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The current financial crisis

The public have a common understanding that the subprime mortgage crisis has leaded to a far more serious consequence, so called ‘the financial crisis’ recently. To be exact, It has been going on for seven months. But how will that be happened? This is the question. The subprime load crisis is relatively simple to understand. People bought homes they couldn’t afford, and now they are falling behind on their home loans. This has caused the loss of related financial institutions.

However, the amount of loss is not the major cause of the financial crisis. US government has already announced to take over Fannie Mae, Freddie Mac and AIG, and have injected the capital over that amount into the market. Besides, the majority of homeowners are still doing just fine. The conventional mortgage market is still healthy. So, how is it that a mess concentrated in one part of the mortgage business: the subprime loans, has frozen up the whole credit markets in United States? How would that crisis caused such a big impact to the stock market, causing the collapse of Bear Sterns, Lehman brothers, etc, and left the economy on the brink of the worst recession in a generation and forced the Federal Reserve to take its boldest action since the Depression in 1923?
 
In order to have a big picture of this incident, I think this could be explained in this way. First of all, behind the whole financial crisis, there are actually 3 major components: the subprime mortgage, Leverage (or gearing), and the Credit Default Swap(CDS). We have mentioned about subprime mortgage before. So, what is leverage? In the finance industry, leverage is a common way to use in such a way to magnify the outcome of the investments. This can be done by various financial instruments such as options, futures, margin or borrowed capital, to increase the potential return of an investment. 
 
At present, many investment banks use leverage to operate more then 20 times of their capital. For example, if bank A have an asset of 5 billion, then 30 times of leverage means that bank A can operate 150 billions of money, in which most are borrowed. It is obvious, if there is 5% of profit in the investment, then bank A has a profit of 7.5 billion. However, on the other hand, if there is 5% loss in the investment, then bank A loss all it’s 5 billion of asset, and still owe the lender 2.5 billion.
 
The third component is CDS. What is CDS? As explained above, the operation of leverage is very risky. So some bankers think of a way to take insurance on these leverage. This insurance is called CDS. It is a specific kind of agreement which allows the transfer of third party credit risk from one party to the other. One party in the swap is a lender and faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange of regular periodic payments. For example, Peter borrows $100 from John. John wants to get insurance on this $100 debt in case Peter was unable to return the money. The John goes to Jane and asked for Jane to insurance that debt. Jane agrees to do so if John is willing to pay her an insurance fee of $5 per year. That is exactly the most simplified scenario of CDS.
 
Now, apply that in the world of banks. Recall the example of ‘bank A’. Bank A operates a leverage of 30 times. To reduce the risk, it goes to bank B and asked for bank B to do CDS insurance. After analysis the market data, bank B knows that the breach of contract case is less than 1%. Therefore, bank B is willing to take that insurance to earn the insurance fee. However, this is not the end of the story. Although bank B agree to accept the insurance, it can not have the insurance fee immediately. At the same time, some other banks such as bank C, bank D, etc. are interested to these CDS contracts. So bank B is willing to re-sell them to other banks to have the cash immediately. This is the scenario. The CDS contracts being sell and re-sell continuously among different financial sectors. In the mean time,
the market value of the CDS has reached 62 trillion.
 
However, you may see that, all the banks A, B, C, etc are making money. So, where is the money comes from?  The money comes from the revenue generated by the subprime mortgage business. So why the honey moon period can continue in the previous few years? It is because the real estate prices keep rising in the previous few years. In that period, home owners and buy and re-sell the real estates easily, who can earn good money at the same time. It just likes snowball or bubble. The market keeps rocking until 2006. When the downturns came, the prices of the real estates dropped. People who are lack of financial ability was unable to pay the high interests of those subprime loans. In that case, the subprime mortgage market started collapsing, which in turn affecting the CDS market. Banks and financial institutions who are involved in those products is unavoidably being affected. In fact, nearly all I-banks and most of the commercial banks are involved in this storm, or more appropriates, the tsunami. 

George C. (http://www.finance-database.com)

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If you have not heard about this way to make money online, you’ve got to check it out. It is not a wide known practice and it is extremely high paying and anyone can do it from the comforts of their own home.

