Equity Finance: A Lingering Thought!

America is going through a financial depression. The whole thing brought about by sub prime lending claims the economists and policy makers. Their arguments being that when the government wanted to increase home ownership lenders took it into their hands and gave loans and credits to sub prime borrowers who did not have the prescribed credit scores and this has been quoted as the reason for all the economic mess that followed. This situation was worsened with the implosion of the investment bank, Lehman Brothers. They blame the government for not bailing them out.

As the blame continues, to save face, government decided to finance the merger of Merrill Lynch and Bank of America. Since then BofA has been withdrawing funds from the federal government. The initial amount of twenty billion dollars to cover loses worth fifteen billion dollars at Merrill Lynch was not enough! Thus it is better that Lehman Brothers went down the way it did. The people of America can wait and watch Countrywide, another of BofA acquisitions suck its funds dry.

Most of the predictions and ideologies that describe these conditions are from people who have been wrong in the past and have made wrong decisions. These people have very less credibility and are usually misguided by the make belief system they created and believe in. This certainly is not capitalism in any form that we know about.

Home builders in California are pushing for federal tax credit so that home purchases would get a boost. 2008 saw the construction of 64,000 homes only. This is the lowest count since 1954. The sales of new homes have dropped eighty percent from last year. There is an increased supply of homes. Actually there is a shortage of affordable homes in California. Under these conditions, there are eminent people who claim that once the housing market is back on its feet there would be shortage of houses for sale. This couldn’t be far from the truth since in reality the fall in prices have increased sales in places like Inland Empire and have made it possible for many people to go for a new home. The predictions by financial wizards have been proved wrong before and are not any different now.

We have witnessed people speaking about the recession not being anywhere in sight even in 2007 when America had entered recession by then. The only thing to be considered here was the fall and time required for the bottom hit. All these proclamations in the Senate!! No wonder the chaotic state of affairs that continued for this long. It is worth remembering Nouriel Roubini’s testimony to House of Representative which was made in February 26, 2008. In this he clearly states the country’s state of affairs regarding recession, type and time that would take for it to hit bottom.

Thus there are people like this New York professor who were able to gauge the problem from the very beginning. Everything depends on the new government which is handing out hope on the platter and Americans are lapping it up.