Peterson Foundation's Deficit Alarm

David Walker,President and CEO of the Peter G. Peterson Foundation,feels we have to learn from history and not repeat the mistakes others have made.In the short term,the U.S. is a flight to safety.In terms of public debt,however,we're 10 years away from being Greece.The oil spill shows us corporations do not have duties of loyalty to countries;they are loyal to shareholders.Washington is not the real world and,frankly,New York isn't,either.
The four factors that caused the subprime crisis exist for the government's own finances,Mr.Walker thinks.We're on the path to moving to where the Southern European countries are.The clock is ticking and time is not ticking in our favor.We cannot allow the extremes to polarize our political system.The American people are in the sensible center,and that's where you get things done.Eighty percent of the American people see the budget deficit as a priority,David Walker observed.
On June 26,the Peterson Foundation and others are holding a national town meeting on this subject.It's never been done before,Mr.Walker pointed out.
David M. Walker was Comptroller General of the United States from 1998 to 2008.As the nation's chief auditor,he was head of the Government Accountability Office,where he highlighted wasteful government spending.

Foreclosure Plan Botched Up

John Geanokoplos,a Yale professor and partner at Ellington Capital Management,thinks we really botched the foreclosure relief plan.One of the remedies would have been to write down the principal.It takes a long time to evict people from their homes.During that time,the house gets partly destroyed and takes an awful lot of money to repair.We haven't seen the full effect of it yet.The mortgage servicers are keeping people in their houses longer and longer,collecting their fees.
Mortgage servicers can change or modify the mortgage.They have no interest in writing down mortgages,as they would lose their fees.They own second mortgages on the properties and want to keep the first loans.Most of the homeowners are subprime or Alt A.Together,their outstanding balance is 700 billion dollars.Almost all of them will end up being thrown out of their homes,Mr.Geanokoplos pointed out.

Wall Street Wrestles

Wall Street is wrestling with the subprime mortgage problem.Subprimes,issued to borrowers with flawed credit,have been defaulting at a high rate.Bonds which are backed by subprimes have consequently been put at risk.Bear Stearns(BSC),a leading investment firm,has had to scramble to save two hedge funds that contain these bonds,which are called collateralized debt obligations(CDOs).Many prominent firms,such as J P Morgan Chase(JPM),Merrill Lynch(MER)and Deutsche Bank(DB),held over 20 billion dollars in such securities.The fear that the subprime failure will spread to corporate credit is adding to market nerves.It is a climate of complexity,uncertainty and leverage,according to Jay Mueller of Wells Fargo.In such times,investors might consider quality income funds such as Blackrock's BNA or Lehman Brothers' AGG.