It is specifically ideal for retirees looking to do something, work at home moms, college students or someone simply looking for some easy extra quick cash online. Many, such as me, have turned this secret into an online home business.

Many people dream of having their own online home business, but they often can’t answer the question “how to make money online”. That said, many have successfully “done it” successfully.

It is not hard if you are equipped with the right information and tools. You too can make money online from home like anyone else. These companies have billions of dollars set aside just for people like you and I. It’s just too bad that they are not allowed to contact us until we tell them that we are interested in helping them out.

See, large marketing and research firms are paid by their corporate clients to gather market data. The more accurate the research data the better. So in order to provide the best service for their corporate customers, these research firms reach out to people like you and I to ask our opinions and feedback on certain services and products companies are planning to launch. There is no better research data than first hand consumer data from people like us who use products made by companies every day.

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Anyone facing foreclosure knows that in most cases that they have been snookered. Funny how mortgage contracts will adjust for increasing payments, but none adjust down if the economy goes bad.

Now the government is going to give Wall Street a 700 Billion dollar bailout plan. Now this plan is suppose to help the homeowner. It does not address unemployment and loss of jobs, the adjusting of mortgage rates that are the root causes.

Let us think about this:

• Gas prices are higher than ever
• We spend billions of dollars per month in Iraq
• Unemployment is high
• Food Prices have increased
• Most homes have lost value leaving little to no equity
• Utilities such as gas and electric are higher
• Credit is scarce and refinance market is dead
• Average family income is down
• Bankruptcies are high

Who wins?

• Oil companies recording record profits
• Brokers, who have taken money from the stock and equity markets
• Retiring executives from most markets with golden parachutes
• Those who are operating the banks and brokerage firms

Those responsible will not suffer; the good old taxpayer is coming to the rescue. Okay, so we bail them out and have our government, buy the homes that have lost their value in many ways. Now the government will also have to absorb the cost in foreclosure. That is an additional expense.

Here is the major question, with banks and other institutions having dumped all their bad paper on the government, what is next? The answer to that is who knows.

Here is a solution, when you wean a baby off the bottle; you just take it away from the baby. That is what we have to do to the financial institutions. This has to be fixed in part by government but with a ground floor view.

If you want to help those homeowners and reverse the economy here is the plan

• A 6-month freeze on all foreclosures and those up coming for the next year
• A $ 10,000.00 grant to all unemployed homeowners that need to get back on their feet
• An audit on all mortgage companies that financed the sub-prime market
• Allow modification of mortgage contracts on all distressed property
• Allow 6 months for homeowners to get gainful employment (if they are unemployed)
• Invest 100 billion for new “green” energy jobs
• Invest 100 billion in full scholarships in community colleges for new high tech or “green” jobs
• Financial Institutions that hold vacated property will keep them
• Those pending foreclosures will be turned over to the government
• The government will then administrate the process of implementing the above points.
• The mortgagee when employed will modify their contract with the governmental agency.
• Let the private sector sell the vacated properties through auction or other means

This is what I call trickle up economics. The intention is to assist those who are facing financial distress in most cases this will allow the homeowner to pay off their real estate taxes, allow them to find gainful employment. They will also buy food, pay utility bills, and help offset the price of gas. It is a terrible thing when you must commute 20 to 30 miles and do not have any money for gas. You must go to where the jobs are.

There are three types of people affected here, the employed, the unemployed and the multiple dwelling homeowners. The employed would need a modified contract. The unemployed would need a moratorium and financial aid if not eligible for unemployment. Then there are those who have multiple dwelling units which the economy does not directly effect their primary residence.

Implementation can be administered by HUD, the first action that needs to be taken is an instant moratorium on all forecloses and real estate tax liens.

