My Review of "Paying the Price"

5 out of 5 stars......

First off, I already respect the author, Mark Zandi, since he does appear to be one of the more reasoned voices during the last several years during this financial mess of recent years.

And after reading the book, I also conclude this book is well-reasoned and excellent for anyone who seeks to be better informed about what has happened and the risks which lie ahead. Some of the things from the book which I think are noteworthy.....

1. Great Recession bad, but bottomed by 6/2009 with 8.75M jobs lost and unemployment 10+%. By 2012, Occupy WS and youth have re-shaped lives, some good (save more/spend less), some bad (less likely to seize opportunities or start new ventures even though the economy needs them).

2. Large businesses are doing well, WS is back and bank failures have abated. What policy makers did to stem the financial panic and combat the Great Recession (GR) remains controversial, but can be judged a success, including the auto bailout.

3. Obama blundered by saying unemployment wouldn't rise above 8% with the Recovery Act.

4. Government policy stopped deflation in housing, while being least effective with mortgage modifications and re-financing's.

5. Dodd/Frank not perfect but had some good things - didn't solve "too big to fail," but makes failures more manageable like with stress tests.

6. The US outlook has never been brighter.

7. Only when the US gov't went all-in in acquiring stakes and debt of largest US financial institutions did the system's free-fall stop.

8. Unlike 2000, the Global Economy was using US financial institutions for investments/savings - Treasuries first then mortgage-backed bonds. Securitizing of bonds and of mobile homes, credit card debt, no-down, no-doc mortgages, etc resulted in regulators hurt by complexity of the system. Banks usually capitalized at 10xCash, but investment banks 30x and Fannie and Freddie 70x.

9. Fannie and Freddie were bit players -- mortgages dominated by the private sectors, but in 2008 concern triggered panic - Lehman should have been taken over, not permitted to fail. After bailouts, banks resumed lending to each other, FDIC ended silent runs by raising FDIC insurance. TARP made it all work. Also TAF, banks borrowing from the FED via silent auctions, creative loans to investment banks, PDCF, TSLF, QE's, etc all helped. However, ultimate judgment can't be made until the FED begins retreating from all the stimulating.

10. Emergency unemployment insurance is one of the largest economic multipliers.

11. Austerity made Europe worse. The US Recovery Act (ARRA) passed Feb 2009 GR ended in June. CBO said ARRA lowered jobless rate by 2%.

12. Should have been rapid principal markdowns on mortgages. FHA came to life, but offered loans as intended in 1930's. Temp. tax credits worked, stops buyers from waiting for prices to drop further.

13. Bankruptcy is OK for non-financial companies, but not for financial ones since they deteriorate quicker/bank runs, etc. Fixing the financial plumbing - Dodd/Frank not perfect, but helped - stress tests and identifying SIFI's sooner and making sure they have enough capital and liquidity. Important to have large banks so the US remains competitive in the global economy. The US financial system, despite its risks, powers the most productive economy in the world. Financial crises are most difficult because they choke off credit - so, must restart credit ASAP to fuel a staggered economy.

So, an excellent book, especially welcomed because Mark Zandi, the author, I judge to be more open-minded than the typical economist.