If you’re out of work or your hours have been drastically reduced, then I don't have to tell you about the recession. Likewise, if you’ve lost your home, you know we’re far from out of the woods. But if you’re among the lucky ones who have been fortunate enough to avoid the pain that millions of Americans are experiencing, this column may provide food for thought.
The official unemployment rate is 10%, but when you factor in the number of underemployed (working part-time but in need of full time employment) and unemployed who don’t appear in the official statistics (either because they are so discouraged they’ve stopped looking for work or because they’ve used up their benefits), the rate is 17.2%. According to the Bureau of Labor Statistics, we are beginning to add jobs, yet each week hundreds of thousands of newly unemployed Americans trudge to state unemployment offices to sign up for benefits. In fact, new claims for unemployment benefits rose by 17,000 just last week, to 474,000.
Nevertheless, the stock market continues to rally and the pundits say good times are about to return. I, for one, certainly hope so. But I worry about a double dip recession.
Consumers aren’t spending and that spells trouble. Our economy has moved from manufacturing to service, and thus we rely upon consumers to consume. However, it is increasingly difficult to provide services to those who don’t need them, can’t afford them, or are trying to o without them.
How many millions have lost their homes or are about to and don't see any reason for hope? These people aren’t interested in identifying the origins of their financial problems. They need help. The president explaining to factory workers that we need jobs is akin to the captain of the Titanic telling passengers that they needed lifeboats. Does the word "action" as in “actions speak louder than words” mean anything?
We are told unemployment is down from 10.2% to 10%. This type of announcement merely masks the problem by encouraging us to believe that the solution is either here or nearby. It doesn't really appear that way to me. In talking with bankers, small business owners, and employees of businesses large and small across the country, I hear the same message -- business is bad, collections are slow, credit is tight. Everyone is trying to hang on and hoping for a better tomorrow.
It will take more than hope to bring back the nation’s health. Let me propose some remedies:
1. Suspend the payroll tax for any small business that expands its workforce by 10%. A small business is defined as having 250 or fewer employees.
2. Have a moratorium on foreclosure action so long as borrowers, who may have lost their jobs or taken pay cuts, make minimum monthly mortgage payments. Banks should be forced to accept what the borrowers can actually afford. Fannie Mae and Freddie Mac have lowered the ratios to qualify for loans to 45% DTI (debt to income). This means if a borrower adds up all his monthly debt payments, they can't exceed 45% of his gross income. Banks should accept mortgage payments from borrowers in an amount such that the borrower’s debts don’t exceed 45% of his income. Lenders can add shortfalls to the loans and collect them when the homes are sold or refinanced.
3. Require TARP-funded banks to lend a dollar to small businesses for every TARP dollar spent on Treasury bills, bonds or notes. If necessary, the banks need to sell their Treasuries and make loans.
What we don't need:
1. A jobs summit that includes the labor department but not the U.S. Chamber of Commerce, or one that seeks input from leaders of major corporations but ignores small business owners.
2. A bigger deficit. Every project on the drawing board that won’t significantly reduce the deficit should be put on hold indefinitely.
3. More politicians who haven't a clue about the mortgage industry writing legislation to fix the industry’s problems. This behavior has set the industry back years, if not decades.
4. Overreaching healthcare reform written by disinterested politicians who get to keep their own "gold plated" policies for which we, the citizens, pay.
Finally, some questions for you to consider:
Do you think we are out of the recession or even close to being out?
Do you think our elected officials are sincerely concerned about the financial problems of ordinary Americans, or are they more focused on getting reelected?
These are serious times and I am not sure there are enough serious people in positions of influence to move this economy in the right direction. I pray that I am mistaken!
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.