• Set Up Special Temporary Branch under HUD to implement program
• HUD takes all the recorded default notices
• This program will be voluntary to homeowners
• Residents affected will contact a 1-800 number for the financial grant
• HUD will verify the information given
• Homeowner will fill out application and send to HUD via internet, fax or mail.
• HUD will release half of the $ 10,000.00 grant and in 30 days release the other half.
• If Homeowner is collecting unemployment benefits HUD will reduce the scheduled unemployment benefit amount from the HUD payments for the 6 month period
• Homeowner has 6 months to find gainful employment.
• Within the 4 month period Homeowner will contact HUD for mortgage contract modification
• Homeowners who are employed will contact HUD for assistance in mortgage modification
• When mortgage modification is approved by HUD then the Homeowner will start making payments to the mortgage holder of record.

Mortgage holders are not bailed out, but will be allowed have the distressed properties temporarily moved off their balance sheets into a holding company account. This will relieve their balance sheet on a temporary basis, which will allow them to qualify for appropriate credit. They will report to the SEC (if a public company) and HUD the information on the holding company, with complete details. No other transactions other than that of distressed real estate are to be post to this holding company.

When a homeowner starts to make payments on the modified mortgage contract the mortgage holder will transfer from the holding account the original value back to the mortgage holder’s original balance sheet.

In this way everybody wins, the mortgage holder, the homeowner and the government. This plan will result in more jobs; mortgage holders’ credit restored and distressed properties relieved. Of course, there are more details to work out but overall I believe my plan can be implemented in very little time.

John Tebar Certified Life Coach, Author and Entrepreneur sign up for weekly Ezine at http://holisticlifeplanningandresearch.com

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A new report by Global Insight says foreclosures could drop U.S. property values by more than one trillion dollars next year. And few cities will be spared. Buyer beware. Mortgage holders beware. All Americans should be concerned.

The nation`s major metropolitan cities will lose billions of dollars in revenues next year because of the housing crisis. That`s the conclusion of a report released today from the U.S. Conference of Mayors meeting in Detroit. Also today, a separate report issued by Global Insight predicted foreclosures could reduce U.S. property values by $1.2 trillion in 2008. Half of that drop in value would come in California. Foreclosures are spreading well beyond the once hot real estate markets.

For instance, Chicago is hardly the poster child when it comes to soaring foreclosures. The city didn`t see the huge amount of investment in real estate the way cities like Las Vegas did, nor has it fallen on tough economic times the way cities like Detroit and Cleveland have. Experts say what is happening in Chicago is happening in a lot of communities. Consumers, especially in lower income neighborhoods, purchased homes with sub-prime adjustable rate mortgages. When interest rates on those loans adjusted upward, the borrowers couldn`t afford the payments and defaulted on their loans. As a result, there are entire blocks in some Chicago neighborhoods with several vacant homes.

Geoffrey Smith, research director for Woodstock Institute, has been studying the impact of foreclosures on the city. He says one foreclosure on a city block can decrease the value of properties around it by 1 percent and several foreclosures can ripple through the entire community.

The Woodstock Institute also documented that increases in foreclosure rates can lead to increases in violent crime in a community. We have also seen that increases in foreclosures have an effect on the property tax base of various communities across the region.

Hillary Clinton suggested during the January 31, 2008 Democratic debate to freeze foreclosures and to freeze interest rates. That is a start to help contain the flood of potential foreclosures.

Charles Donovan is the founder of the http://www.SubprimeMortgageSolutions.com Web Site and Bulletin.

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As we know, businesses come in all shapes and sizes. We work with many start ups on a daily basis and what we have witnessed is that many have began to use their profits (and some even their credit lines) as a way to enter the forex market. One of the better ways to make money in forex is by using alerts.

Because currency exchange covers the entire world and all 24 time zones, forex is a 24-hour-a-day market. This is good in that it results in billions upon billions of dollars of transactions per day. But it also means that forex traders have a constant influx of information to keep track of, unlike the stock market, where once trading closes at 5 p.m., that’s it. So how do forex traders stay on top of things? Most of them use forex alerts of some kind.

Forex alerts are available from many online forex brokers and other companies. A forex alert is simply a message sent to the user informing him of the latest developments in the forex market, often recommending action of some kind. These alerts can be sent via e-mail or cell phone text message.

The idea behind them is that no one can follow all the markets all the time. Even if you limit yourself to just the “majors” — U.S., Eurozone, Great Britain, Australia, Japan and Switzerland — that’s still 15 currency pairs to keep an eye on. What’s more, sometimes things are steady for long periods of time, while other periods are marked by great activity.

