Recession impacted people in diverse ways – employed lost secure jobs and homeowners were left high and dry with worthless real estate. With economy showing revival signs, it may be just a matter of time before all these return to their pre-recession statuses. However, one alarming and seemingly irreversible upshot of economic downturn is the revelation of guileful facets of finance to the populace.

Before recession manifested, affecting the lives of commoners, finance was considered the blue-eyed boy of economy. It spewed forth success stories like it were the norm and not aberration. Finance evoked envious sentiments, often bordering on resentment.

Things went topsy-turvy after the economy was ravaged by the cataclysmal effects of recession. Earlier, though financial wizards made money in hordes, others had their jobs and coveted homes, which increased in worth consistently, to keep them contended. Now, jobs are scarce and unemployment galore. The plummeting property rates are forcing many homeowners with mortgaged homes to walk away from debts to keep themselves afloat. Foreclosures and furloughs have become the order of the day.

With the bursting of the economic bubble and economy on the verge of total collapse, government used the taxpayer’s money to rescue the financial sector from its deathtrap. The taxpayers are left fuming, as they are well aware that bankers had ventured voluntarily into the high-risk zone for their own benefit. It is a fact that there was no other alternative left for the administration other than offering the bailout package using taxpayer money to avert an economic catastrophe.

Ben Bernanke, the Fed chairperson puts it succinctly, “I didn’t set out to save Wall Street. I set out to save Main Street. But to save Main Street, I had to save Wall Street”.

Nevertheless, taxpayers are livid; While Wall Street was bailed out, Main Street remains down in dumps. To an ordinary taxpayer, it looks as if the bankers made hay when the sun shone by taking risks and when trapped, they cried, “Help! Help!” to corner a bailout.

The irony is that this privileged lot is not able to understand the sudden turnaround in public attitude towards them. They still consider themselves blameless for whatever happened. However, the taxpaying public is not ready to let them off the hook without drawing blood. They want a whipping boy for the meltdown that struck them bad. Who else fits the bill other than the big finance itself?

Bankers, though finding their newfound status difficult to comprehend, are making half-hearted efforts to woo back the public. Promises are raining, with strengthening of risk management topping the list. Bonuses as shares instead of cash, transparency in accounting and deeper capital cushions to absorb future shocks are some of the tidbits offered. Taxpayers are in no mood to budge – they are adamant that finance is too much risk and no management.

No doubt finance is vital to economic growth at all levels. Even the high-risk financial moves benefited borrowers; once classified as risky and hence kept at bay. But, recession has raised a few uncomfortable questions that need to be answered convincingly to win back public support. Does big finance boost economy or enrich those who work for it, earning them profit in good times and dumping losses on taxpayers’ laps when tide turns.

To get over this phase, bankers need to do introspection on what went wrong. Even while taking risks, they need to be convincing that the ultimate beneficiary is the public and not banks. Only by persisting with this plan of action, bankers can expect a reversal in the present public sentiment.

written by REI Circle (www.reicircle.com)

To accelerate the economic activities and to bring them back on the track at a faster rate, the US President Barack Obama, met the top executives of America’s major banks on Monday, December 14, 2009. He urged the executives to explore every responsible way to accelerate the process of lending.

The agenda of the meet was to exchange ideas and bring out ways to increase lending to Small and medium businesses who are complaining a deprivation of credit from banks.

Speaking at the meeting which took place in the White house, Mr. Obama, expected an extraordinary commitment from the nation’s top bankers and urged them to help administration to revitalize the economy and bring it back on track as soon as possible. He stipulated that banks should find more and more ways to grant loans to creditworthy small and medium enterprises (SME’s), which he thinks are the main source of employment generation in the US.

After the harsh criticism of bankers on a program broadcasted on CBS on Sunday, Mr. Obama looked a bit optimistic and called his session with the leaders of 12 dominant banks, as frank and productive discussion.

However, giving a glimpse of his Sunday’s jibes, Mr. Obama told banks to ‘close the gap’ and support the endeavors of regulatory reforms in the financial-services industry.

The U.S. Bankcorp’s CEO Richard Davis who attended the meeting declared the meeting as productive and denied any kind of disagreement between the Bankers and the Administration. Mr. Davis said that the President, unlike Sunday’s meet didn’t call the bankers with any name. He was primarily referring to President Obama’s ‘fat cats’ moniker, which the President had used to refer to bankers in his Sunday’s interview to CBS.

However, earlier on December 14, 2009, the US banking giant, Citigroup initiated steps to emancipate itself from the clutches of government protection and asserted that it was ready to redeem the $20 billion, which it had last year received as help from the government under the Toxic Assets Relief Program (TARP). By doing this, Citigroup will exit the program under the purview of which the US government would had covered billions of dollars as a part of loan losses.

