To Turn this economy around and clean-up the subprime mess will require new financial & mortgage ideas from the best financial university think tanks or financiers across America.  At ths time, I am curious to know what's cooking from our political and financial leaders as to what to do to turn our economy around.  Before the financial bubble burst, I would always shake my head when hearing that the economy was strong when all around me in the State of Michigan I saw the exact opposite with plant closings, lay-offs, jobs permanently lost or moving South beyond our borders.  I, too, wondered after interviewing many potential clients for mortgage loans how they could possibly survive in this "growing but inflationary" climate when debt to income ratios were at 50% or above.

     The "average" Michigander seemed to be living paycheck to paycheck or on credit with little savings available.  In terms of "Main Street" I think the doubling of gas prices pretty well altered spending habits and life as we knew it.  How could a person without a job afford food let alone have money to pay for auto insurance and gasoline search for a job?   Even commission-type salesmen or construction workers were struggling to have enough gas in their tank to go out and making a living.

     I also questioned why lenders and mortgage companies pushed adjustable rate mortgages to almost everyone in the subprime market.  To me it was illogical to sell ARMS to the "marginal" homebuyer.  All I heard was it had to with the "risk factor" in terms of defaults.   This kind of thinking and policy in my opinion bred failure.  Using FICO scores, the lenders'secret index charts, and the need to make a profit prevented the subprime borrower from obtaining a fixed-rate and/or a low interest rate. The fees charged to refinance left homeowners with stripped equity.   Now the marginal homebuyer basically had a home, but with large adjustable rate mortgage payments.  Forget their need to save and pay high property taxes as assessed in Michigan.   People in this category weren't able to save before, let alone now.

     In hindsight, my pessimistic views were right on - people were not able to keep-up with their current life style and I don't see it getting any better soon.  The Internet may be the only "saving grace" for those with an entrepreneurial spirit.  Wages will be decreasing and medical insurance costs will continue to sky-rocket.   I can't blame people for voting for a "change" and seeing Obama as their only "hope!"   The cynic in me says that this all was a "planned" conspiracy (you'll understand this better if you keep reading).   The only thing that surprised me was the proportionate size of the bubble...like a sunami wave it went global.

     To better explain the many reasons for the "global" economic bust, I suggest you read Robert J. Shilling  The Subprime Solution.   It is an easy read and explains bubbles from a historical perspective.   There have always been real estate and stock market booms and bubbles.   He doesn't put blame on any one act, but gives many reasons for why all of the speculative markets (real estate, Wall Street, oil and grain) collapsed.   The old adage plays out, "What goes up, must go down" to a point.  How can we learn from this recession (or depression if living in Michigan) to protect, secure and grow our economy?  Shilling agrees that the bailouts are necessary to shore up International confidence and instill public trust in our institutions, realizing though that bailouts act only like a band aid...a temporary fix.  The real "fix" will be through education and using unbiased mathematical financial engineering.

     I am all for educating the public in financial affairs and providing financial advice and planning to all.   Shilling shows how if individuals were taught to think in terms of a "basket" that represents the value of the goods and services upon which the consumer index is calculated, we would learn to do inflation indexation and know that the prices of homes doubled due to the fact that inflation doubled.   We wouldn't then be duped, as an example, into believing all of the mass marketing campaigns involving the buying of real estate and refinancing of mortgages  In actuality, real estate may not be the best investment except for providing shelter and a place to call your own.

      I find mathematical financial engineering a little dangerous since we lose privacy and decisions are determined through mathematical formulas and data collection on a massive scale.  It's to be recognized that the Government now has the capability and is collecting huge amounts of data involving every human endeavor and that could easily be used to build multi-financing theories to determine risk factors and economic decisions.   Out of the 1930's came long term mortgages (the 30 year fixed-rate).  Now due to this economic bubble and due to job insecurity, Shilling proposes a continuous work-out mortgage to autonomously manage people's money and to prevent foreclosure.  Mortgage payments would be adjusted each month and based on IRS returns, occupation (what the average person makes in a particular line of work, demographics (by neighborhood, city and state), and health stats (easily now obtained through nationalization of our healthcare).   He also tells of forced savings too that is experimentally being done by companies.  When one receives a pay raise it automatically goes into a savings plan - this could certainly help the bankrupt social security program.

     Shilling also addresses the debt of Governments.  He says they need to issue debt to their Gross Domestic Product (GDP).   "This could be perpetual debt that pays a share of GDP as dividend.   These dividends would go up or down through time depending on the level of economic success of the country. ...Thus countries could hedge their financial risks and free up resources to deal promptly with an emergency like the subprime crisis. ... This would be risk management applied on a national level."

      The bottomline is that no matter what formula is used, Banks are in the business of making money and the Government will keep your (actually its) money.  Furthermore, Americans do need to improve their mathematical skills, and diversify their investments with sound financial planning.  Certainly there will be plenty of job openings for financial planners and staticians.   If you want to be a real estate investor be sure to collect lots of data and plug-it into various mathematical formulas to determine if the house you are buying  is in a geographical location where prices are going up or down and if the local real estate market falls within the boom or bubble...not much different than looking at green or red arrows when buying and selling stocks.

      I leave you with some questions.  Will it be possible for the individual to maintain privacy, make informed decisions, and manage his/her own financial affairs, or will we collectively permit the government to take over and run our financial lives?  Who knows best - you or the governmental policy makers?  What's your solution for 2009 and beyond?   If you nee help stopping foreclosure or a real solution to your home situation such as a loan modificationa visit Foreclosure Prevention Institute LLC .

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