The sites that offer forex alerts go about it in one of two ways. Some simply send out alerts every 24 hours, offering the latest info on the forex market. Others send alerts only when something crucial happens. These systems use formulas of their own to determine what constitutes “something crucial,” and they may charge a lot more for their more specific alerts. And of course it’s still up to the individual trader to act on or disregard the information send to him in the alerts.

Some brokers include forex alerts as part of their service, while others charge for them. Some are part of a wider alert program that also handles your stocks and bonds. You can tailor the type of alerts you get based on whether you’re a conservative or aggressive trader, and how actively you plan to trade.

Serious traders who use forex alerts swear by them. No system is perfect, of course, and a smart trader will always do a little browsing on his own to make sure his latest alert didn’t miss anything. But alerts are an invaluable way for busy investors to go about their daily lives without having to constantly watch the forex rates.

Patrick Zanders is an Author, Lecturer, Financial Consultant and Real Estate investor and is managing partner of http://www.ezunsecuredcredit.com the nations premiere source for obtaining unsecured lines of business credit for working capital with NO upfront fees.

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“Never invent, always improve.”

This four-word sentence is indelibly etched in my mind right now. I also have that quote framed and hanging on the wall of my home office.

The marketing philosophy of choosing improvement over invention has generated millions of dollars for my info publishing business and my students’ businesses.

Although the idea of becoming an “Improver” is not as sexy as being known as an “Inventor,” it is tax not invention, that has generated billions for some of the most renowned Thought Leaders in history. Ironically, many of these folks have been inaccurately dubbed as “Inventors.”

Here’s one example: Nikola Tesla invented the modern alternating current electric power (AC) systems. Thomas Edison improved it. Telsa died broke. Edison died a millionaire.

Here’s another: business Haanel is the true “father of personal development” in my opinion. He invented The Master Key System, yet he died in obscurity acknowledged by only a few loyal followers.

Napoleon Hill improved Haanel’s philosophies and commercialized it with Think And Grow Rich and today is publicly acknowledged as “father of personal development.”

Here’s another example partnership drill my point deep…

The “assembly line” was invented long before Henry Ford walked through a meat-packing house in Chicago on one fateful afternoon. He observed that each butcher had a single, specialized task. This was nothing new to the meat-packing industry, but it was revolutionary new innovation for automaking.

Henry Ford was NOT the Inventor of the assembly line. He was the Improver. Yet, it was this single improvement that gave Ford a definitive competitive advantage over his 2,000+ auto manufacturing rivals at the time. As a result, Henry Ford became one of the wealthiest human beings of his era.

Do you invent or improve in your business?

And what can you improve on today?

And are you ready to learn more about how I do it?

Then I invite you to check out http://www.AlexMandossianToday.com to claim your access to over 4 hours of my TeleSeminar Secrets Training. While the next TeleSeminar Secrets telecourse does not begin until December, you can get a head start with this four hour training.

Look for the TeleSeminar Secrets logo…fair enough?

From Alex Mandossian and TeleSeminarSecrets.com

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Many forex traders look for advice from mentors or gurus who have done nothing or sell worthless forex robots all with simulated track records when they could pick up advice from some of the worlds best traders for $100 or less!. So who are these millionaire traders?

Well you will find plenty of them at your local online currency trading bookstore and here I have selected 3 trading books which every trader should read. Here you are getting advice for traders who have walked the walk rather simply talk the talk.

1. Trader Vic – Methods of a Wall Street Master (Victor Sperandeo)

Victor Sperandeo is one of those traders who piles up consistent gains year after year and he did it for decades. Here he shares his knowledge on everything to do with trading – from psychology, to trend following correctly, to money management.

He isn’t a forex trader but the insight he gives in to how to use technical analysis is simply superb.

His 2B method is worth the price of the book on its own and his rules for drawing trend lines is something any novice trader should take note of and he also looks in depth at Dow theory a method all traders should know about and I laughed out loud at the secret of the Gamboni and its so true yet, most novice traders fall into it.

