Q: Has anyone bothered to investigate which major stockholders of large Corporations sold just before the financial crisis began? The money went somewhere - somebody sold high, big time.

Submitted by tom jones from hercules Ca

A: There's been a lot written about people cashing out, but truth be told a lot of big name investors had gone into cash months earlier. Lehman was the straw that broke the camel's back, but there had been a slow but gathering move out of equities well before September 2008.

Answered 09/14/09 18:39:13 by Kevin Hall and Tony Pugh

Q: To Kevin: What's with the headline "a new world order" ? Is that redmeat for the right wing nuts to salivate on? Kenton Ridenour

Submitted by Kenton Ridenour from Peru Indiana

A: Don't write the headlines, can't answer that. Point of the story is a new reality emerging, call it an order of what you want, new normal etc.

Answered 09/14/09 18:37:55 by Kevin Hall and Tony Pugh

Q: At what point does the government become insolvent? California has had to make deep cuts since they cannot raise the revenue to cover budget. I know that the Federal Government can print money but after a while it seems that the money will become worthless unless there is something to back it up. With the deficit projected to double in 10 years, it seems that our economy cannot sustain this. At what point do they have to make the hard choices?

Submitted by Noel Johnson from Rutherfordton, NC

A: That point may be decided by others, not us. We are now where developing nations like Brazil or Mexico were 15 years ago. Back then, they ran big deficits and people stopped lending to them because their currencies lost value and their budgets were out of whack. We are still viewed as a safe place to do business, and investors still see us as the safest long term prospect. But there is no reason to believe it necessarily has to be this way, nor are we guaranteed to enjoy this status forever. It speaks to the importance of taking steps to correct out long-term imbalances, be it Medicare, Social Security and yes, health care. Absent steps to address those areas, investors may come to question our ability to pay our debt, and as Mexico, Argentina, Brazil, Russia, Thailand and other nations have learned, that's not a good position in which to be.

Answered 09/14/09 18:36:49 by Kevin Hall and Tony Pugh

Q: What will happen to the U.S. Dollar if foreigners stop purchasing US Government bonds? How will U.S. banks make money if they can no longer find buyers for mortgage backed securities? Is paper money doomed to fail?

Submitted by Paul Hansen from Honolulu, Hawaii

A: Working back to front, don't think paper money is doomed to fail, though the expansion of electronic currency raises some interesting thoughts about money and transactions in the future. Banks will make money, one way or the other, they have since biblical times and will continue to do so, rest assured. If foreigners stop buying treasuries, it is a reflection of a lack of confidence that a dollar will largely purchase as much in the future as it does in the present. This will force the U.S. government to pay more to borrow, which will drive up the debt even further and if allowed to fester will eventually swamp the entire federal budget. That's why deficits do matter.

Answered 09/14/09 18:33:46 by Kevin Hall and Tony Pugh

Q: I am unemployed and have been since 2008. I have a degree and the loan that goes with it through Sallie Mae. I haveto keep putting it on deferment because I can't make payments. What is the individual suppose to do?

Submitted by Virginia from Johnson City

A: Hang in there. Nothing, including bad times, last forever. I imagine it is pretty miserable right now, but this is an unusual period in the history of our nation and as a resourceful people we will get out of this and hopefully emerge stronger as individuals and collectively. Best of luck in these tough times.

Answered 09/14/09 18:30:39 by Kevin Hall and Tony Pugh

Q: I would like to know why all this securitization of loans by banks is not considered as counterfeitng our currency.(dollars). why FBI is not after them.

Submitted by Arvind Desai from Mission Viejo, CA

A: I wouldnt classify it as counterfeiting, although it arguably weakens the value of our currency and the poor way it was regulated diminished greatly our standing globally. The SEC has belatedly gone after some of the rating agencies that created the fiction of safe loans that had been securitized, and the FBI has concentrated on low-hanging fruit, choosing to go after documentation fraud by real estate investors and mortgage brokers. No one has really gone after the executives of non-bank lenders who trafficked in shoddy loans with the knowledge that Wall St firms like Bear Stearns and Lehman Brothers would securitize them.

Answered 09/14/09 18:29:08 by Kevin Hall and Tony Pugh

Q: How do 'WE THE PEOPLE' impeach The President of the United States? It seems to me an average American that he is degrating Our Constutution on purpouse and has lied about all his policies just to get in office. It seems criminal to me. Is it?

