EVEN THE "UNDESERVING" ARE PAYING OFF THEIR ODIOUS LOANS:

U.S. could ignite growth in six months: Obama has time to help homeowners, automakers but should skip tax hike for now: Barron's (TAKASHI KITAZUME, 12/01/08, Japan Times)

Edwin A. Finn Jr., editor and president of Barron's weekly,] said the measures taken by the U.S. and European governments following the collapse of Lehman Brothers in September may not have been perfect but worked "fairly well" in arresting the financial contagion.

Given the series of "rapid-fire consolidations" that have taken place in the banking industry since then, "I do not think there will be another major U.S. financial institution going out of business in this cycle," Finn said.

Although the Lehman bankruptcy was seen as triggering the turmoil, Finn said it "accelerated the activity that had to take place."

Japan took well over a decade after the implosion of its late 1980s bubble economy to consolidate the banking industry, make banks stronger and force them to eat their bad loans, he pointed out. In the United States, however, a lot of the work involved in amalgamating the weak with the strong took a matter of months, he said.

Still, Finn said the seriousness of the economic problems hobbling the United States is such that it requires "extraordinary measures to correct the situation."

After logging 0.3 percent negative growth in the third quarter, Finn said he thinks the fourth quarter will reveal a 3 percent contraction.

"American consumers' mood is as glum as I have seen in the last 20 years," he said, mentioning October's dismal retail figures, and any stimulus measures being planned will have to be strong enough to trigger an immediate rise in consumer spending this Christmas, he said.

About 10 to 12 percent of subprime mortgages are in default and about 20 to 30 percent are in arrears, Finn said. While the issue remains controversial, a better solution for helping homeowners would be to mark down the mortgages' principals to the point where people can make their monthly payments and avoid foreclosure, he said.

Just make the subprime loans sub-prime rate for home buyers.

Posted by Orrin Judd at December 1, 2008 7:21 AM