2. The Way of the Turtle – (Curtis Faith)

While visiting a turtle farm trader Richard Dennis had a bet with trading partner Bill Eckhardt that good traders didn’t have to be born – they could be taught. To settle the bet, they recruited a group of individuals from all walks of life, trained them for two weeks then gave them accounts and they earned over than $100 million in less than four years.

Here the top turtle Curtis Faith goes through the experiment and explains why the Turtle method works in today’s markets and how to apply it. He also shares his insight on taking risk, relying on yourself and learning from your trading mistakes. OK You may not be as successful but it’s an inspiring read and one any trader can learn from – You don’t need to be clever to win and anyone has the opportunity.

3. Market Wizards (Jack Schwager)

One of the top selling investment books of all time and an essential book.

Schwager interviews 17 trading legends including Richard Dennis, Paul Tudor Jones, Ed Seykota, Marty Schwartz, Tom Baldwin and others. These guys are simply the best and Schwager has an interview technique that gets the best out of all of them.

If you can’t learn from these guys you can’t learn from anyone. Get it read and re read it, I have read this book maybe 20 times and always find something new, its just one of those books.

So if you want to learn from real pros pick up the above books, there the cost of a night out and will pay for them many times over and remember you’re learning from guts above who have made collectively billions and that’s a lot of money and a lot of experience which you can learn from too.

NEW! 2 X FREE ESSENTIAL TRADER PDFS
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For free 2 x trading Pdf’s, with 50 of pages of essential info on the best Currency Trading Books visit our website at: http://www.learncurrencytradingonline.com.

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Northern Rock, one of Britian’s largest mortgage banks is expected to receive emergency funding from the Bank of England today for possibly more than £4 billion ($8 billions), as the mortgage bank runs out of cash and is unable to obtain credit on the interbank money market due to the ongoing liquidity squeeze and the banks own sizeable subprime mortgage book risks. As with the earlier emergency funding of barclays, the rate charged by the Bank of England is expected to be significantly higher than the 5.75% base rate, possibly around 6.75%.

The share price is down by 50% from highs set barely 6 months ago, the current PE of 6.75 is expected to rise on profit warnings and bad debt provisions to above the recent range of 14 to 17. Technically, the chart looks oversold, but there may be blood on the street as some panic grips stock holders which may send the stock to a new multi-year low on today’s open as there is a risk of a run on the bank as savers make panic withdrawals.

The Market Oracle specifically warned investors and savers of the growing problems facing Northern Rock due to the size of its subprime mortgage book and the US subprime induced credit crunch on the 22nd of August 07 UK Housing Market Crash of 2007 – 2008 and Steps to Protect Your Wealth.

Investors : ” Trading on a PE of just 7.5 and a yield of 4% may now make the stock seem enticing, but the mark down is in anticipation of the much higher risk of mortgage defaults and repossessions in the UK as the housing market starts to nose dive. These repossessions (foreclosures) are already hitting the likes of northern rock with expectations of a tripling in the rate over the next 6 months as compared with the same period last year. This surge in repossessions will impact the earnings of the UK Mortgage banks as they make every larger bad debt provisions and issue profit warnings.

This is in addition to any toxic US Sub prime related exposure. Therefore in Northern Rock’s case a PE of 7.5 could jump many fold in a worse case scenario. ” – Nadeem Walayat, 22nd August 07

Savers : ” Invest in Fixed Interest Bonds issued by large strong banks , avoid issues from mortgage banks such as Northern Rock. Keep in mind that In the UK savers have protection at 90% of holdings of the first 35k of investments in fixed bonds and savings accounts so bare that limit in mind.” – Nadeem Walayat, 22nd August 07

Are my Savings Safe ?

Absolutely, 100% Safe!, well okay only the first £2000 is 100% safe under the UK Financial Services Compensation Scheme (FSCS), then the next £33,000 is protected at 90%. Therefore, the maximum safety net is for £31,700 covering total deposits of £35,000, thus you could say it is highly prudent to ensure that you do not have savings of more than £35,000 with the Northern Rock or any other UK financial institution. Off course avoiding the mortgage banks with large UK subprime exposure altogether would be an even more prudent move. But for the average savings punter, there is little need to start panicking and seeking to transfer out your £3k Cash ISA accounts, other than for a higher interest rate elsewhere.