Submitted by Tammy Myers from Mustang Oklahoma

A: Not going to touch this one with a ten-foot pole. Impeachment remains in the domain of the Congress. I'd say write your congressman and vote your conscience.

Answered 09/14/09 18:26:33 by Kevin Hall and Tony Pugh

Q: Just read an article on your site about how securitization of such things as mortgages is now dead, and that without the ability to securitize such debts as mortgages by selling them to investors who pool them for investments, banks can't resume the level of lending they were engaged in before the whole financial system nearly collapsed. However, I read about how Wall Street is looking into securitizing life insurance policies: http://www.nytimes.com/2009/09/06/business/06insurance.html What do you make of these "life settlements" schemes--the "plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die." as this NY Times article describes. Will this become the next bubble to burst (wait a minute, health care industry bubble might burst first, right?)?

Submitted by Stephanie from Lakewood, Ohio

A: As the chief economist of JP Morgan told me last week in New York, a good idea is still a good idea. Not gonna say where I stand on this, but the concept of securitization_ that it spreads risk a mile wide and an inch deep_ is still an attractive one in financial circles and did lead to an expansion of credit (some say with disastrous results.) A more cynical way of looking at it is that Wall St is on to its new asset-inflation cycle. Unable to go into housing again given the collapse in many parts of the nation, Wall St is instead looking the massive pool of retiring baby boomers and has come up with the next new get-rich scheme. One hopes regulators will have at least corrected the many shortcomings that allowed securitization to become a platform for passing bad loans to unsuspecting investors. The mantra in the height of this mess was "a rolling loan gathers no loss" so there are some pretty inherent risks to securitization that would have to be effectively policed in this life insurance scheme.

Answered 09/14/09 18:25:37 by Kevin Hall and Tony Pugh

Q: About health insurance for everyone [ me too ] Why not the gov. give to each state money for all the permanent residents acording to the number of people live in that state, by the amount of money each state deposit to the treasury, some kind of percentage of health cost , the state matches that and the rest like 25 % to be paid by each one of us.. Fair is fair.. In the same time have a agency [ beter than irs ] that supervize and look for cheaters [ doctors, costumers, insurance comp. equipment supliers , and law firms that causes the high cost of health ins. ]..

Submitted by kosta vretas from tampa - Fl

A: Interesting idea, but as with an earlier question about taxes, anything that involves huge changes in the status quo is unlikely through the legislative process, which favors incremental change. The chances of creating a new federal agency to supervise health insurance, which is regulated on the state level, seems unlikely. The concept is interesting, but its chances I fear are limited.

Answered 09/14/09 18:20:08 by Kevin Hall and Tony Pugh

Q: in your opinion, are we more apt to go into a period of inflation or deflation as the effect of the economic disturbance and resulting attempts to fix it carries on into the future? (and why?)

Submitted by kester strange from deville, louisiana

A: Sounds like a homework question, but the good economists answer is it depends. There is a school of thought that thinks the aggressive fiscal policy and deficit spending, combined with the Fed's swelling balance sheet, are tantamount to waves of government money flowing through the economy that will translate soon enough to inflation. That assumes that money is flowing from banks into the economy, which really isnt the case right now and a lot of the Fed programs are helping financial institutions rebuild their balance sheets, even as these same institutions aren't lending. I tend to agree that it is unlikely to lead us back to the Weimar Republic or runaway inflation. But I acknowledge too that another energy spike or trade war etc and we could be back on very shaky ground. Deflation fears seem to have ebbed given the massive government response. Enough lessons have been learned from Japan's lost decade in the 1990's to suggest the United States won't allow itself to fall into a deflationary cycle. But extreme views on inflation and deflation threats, while extreme, cannot be entirely dismissed and you can envision unhappy scenarios that could lead to either. So not impossible, but unlikely.

