie Mae’s Affordable Housing Unit said “As we look at our production on a month-to-month basis, we’re definitely very busy, and that’s probably the best sign that it’s working. We now have a dedicated affordable credit team, a dedicated production team, and a pricing team that just prices affordable transactions.” Translation: Since we were bailed out by the Federal Government, it gave us the ability to get rid of the loans we never should have made, and now we can start to create more loans that won’t bust.”

Last week, the major banks reported the amount of people who owed money on their mortgage was the lowest in 15 years, which could give them the confidence to start lending more money. Dorothy was right, there is no place like home, and building them can help America’s economy and families.


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Filed under Banks, finance, Government 2.0, Housing, HUD, poverty, Public Policy

Information Is Power

As a policy wonk, I was excited to see Ben Bernanke’s press conference, the first ever at the Federal Reserve. I know there aren’t a lot of us out there, but in a time where people are uncertain it is important to hear from the leaders who are supposed to be looking out for our best interests. I wrote a column for Government In The Lab about how these conferences came to form. Now, it wasn’t as entertaining as Donald Trump, but more importantly it wasn’t stupid.

While many people on Wall Street are very good at math, I kinda doubt many of them were history majors. After the Civil War, recessions were a pretty common occurrence and it hurt a lot of businesses around the country. The turn of the century was a time where the dollar was just starting to go into circulation, which meant when there was a slowdown in the north it affected the south and vice versa. But there was no Standard and Poors or Moody’s coming out with information where people can get a picture of what was happening. To stop these blips in the economy, President Woodrow Wilson signed the Federal Reserve Act in 1912. The central bank had two mandates which still drive its policy decisions today: 1) control America’s monetary policy and 2) create jobs.

Whatever Ben Bernanke said at the conference is on the record and can be held accountable too. For instance, one of the bigger items mentioned was the Quantitative Easing (QE) policy being implemented, and there is controversy over how effective it has been. Basically, the Fed is buying back the mortgages the banks sold before the recession thinking the housing bubble wouldn’t burst. The Fed claims this has allowed banks to clean their books giving them the ability to loan each other, small businesses, and individual’s money to keep the economy moving. The Fed claims this has worked because there has been growth since it has started. But critics point to the fact banks have not been lending a lot of money, the economy hasn’t grown all that much (GDP grew only 1.8% the first quarter of 2011), and job numbers are still at an all time low.

Bernanke is just like any other person in charge of a big institution, at certain times they need to cover their own behind. If it doesn’t seem like he knows what he’s talking about, or the facts don’t back up what he’s saying, he will lose legitimacy and trust. While addressing reporters’ questions yesterday, Bernanke said this about the steps the Fed, under his tenure, have done to help the economy recover:

I do believe that the second round of securities purchases was effective. We saw that first in the financial markets. The way monetary policy always works is by easing financial conditions, and we saw increases in stock prices. We saw reduced spreads in credit markets. We saw reduced volatility.

On certain parts there isn’t a lot of debate. The market is less volatile; we see this as the stock market has gone up, banks are no longer in need of extra money, and most companies are reporting strong profits this quarter. All good signs. So sure, it seems unlikely there will be another recession, but what about the jobs?

When one reporter asked about why there hasn’t been strong job growth all Bernanke could say is:

the pace of improvement is still quite slow and we are digging ourselves out of a very, very deep hole. We are still something like 7 million plus jobs below where we were before the crisis. So clearly, the fact that we are moving in the right direction even though that’s encouraging doesn’t mean that the labor market is in good shape. Obviously it’s not, we are going to have to continue to watch and hope that we will get stronger, increasingly strong job creation going forward.

Now if the reporter had the chance to follow up, he could have pointed out the unemployment number is actually around 11 or 12 million people. But this was Bernanke’s weakest point during the press conference. The person in charge of creating jobs in this country is “hoping” that the economy will pick up enough so more jobs can be created. Well, I feel more confidant, don’t you?

The money the Federal Reserve decides to spend, or not spend, has an effect on all of us. It controls our purchasing power affecting small businesses and their ability to sell their products abroad, and individuals who are having to choose between buying food and health insurance. But now that Bernanke has made these statements, at the next press conference reporters can ask him (after he has spent $600 billion helping the banks recover) why the economy still hasn’t picked up as much as he thought it would?

Bernanke did not just become Chairman on a whim. He was an economist at Princeton and his academic writings were very impressive. But even the best economists screw up. Bernanke was on the Board of Federal Reserve while there were signs the economy was declining. And even though the Fed was fully implemented in 1913, look up what happened on October 29th 1929. You can always find economists disagreeing with each other, like they did before and during the Great Depression. But now we can ask the person in charge what he/she thinks, which goes a long way to making sure the Fed is implementing the right policies, and will help businesses and families plan for their future.

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Filed under Banks, Ben Bernanke, Economics, Federal Reserve, Monetary Policy, Press Conference, Quantitative Easing