Unfortunately this is just the tip of the UK Subprime housing bust cycle Iceberg, as the credit crunch has barely begun to bite ! These are but mere credit crunch nibbles for the market participants to snack upon.

The real bites will come as the financial institutions post their quarterly earnings reports, that’s starting in October 2007. The expectations are for at least 3 quarters of deteriorating market conditions. The UK property market as anticipated has now peaked, and the credit crunch liquidity squeeze literally ensures a downward spiral well into Mid 2008.

Can the Bank of England do Anything to Avoid the Inevitable ?

It appears that the central banks have learned some lessons from the last liquidity boom. I say it appears that they have, but appearances can be deceptive! What is likely to happen is that the central banks will tow a tough line for some months, i.e. release liquidity at high rates of interest to ensure banks don’t default. But as the economies start to tank under the mounting bad debts crisis, the central banks such as the BOE will bend to the politicians, especially in the lead up to elections by making money much cheaper. This will result in higher inflation, higher commodity prices, and maybe a year or so from now the word stagflation will be hitting the headlines with regular frequency.

What else should I do now ?

I am not going to start pointing the finger at all of the likely candidates for banks that could go bust during the downward spiral. But the strategy of what to do to protect yourselves is clear and and listed in the previous article UK Housing Market Crash of 2007 – 2008 and Steps to Protect Your Wealth .

However, I could add additional pointers such as paying down your debt, cutting household expenditure and diversifying your sources of income, which is easier said then done. But this financial ‘problem’ is not going to go away anytime soon, and decisions by individuals exposed to the housing market need to be made now rather than be forced upon through circumstance.

Originally Published 13th September 2007

By Nadeem Walayat

Editor of (c) Marketoracle.co.uk 2005-07. All rights reserved.

The Market Oracle is a FREE Daily Financial Markets Forecasting & Analysis online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

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The $150 billion dollar economic growth package was announced by President Bush on January 24, 2008 after a bipartisan agreement was reached with the leaders of the U.S. House of Representatives. The plan consists of $100 billion in temporary relief for families, and $50 billion in business incentives.

The plan calls for taxpayers to receive rebates of “up to” $600 for individuals, and “up to” $1,200 for couples. Anyone eligible for the above, would also be eligible for an additional $300 per child, which sort of gives you the impression that if you’re married and have two kids you’re about to receive “up to” $1,800 from Uncle Sam.

Don’t rush out and spend the money yet!

Whenever this administration uses the words “up to” you can bet your booties you’re going to get less, so how much less? Department of the Treasury examples follow:

Married with children:

1) Married couple with two children*, earned income of $4,000, no federal income tax paid.

Individual rebate = $600

Child tax credit = $600

TOTAL = $1,200

2) Married couple with two children, earned income in excess of $3,000, AGI = $45,000, federal income tax is $323.

Individual rebate = $600

Child tax credit = $600

TOTAL = $1,200

3) Married couple with two children, AGI = $48,000, federal income tax is $773.

Individual rebate = $773

Child tax credit = $600

TOTAL = $1,373

4) Married couple with two children, AGI = $80,000, federal income tax paid in excess of $1,200.

Individual rebate = $1,200

Child tax credit = $600

TOTAL = $1,800

5) Married couple with two children, AGI = $160,000, federal income tax paid in excess of $1,200.

Individual rebate = $1,200

Child tax credit = $600

Phaseout reduction = ($500) [5% x ($160,000 - $150,000) = $500]

TOTAL = $1,300

*All children referenced in the examples are qualifying children for purposes of the child tax credit.

Looks like you won’t be pulling in $1,800 unless your adjusted gross income is more than $80,000 and you have paid in more than $1,200 in federal income tax.

The current agreement also provides a temporary tax cut for businesses providing them with the opportunity to purchase equipment this year and deduct an additional 50% of the cost in 2008.

Treasury Secretary Paulson says that he hopes the Senate does not meddle with the stimulus package. He is afraid that the Senate might put some stimulus into it–like money for food stamps as well as extended unemployment compensation.