Answered 09/14/09 18:18:22 by Kevin Hall and Tony Pugh

Q: How do you feel about implementing this, do you think it will propel the economy in the right direction? and either way please express why?Especially in tough times like we see right now most people are struggling and for good reason they are concerned about having a job! paying essential bills takes priority! One major obstacle is Property taxes they need to be eliminated in exchange for a non-essentials sales tax at least this way people have a choice to pay for it when they can afford it if you get rid of the property taxes you will see the real estate and construction industry improve not to mention every business that owns commercial real estate you would see tremendous improvement in our economy because the tax burden would just shift like a laser beam from struggling businesses and homeowners to whomever was doing well enough to buy non-essential items the cost to pay for essentially the schools will shift to people doing well buying non-essential items. Just because someone owns a home or business doesn't mean they should or can afford to have recurring bills attached to it! The key to a business surviving and anyone good in business knows this is to keep your overhead as low as possible unfortunately this cardinal rule is constantly ignored by political figures in government spewing out unfunded mandatory requirements!! This would strengthen our small and large businesses but i doubt many political figures have the common sense to see it!

Submitted by Phil Salesky from Boerne,Texas

A: Interesting idea. Unfortunately in Washington the status quo and inertia loom large. I have a hard time seeing the country move in any big way off of the current tax structure, regardless of how inefficient or unseemly it might be. There are so many vested interests in the status quo that make significant changes in tax code, like the one you suggest, hard to envision happening. Not to take away from the merits of the argument, it's just that the gravy train of Washington politics makes significant change of any sort (read health care for example) quite difficult.

Answered 09/14/09 18:13:33 by Kevin Hall and Tony Pugh

Q: i cant understand why our government, that claims to want to enact laws to help spur economic growth with a program like cash for clunkers would allow the money to be used on foreign autos.is the program to build our economy?why alow participants to use government money to just evaporate overseas? and one more please, wouldnt it be wise for our government to do away with nafta? as that agreement only leaves many loopholes against our economy as well. to me it just seems like smoke and mirrors.

Submitted by gary spencer from buffalo, ny

A: For purposes of disclosure, you won't find me talking bad about Nafta. I think it has been a good thing in a lot of intangible ways. As for foreign autos, global trade rules would prevent the government for paying cash for clunkers on US made cars but not provide the same for cars made by US arms of foreign carmakers. Foreign companies producing in the United States hire a lot of American workers and provide a lot of downstream economic benefit. You are right to note that the profits from a foreign owned automaker producing in the US do in some way shape or form end up back at the parent company, but I doubt we want to go back to the days of Fortress America and Fortress Europe etc, it's hard to separate out the role international trade has played in the improvement in living standards here and abroad.

Answered 09/14/09 18:10:08 by Kevin Hall and Tony Pugh

Q: If "niether a borrower or a lender be" is good advice, why is our whole economic system based on borrowing and lending? Why don't we have a system where the medium of exchange is created debt free to match the wealth that is generated by the initiatives of mankind to produce abundance?

Submitted by Cliff Mikkelson from Fayetteville, AR

A: Can't argue with that. But the question more generally is in the social and philosophical realm of economics and too weighty for this humble forum. I think that question is being pondered in a real-world sense as lawmakers rethink regulatory programs. To many, the financial alchemy of recent years looks less like finance and more like Las Vegas. For sure, some of the financial instruments help mitigate risk, but they were also used to force companies into bankruptcy so gamblers could collect on bets against these companies etc. Lots of fat to chew on as we ponder global finance a year out from Lehman's collapse.

Answered 09/14/09 18:06:00 by Kevin Hall and Tony Pugh

Q: Can you publish a list of the 416 banks on the 'problem list' mentioned in the ECONOMY column, 09/09/2009.

Submitted by Bob from Atascadero, CA

A: Reached out to FDIC to make sure, that list is not a public list because if a particular institution was publicly traded, it could spur a run by investors, and whether or not it is publicly traded publishing that info could spur a run on the banks that are listed. The FDIC monitors these banks with specific criteria concerning their health, you know which banks are worst off because the FDIC closes them down and transfers their assets. The number of these since the beginning of this year is in the neighborhood of 90 I believe.

