Does the mortgage crisis demand a government bailout?

A year ago, most experts thought not. Sad as the situation was for some homeowners, many experts felt the problem would be confined to those who had gambled on risky loans with eyes open -- borrowers who chose adjustable-rate loans sure to require higher payments later, lenders who invented exotic loans likely to suffer high default rates, hedge funds and other big investors who had lusted after high-yielding mortgage-backed securities.

But things have changed. The mortgage crisis is behind a nationwide drop in home values and a crisis in confidence that is impeding all types of lending. People who did not choose to take risks are suffering, and more and more experts now say some sort of government response is necessary to avert a deep and prolonged recession. (more...)

Victimizing the Borrowers: Predatory Lending's Role in the Subprime Mortgage Crisis

February 20, 2008

The subprime lending problem, just a faint blip on the radar a year ago, has snowballed into a full-blown crisis and is the subject of many proposed remedies. Those include legislation to curtail predatory lending, which is generally thought to be one of the factors that led to the issuing of so many subprime loans to borrowers with poor credit.

But what is predatory lending? And what are the conditions that make it flourish? (more...)

The Economic Stimulus Package: Will It Work, and for Whom?

February 20, 2008

Congress and the White House recently settled on an economic stimulus package with unusual speed, pushing the throttle to pull the economy out of a nosedive. Is this just election-year grandstanding, or does economic stimulus really work? And if it can work, what works best? (more...)

Advice to Investors: Sit Tight and Batten Down the Hatches

January 23, 2008

The worldwide collapse of stock prices has many victims -- pension funds, insurance companies, hedge funds, financial services firms. But those are players who, if they are smart, have the wherewithal to withstand a steep sell-off. Some will even use short-sales or derivatives bets to profit on falling prices.

What about the small investor, the individual who is socking away modest sums for retirement or college costs? Should small investors rush for the sidelines? Or should they view this as a buying opportunity and plough more money into the market? (more...)

Missing the Big Gains: Foreign-Stock Funds and the Benefits of International Diversification

February 06, 2008

In 2007, mutual funds specializing in non-U.S. stocks returned a fat 16%, while funds with diversified holdings in U.S. equities returned just over 6%. In fact, the foreign-stock funds have beaten domestic-stock funds over periods of two, three, five, 10 and 15 years, according to Lipper, the fund-tracking company.

On top of that, owning foreign stocks helps a U.S. investor diversify risk by reducing a portfolio's volatility, thus improving compounding over the long term.

Why is it, then, that so many surveys show that the typical U.S. investor does little more than dabble in foreign stocks? (more...)

A Closer Look at Sovereign Wealth Funds: Secretive, Powerful, Unregulated and Huge

December 12, 2007

When the Abu Dhabi government announced late in November that it was buying 4.9% of Citigroup for $7.5 billion, the general reaction was relief that the firm was finding a way out of the subprime mortgage mess.

The same response followed the early December news that UBS was selling a 10.8% share to the government of Singapore and an unnamed Middle Eastern investor for $11.5 billion, for much the same reason.

But is foreign ownership -- or, more precisely, foreign government ownership -- really a good thing? (more...)

Good, Bad or Ugly --Is It Impossible to Predict What's Ahead for the U.S. Economy?

November 14, 2007

At the end of October, the Federal Reserve gave the financial markets just what they had been asking for: a 0.25% cut in the federal funds rate. But in early November, stocks plunged and the dollar hit a new low. Applause turned into hand-wringing -- then back to applause as the markets rebounded in the middle of the month.

Why can't the experts make up their minds? Is the outlook good or bad? (more...)

The Inventory Code: New Ways Investors Can Cash In on Volatile Commodities

October 31, 2007

Oil is marching toward $100 a barrel, largely due to China's boom. Demand for ethanol is pushing corn prices up. Soybean prices are rising because so many bean fields have been switched to corn. In short, prices of commodities worldwide are soaring, making for frenzied action in commodities futures markets, where traders buy and sell contracts setting prices to be paid months down the road.

Everyone knows that supply and demand govern prices. But much remains unclear about the subtleties of that interaction in the commodities markets -- and about the best ways to wring profits from it. (more...)

How We Got into the Subprime Lending Mess

September 19, 2007

When mortgage default rates started to climb earlier this year, many experts thought the damage would be confined to the minority of issuers that had binged on subprime lending.

It's turning out much worse. Consumer spending is off, the credit crunch is spreading, the housing market is in a slump and the stock market has been shaken. (more...)

The Subprime Blame Game: Where Were the Realtors?

October 17, 2007

It is a scene millions of Americans have been in -- sitting next to a real estate agent at closing to sign the loan contract and other papers for a new home. Often, the buyer has spent months with the agent. And to hear agents tell it, they are indispensable guides through the hazardous home-buying terrain.

How is it, then, that millions of borrowers took on toxic subprime mortgages that could cost them their homes? Why did their agents not warn them off? (more...)

Playing Favorites -- Romantic or Otherwise -- Is a Messy Game in the Workplace

August 08, 2007

The fact that favoritism in the workplace exists is not news, but in high-profile cases, it often makes the news. Two years ago, for example, Harry C. Stonecipher was forced to resign the presidency of aerospace giant Boeing over a relationship with a Boeing executive. This spring, World Bank president Paul Wolfowitz had to resign after being accused of arranging a big raise and promotion for a woman with whom he was having a relationship.

But as anyone who works in an office knows, favoritism isn't confined to love and sex: Family relationships and office friendships can upset co-workers' sense of propriety and fairness, too, and end up undermining an organization's performance. (more...)

June 27, 2007

What are things worth?

The answer seems simple enough. Just look around the marketplace to see what similar items are selling for. But what if your house has a pool, while the one that sold next door doesn't? Unless you are dealing with an item with exact duplicates that are bought and sold every day, like stock in a publicly traded company, it's hard to know just what your item is worth.

It's a devilish problem in the business world, where companies need to account for the fast-changing values of complex financial instruments -- from insurance policies to employee stock options to exotic derivatives -- for which there is no ready sales history. (more...)

The Impact of Hedge Funds on Target Companies' Share Prices: The Returns Are Impressive

May 30, 2007

Hedge funds seem to have a permanent place at the top of the business news. Among the most recent stunners, Blackstone Group announced a $3 billion investment by the Chinese government, capping an earlier announcement that the firm would go public. And a recent survey found that top hedge fund managers make more than $1 billion a year.

Despite the industry's high profile, the 8,800 funds' inner workings remain shrouded. These lightly regulated investment pools for wealthy investors don't report their holdings and say little about their investment strategies. With an estimated $1.2 trillion under management, hedge funds must impact the financial markets. The question is: How? (more...)

Current Controversies in Executive Compensation: 'Issues of Justice and Fairness'

 
May 02, 2007

Although mammoth executive compensation packages at hedge funds -- hundreds of millions of dollars a year for some managers, with a select few topping $1 billion -- have recently been skewered in the business press, public outrage over soaring CEO pay has been growing for years. Is the situation really that bad? (more...)

Subprime Meltdown: Who's to Blame and How Should We Fix It?

March 21, 2007

Troubles in the subprime mortgage industry seem to be spreading. The stock market is in turmoil. Alan Greenspan and other economists say the economy is being hurt. Consumer groups predict that up to two million Americans will lose their homes.

Should the government do something? (more...)