The package does not provide assistance in the form of extended unemployment insurance benefits, food stamp money, or spending on infrastructure, but it does provide some assistance for homeowners who are struggling to keep their homes in the current mortgage crisis.

Will it be enough?

Of course not!

How much worse are economic conditions today than they were when the first Bush tax-cuts went into effect?

Is there anyone who would disagree that they are much worse today than they were then?

So, why are we talking about a $150 billion stimulus, maybe, when hundreds of billions in tax-cuts were put into effect then? Granted, most of those Bush tax cuts went to the rich and business, and we see how much benefit they provided to the economy.

The purpose of the Jobs and Growth Plan of 2003 was to stimulate the economy with the influx of $350 billion dollars. On a temporary basis it succeeded in providing some stimulus, but in 2003 we were not looking at 1.8 million subprime loans getting ready to reset with higher rates over the next two years.

If the situation is far worse today–as it is–how is $150 billion going to solve the problem?

Richard E Walrath is a former budget analyst and co-owner of the Articles and Answers News and Information sites.

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Everybody who even perfunctory follows the news must have heard about the string of terrible financial developments in the United States. More and more investment and banking companies are going bankrupt or are being threatened by spreading credit crisis. This is a spillover effect from excessive lending practices during a prolonged housing bull market, which came to an end as a “bursting bubble” over a year ago.

Now more and more companies find themselves in possession of securities tied directly to mortgages issued during that time. With more and more houses going into foreclosures and loosing value, an increasing number financial instruments are rapidly becoming non performing, or outright worthless. Companies holding them are experiencing losses going into billions of dollars. Some of them are becoming insolvent.

Such was the case with Washington Mutual, which was seized by federal authorities and sold at a bargain price to JP Morgan Chase. Washington Mutual set a sad record, becoming the biggest bank to ever fail in USA. But not the only one lately. So far the crisis has claimed 12 banks, investment banks and even insurance companies, like the industry giant American Insurance Group.

To date US Treasury managed to avoid real disaster by stepping and taking over failing institutions or facilitating financing to keep them alive, by lending money to other companies for purchase of weakened rivals. Intervention has cost Treasury hundreds of billions of dollars, including $25 billion to bailout Bear Sterns, $100 billions each for Fannie Mae and Freddie Mac, $85 billion for AIG. This list goes on and on.

Now FED is asking congress for additional $700 billions in order to bail out entire financial industry, by establishing a market for mortgage backed securities. Federal authorities would purchase instrument from most at risk firms. That would set some kind of pricing guidelines for all other such securities, making it possible for all holders of such notes to start trading in them again, potentially lowering risk of owning them.

Nobody really knows if this is going to be enough, but the price of such action will be staggering. With the money already spent and the funds requested, the total bill will surely top $1 trillion dollar by a wide margin. This would signal new wave of borrowing by Treasury, which would last for years and push the total debt level into record and uncharted level.

Dollar lost value while all this was unfolding, and is likely to continue slide until congress works out details of this massive funds infusion. After that it will take some time to see if the steps FED is taking are having desired effect. US dollar will probably stay under pressure during this time. One might expect this to continue through the reminder of 2008.

In order to finance rising level of debt, we can expect to see interest rates rise on USD, which would make Treasury paper more attractive. Combined with economic slow down in the rest of the world, this might prove very bullish for dollar going into 2009. This will only be the case if the interest increases are done in a slow, measured pace and not due to some market panic. This particular scenario is compatible with very long term dollar charts.

We should be watching with interest what comes out of the chambers of congress. Once the funding is granted, it will be up to the financial authorities to prove it is money well spent. If it works even half as well as promised, we should see steady appreciation of Dollar in 2009 and perhaps a little longer.

Mike P. Kulej is a Chief Forex Strategist for Spectrum Forex LLC. He specializes in mechanical trading systems as explained on http://www.spectrumforex.com. Spectrum Forex LLC offers numerous services to individual traders. He also publishes trading blog http://www.fxmadness.com. With questions and comments e-mail him at kulej@spectrumforex.com

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