Jobenomics Book Review Chapter 4 Private Mortgage And Consumer Debt

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 Many have been written about mortgage and consumer debt, but few have covered the many aspects of the topics in a single writing. Chapter 4: Mortgage and Consumer Debt took an integrated approach in presenting a complete view of the current mortgage and consumer debt situations with facts, comments, and predictions. Also, what’s in Chapter 4 can well serve as yet another weak-up call on the still dire economic situation and at the same provides a clear sense of direction as to what will be unfolding and how it will affect the many inter-related parts of the economy.

Often times, when people discuss mortgage issues, one group would delve into residential mortgage and the other turn over to commercial mortgage, as if they are subjects well suited for separate studies. But to banks that hold them and investors that bought securities backed by them, they are rarely separate issues. If the property is underwater, be it a residential house or a commercial building, borrowers could be in danger of default and when that happens, it affects banks or investors’ bottom line indiscriminately. Chapter 4 places these seemingly two different types of debt, consumer borrowing and corporate borrowing, under one single economic background that everyone and everything has to play against.

Chapter 4 devotes a large portion to the analysis of the real estate market, both residential and commercial, which is rightly justified as different degrees of buying and selling activities in the real estate market can either be a drag or boost to the overall economy. Concerns over the possibility of a second residential real estate crisis are raised, which hasn’t been seriously debated about in public. But the potential scenario could become real before many people have yet to fully comprehend what it means for the nascent recovery, given that a wave of strategic defaults by frustrated homeowners are beginning set in motion, as the Chapter keenly points out.

If concerns over the future of the residential real estate is alarming, Chapter 4 makes an even sharper point about the commercial real estate situations. By comparing sub-prime mortgage borrowers, the main target of the predatory lending, with commercial mortgage borrowers, the financially sophisticated real estate developers and tycoons, Chapter 4 suspects that the failure in commercial real estate is more troubling and has much to do with the structural flaw within the sector, while manipulations aimed at less educated homebuyers mostly caused the sub-prime crisis. As it appears that is the case, the clean up in commercial real estate will probably require more than new laws and regulations, as the business mentality behind the over-extending commercial real estate practice may have to go through a paradigm shift.

Another structural issue for mortgage lending, an important point that Chapter 4 is not going to miss, is that while a limited number of large banks hold the majority of the residential mortgages, it is the thousands of mid- and small-sized regional and local banks that hold commercial real estate mortgages. When troubles are widely spread on such a scale, it would be really hard for the government to provide help and contain the problems. Chapter 4 thus appropriately mentions the government’s stance on the issues. While the government recognizes the possibility of another banking crisis by the commercial real estate failure, it hopes economic growth and investment demand by private investors can divert much of the pressure.

Another piece of the puzzle to the whole financial crisis is consumer debt, which is directly tied to consumer spending, representing two thirds of the economy. Analysis done by Chapter 4 on this issue also links all together the $2.4 trillion consumer debt, based on the latest Federal Reserve data, decreased consumer spending, a weaker economy, and increased unemployment.

For those who wish to get a real handle on the current mortgage, real estate, and consumer debt situations, Chapter 4 is a good read comprised of sensible analysis and loaded with helpful data gathered from government agencies, International Monetary Fund, and various news outlets. It is both detailed with depth and concise to the point. It well covers everything within its intended subjects providing readers the basis for a comprehensive understanding of all the inter-related elements.

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