Murray Tucker: Root of crisis

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From my perspective, the experts analyzing the recent worldwide finance problems missed one fundamental change that underlies the problem - the retirement of Alan Greenspan as chairman of the Federal Reserve and his replacement by Ben Bernacke. Both men are esteemed members of a select community of experts in finance. The problem is that they hold divergent philosophies that crashed like a train wreck.

Greenspan held to the belief that through homeownership, Americans would benefit from increased wealth as the value of their homes rose. To this philosophy, Greenspan emphasized policy that encouraged homeownership - keep mortgage rates low. The result of this policy was ever increasing values of homes, exactly what Greenspan envisioned. Americans could now borrow on this equity increase to fund other purchases that would keep the other parts of the economy growing.

The unfortunate result was twofold. Investors saw an unlimited rise in housing values and paid prices for units that lacked economic reality, especially in the fastest growing areas of the country. Banks funded these investors (and homebuyers) at 100 percent of purchase price, also figuring that the balloon would continue to expand.

Bernacke took his role of chairman in the traditional manner and began to rein in credit, leading to a classical liquidity crisis - that is, the banks did not have funds to lend to continue to feed the home-buying frenzy. Mortgage rates soared. Pop went the balloon.

Some would say the result was inevitable. I say it was avoidable. The first and most important problem is that banks (they make money by lending money and selling the loans to third parties) should have been limited in making loans to investors who put little, if any, of their own funds in their ventures. The second is a more careful scrutiny of the creditworthiness of true homebuyers. Letting borrowers state an income without the lender checking essentially put loan recovery solely on the value of the real property being purchased.

Finally, I would say that the Federal Reserve must be more careful in understanding how its policy works and not doing right turns when the head changes.

Murray Tucker, Ph.D.

Steamboat Springs

Comments

Judygunthorpe 6 years, 8 months ago

Something's Missing in Steamboat

After 3 months in and around Steamboat this summer I've become aware of the absence of a certain sound. There is little use of car horns! Drivers for the most part are patient and courteous and never seem to need to use the horn. This is such a peaceful contrast to any city at home in England, or Paris or especially Rome where the air is rent with beeping vehicles as everyone vies for space or vents their frustration in a mini road-rage. This paradox occurred to me as I hiked down the mountain and became aware of passing cyclists. Once again I realized there was an absence of major sound. On the uphill route I can either see them coming towards me or, I can hear their approaching panting exertions and move aside. However, if I am dropping down the steep hillside, I hear no audible warning. Unlike passing skiers who call something like, "Coming through on your left" there's a silence. I sense their presence rather than hear anything until, at the very last moment, I detect the 'whizz' of their wheels. Then, with my back to this approaching silent speeder, I dither in indecision. Do I step to the right or the left of the trail, conscious that a wrong choice could result in disaster? As my father warned me when I learned to drive eons ago, a vehicle is dangerous, and these downhill bicycles really race down the track. Since becoming aware of this phenomenon, I've watched from my condo over the weeks and seen the velocity with which these kamikaze riders hurtle down the path, twisting now to avoid a large rock, rising in the air as they bump over other outcrops. These guys 'fly'. Wandering along the Yampa River trail, I've experienced similar 'quiet' approaches. When I joined an Olympic Heritage walk, the guide particularly warned the assembled group to 'to be aware of the speeding cyclists'. I've witnessed several 'near misses' on the Trail down by the Library.

So, having appreciated the 'quiet' of cars, from a safety perspective with bicycles I've asked myself, "Why don't they have bells?" And I've discovered that it's not only here in Steamboat that cyclists are silent. Even the police on bicycles in Seattle and Salt Lake City prowl the tourist areas silently, whereas, at home in Europe cyclists use their bell to warn other road users or alert pedestrians of their presence. We all know there are "Nine million bicycles in Beijing". In fact at any crossroads in China you can be deafened as the waiting bunch of cyclists all seem to ring their bells together in a great cacophony warning. You certainly do not mess with that approaching wave!

While I am not aware of any accidents involving riders and pedestrians actually happening either on the mountain or downtown, it would seem to be a simple precaution to somehow alert others that you are riding by. A little tinkle is not saying 'Move over,' but rather 'I am here'. Silence may be golden but I would also say Safety is paramount!

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