Answered 09/14/09 17:59:47 by Kevin Hall and Tony Pugh

Q: SOMETHING HAS TO BE DONE ABOUT OUR HIGH UTILITY BILLS, SUCH AS ELECTRIC BILL AND GAS BILLS, THEY PUT YOU ON A BUDGET PLAN WHICH CAN BE 190.00 DOLLARS A MONTH WHICH YOU CAN't AFFORD AND THEN THEY WANT TO SHUT YOUR HEAT OR ELECTRIC OFF EVEN IF YOU OFFER THEM CONSISTANT SMALLER PAYMENTS WE NEED HELP FROM THE GOVERMENT IMMEDIATELY TO STOP THESE UTILITY COMPANIES FROM SHUTTING US OFF AND EXPECTING SUCH HIGH PAYMENTS WE CANT AFFORD!!!!!!!!!!!

Submitted by Debbie Grimmett from Clintontownship, MI

A: Thanks for sharing for your troubles. Utilities are regulated on the state level, so I suspect there is a limit to what the Feds can do. There is a federal program called LIHEAP which gives energy assistance for winter heating and summer cooling, but this money is distributed through state governments so you may want to contact the Michigan LIHEAP office. I did a quick Internet search and here is the contact info in your state... LIHEAP Contact Public Inquiries: 1-800-292-5650 Website: www.michigan.gov/fia/

Answered 09/14/09 17:54:12 by Kevin Hall and Tony Pugh

Q: I have a savings account, under $250,000. What happens to my $ if FDIC runs out of money?

Submitted by Anne from Chicago, Il

A: Rest assured the FDIC won't run out of money unless a meteor strikes Earth, and then your problems will be far greater than your deposits. The question is if you have more than $100,000 but less than $250,000 for how long FDIC will keep insuring the greater amount, and that is still an open question. Does that answer it, if not send a little more detail and I'll take another crack at it.

Answered 09/14/09 17:47:48 by Kevin Hall and Tony Pugh

Q: Do you think with the sweeping overhaul that Congress is claiming to do with the financial sector, will include the mortgage cram down legislation? I ask this for those of us, who are upside down 60% or more and who are owned only by investors. Will the government bail us out?

Submitted by Eric Williams from San Diego

A: House Democrats are keen on cramdown. Senators, who have greater powers to block legislation and thus are more maleable with campaign contributions, are wary of cramdown. Right now opponents have the upper hand, much may depend on the degree to which mortgage servicers actually in good faith modify a significant number of distressed mortgages. The proof will come months from now when we see how many permanent mortgage modifications there are, not just trial modifications. If servicers and their investors dont play ball, pressure will grow for cramdown. Kind of strange that if you own a vacation home, rental property, yacht etc you can renegotiate terms in bankruptcy, but for your primary residence you cannot.

Answered 09/14/09 17:46:14 by Kevin Hall and Tony Pugh

Q: My economics teacher cant be beat on any economy related question, do you know any?

Submitted by Tony Dansa from Long Island

A: Like journalists, economists have an opinion and you are entitled to it. Ask him/her when the Dow will cross 14,000 again and why that date. Ask when income inequality will flatten out and why. Ask whether China's economic model is sustainable and whether it will create capitalists, consumers or both.

Answered 09/14/09 17:43:03 by Kevin Hall and Tony Pugh

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Submitted by Shonda Richard from Monty Herman

A: This came in as garble, if it is a question, please resend

Answered 09/14/09 17:39:52 by Kevin Hall and Tony Pugh

Q: I have read elsewhere that if we factor out the injection of home equity lines into the economy for much of the past decade, there was essentially no growth. Your article states that economists concur that for the past quarter-century our economic growth was fueled by cheap credit and that this is over. As such, with the credit markets all but gone, upon what would we expect future growth to then be based and where will the growth occur? Thank you.

Submitted by John McMurrray from Boise, Idaho

A: Good question. Indeed much of the expansion post 2001 was tied to increasing housing wealth. Lending was against rising home prices, credit extended freely to purchase or upgrade homes, use some of that "cheap" money to buy a car or a 52 inch flat screen TV etc. What will make up the difference? As the global economy recovers, international trade and exports will help take up some of that slack. Some of it will come from a shallow rebound in home construction and some of it will be general business expansion as the economy starts recovering. For the foreseeable future, however, credit will be tight and more costly and that points to a less robust economy as it is harder for entrepreneurs to find start-up capital and costlier for corporations to expand etc. It won't quite be the 1970s again, but it also won't be the roaring 1990s either.

Answered 09/14/09 17:39:30 by Kevin Hall and Tony Pugh