The Treasury Department stated that it will begin to sell its 34% stake in the Citigroup by selling first of its $5 billion in common stocks and will sell the remaining in the coming 6 to 12 months.

J.P Morgan Chase’s, Mr. Dimon said that J.P. Morgan is taking all the necessary steps to lend a helping hand to small businesses and to accelerate the growth of lending process. He said Chase is doing its part in modifying the mortgages for lashed homeowners and is ready to support some of the regulatory reforms. Furthermore, Chase has also showed its willingness of providing sound bankers’ a compensation. But at the same time, it also raised its concerns over some of the regulatory proposals, which they think can restrict the lending capacity of banks and can also hurt economic growth and job creation in the Country.

The meeting which Mr. Obama had primarily called to push for more lending was attended by several America’s top banking executives of leading banks and was also hosted by some of the most esteemed diplomats from the Obama Administration.

Though Mr. Obama termed his meeting with bankers as candid and productive, there is still a big question mark on whether the President will be able to persuade the bankers to support the regulatory reforms which he thinks can prevent the US economy from experiencing another economic recession in the future.

written by REI Circle (www.reicircle.com)

As more Americans find themselves “upside down” – stuck in homes that are worth less than they owe the bank, they also find themselves with a difficult choice: Is it better to struggle in order to make monthly mortgage payments that may have increased due to an ARM loan, making it even harder to make ends meet, or simply walk away from the home altogether? Many Americans are choosing the latter – giving up the house keys to their lender and downsizing to a rental home instead.

For some this is a devastating change, but for others a welcome one. Former homeowners are now able to enjoy the benefit of some discretionary income while finding themselves free of the stress and worry of home ownership during a troublesome real estate market and challenging economy. That extra cash is instead being for things such as family vacations or other luxury items as Americans abandon homes in record numbers, evidenced by a U.S. home ownership rate at its lowest point in more than 20 years.

These aren’t merely people who cannot make their house payments, either. Many are choosing not to make their mortgage payments and waiting until the bank kicks them out, all the while benefiting from holding on to their monthly mortgage money and using it for other things. These “strategic defaults” as they are called, are on the rise, with industry experts predicting that the number of homeowners who can pay but choose not to will swell to 1 million by the end of 2009 – four times the 2007 level. This is not only bad news for the credit scores of the individuals who choose to purposely default, it’s horrible news for the banks who hold these home mortgages.

So how bad will this situation get? Analysts predict that 21 million American households will owe more on their home mortgages than they are worth by the end of 2010. If 20 percent (1 in 5) of these households defaults on their loans, this would equal a hit to banks and investors of more than $400 billion. There’s an upside to this dilemma, however. The amount of debt that will be lifted from millions of Americans as they allow banks to take their homes will leave these folks better able to handle other financial obligations and a rising unemployment rate.

For example, if you take a look at people who haven’t paid their mortgages for the last three months (4.8 million U.S. households) and add up how much cash this frees up from monthly mortgage payments, you’re looking at an additional $5 billion dollars a month that could be poured back into the U.S. economy at a time when this type of financial stimulus is most needed. The only question is whether the ends justify the means: Is it more important for the banks to keep receiving payments, for Americans to be free from the burden of home debt, or for this additional windfall of funds to be circulating through the economy? And what are the long term effects to the health of U.S. mortgage lenders and individual credit ratings for those who choose to default? Will we be left with a large segment of the population in five years that lack the credit to buy another home or other large ticket items, and how will this hurt manufacturers and retailers of these items, as well as everyone who works in the real estate industry?

Some experts say that the economy will improve more quickly if American shed their mortgage debts and start fresh. Others even say that the banks and mortgage lenders deserve to experience this rash of home loan defaults because they’ve brought this situation upon themselves by allowing easy credit to those who they knew couldn’t pay for expensive homes and through the free-wheeling application of adjustable rate loans that consumers simply didn’t understand when they signed up for them.

Still others blame the government for encouraging this situation in the first place. Regardless of where the blame lies, consumers seem to be taking action into their own hands for the time being while the current administration continues to encourage lenders to cut deals with people to keep them in their homes. Unfortunately these deals often don’t meet with the approval of borrowers because they only reduce their monthly debt burden by a few hundred dollars at best. This can’t compete with the prospect of cutting their debt by a few thousand dollars simply by walking away from their homes and seeking cheaper rental accommodations – which in many cases are actually better than the homes on which they were paying mortgages in the first place. Regulators, politicians and lenders need to ask themselves what they would do if they found themselves “under water” with their home loans, and attack the issue realistically, rather than bury their heads in the sand and hope that the situation will right itself.

written by REI Circle (www.reicircle.com)