Monday, March 30, 2009

Learning about main street USA

I have quite a good idea of how this crisis was caused by the top-down supervisory forces that originated in the Basel Committee and I have frequently written and discussed about that in articles papers and blogs.

But as a foreigner who’s wellbeing as a foreigner depends so much on the United States I wanted to understand better what bottom-up forces had been or are still in effect on the main streets of the USA and so I signed up to get myself a license in real estate sales and a license as a loan officer in mortgages. If all goes as planned I should be licensed for both in just a couple of weeks.

Below what has surprised me the most while studying for the above.

How a country that prohibits discrimination allows for discrimination based on some opaque credit scores, to such an extent that parents often seem to worry more about their children credit scores than their school grades.

How federal authorities can be allowed to finance different amounts depending on the region when that can only lead for those differences to grow even bigger. If I was a major of a small and remote and poor city I would sue the FHA for discrimination.

How an entity like the FHA can come up with such a haywire criteria that establishes that those who do not meet some minimum credit scores or are currently unemployed cannot refinance their current mortgages at lower rates on a streamline basis. These borrowers are really those who would benefit the most from a refinance so much that one could almost make a case for the opposite... those employed and with scores over a number should not be allowed to streamline refinance.

On a closely related issue how can the Government, the Congress and the Fed be spending so much time and resources trying to provide stimulants without worrying about getting rid of the depressants such as the ludicrous high interest rates on credit cards?

To me, a country where the government pays 10 basis points in order to finance its short term consumption while its own citizens have to pay at least 1690 basis point more to finance their consumption is sort of an unsustainable country. If it was me I would limit the interest rates that credit card companies could charge to for instance 7% and, out of the public budget, pay an additional 2% to the credit rating agencies on the balances as part of the stimulus package.

But then again I would always favor the workers getting those salaries that allow them to pay for their needs in cash… it is bad enough to having to buy everything in the store of the mining company… but it is much worse when having to buy it on credit... at 17% or more.