2012 Housing Recovery Fuelled by Affordability

The Mortgage Corner

Housing prices needs one more year to begin to recover, according to several pundits and economists, including Barron’s Magazine and Professor Karl Case, co-creator of the S&P Case-Shiller Home Price Index. And that mostly depends on two factors—increased household formation and record housing affordability. Employment shouldn’t impede the recovery, as the unemployment rate will continue to drop, while the Fed is committed to keep interest rates low through 2014.

JPMorgan Chase CEO Jamie Dimon also said the U.S. housing market is very close to a bottom and there are already signs its improvement is giving a boost to the overall economy, in a CNBC interview. “"I believe we’re very close to the inflection point. People look at prices that are still coming down but all the other signs are flashing green," Dimon said during a job fair in New York for hiring veterans. Housing is more affordable and "the shadow inventory everyone talks about is lower today than it was 12 months ago. It will be a lot lower 12 months from now," he said.

This is mainly because housing affordability conditions have reached the highest level since recordkeeping began in 1970, according to the National Association of Realtors. NAR’s Housing Affordability Index rose to a record high 206.1 in January, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power.

Affordability rose so high in January because the median existing home price fell to it lowest level since the recession--$154,400—while the 30-year fixed mortgage rate held at 4.37 percent. This meant that the monthly payment as a percentage of median income fell to just 12.1 percent.

NAR President Moe Veissi said this latest data underscores buyer opportunities in today’s market. “This is the first time the housing affordability index has broken the two hundred mark, meaning the typical family has roughly double the income needed to purchase a median-priced home,” he said. “For buyers who can qualify for a mortgage, now is a very good time to become a homeowner.”

And household formation is projected to grow from approximately 600,000 in 2011 to the more historical average of 1 million households per year in coming years, says the U.S. Census Bureau.  This should soak up excess existing and new-home inventories that have already dropped to 6 months’ levels.

“According to one recent estimate, the number of excess vacant housing units in the existing housing stock can be attributed to a steep decline in demand during the Great Recession,” says the Census Bureau report. “Household formations (e.g., adult children leaving parents’ households, singles leaving shared housing arrangements, etc.) are the largest component of demand for additions to the housing stock. These new households are accommodated by additions to the housing stock when vacancy rates are low, and are absorbed into the existing vacant stock when vacancy rates are high. Since 1965, the number of households in the US has grown at an average annual rate of 1.5 percent, adding an average of roughly 1.3 million new households per year, according to the Census Bureau’s Housing Vacancy Survey.”

Graph: U.S. Census Bureau

And the Pending Home Sales Index, a forward-looking indicator based on contract signings, eased 0.5 percent to 96.5 in February from 97.0 in January but is 9.2 percent above February 2011 when it was 88.4. The data reflects contracts but not closings.

NAR chief economist Lawrence Yun said we’re seeing the continuation of an uneven but higher sales pattern. “The spring home buying season looks bright because of an elevated level of contract offers so far this year,” he said. “If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that’s what we’re expecting with sales rising 7 to 10 percent in 2012.”

Harlan Green © 2012

States are Making A Comeback

Financial FAQs

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for January 2012 that are a measure of current activity, and so a good measure of how widespread is the recovery. In the past month, the indexes increased in 48 states, decreased in one (Alaska), and remained unchanged in one (Wisconsin) for a one-month diffusion index of 94. Over the past three months, the indexes increased in 48 states, decreased in one, and remained unchanged in one for a three-month diffusion index of 94, said Calculated Risk.

Graph: Calculated Risk

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Graph: Philadelphia Fed

Pundits and economists will soon ask why Wisconsin is lagging. It also had the lowest job creation rate in 2011. Was it because of Governor Scott Walker’s abolishment of union collective bargaining rights? Wisconsin has been hurting ever since. Time and the fall recall election of Governor Walker will tell if its voters realize this.

Harlan Green © 2012

HARP 2.0 Loan Modifications Begin This Week

The Mortgage Corner

The revamped HARP 2.0 loan modification program for Fannie Mae and Freddie Mac loans kicks off this week, which allows unlimited loan-to-values for existing 30 or 15-year fixed rate mortgages owned by Fannie and Freddie, and maximum 105 percent ltvs for adjustable rate mortgages. It should stimulate as many as 9 million refinances of conforming loans, reports Fannie Mae in it press release.

And, nationwide housing starts edged down 1.1 percent to a seasonally adjusted annual rate of 698,000 units in February. This was the second-best pace of new construction since October of 2008 following an upwardly revised 706,000-unit pace in January.

Graph: Inside Debt

"Builders are reporting increased buyer interest and are expecting demand for new homes to improve in the coming months, but continue to exercise caution regarding new projects until that interest translates into more signed sales contracts," noted Barry Rutenberg, chairman of the National Association of Home Builders (NAHB). "This process is certainly being slowed by today's overly tight lending conditions, the difficulty of obtaining accurate appraisals on new construction and competition from distressed properties that can make it tough for prospective new-home buyers to sell an existing home."

Here are the HARP 2.0 basics:

• Unlimited LTV, CLTV, and HCLTV
• No minimum credit score
• All occupancy is acceptable (OO, 2nd HM, NOO, 1-4 Units)
• Income documentation might be required, depending on u/w approval
• Rate/Term only
• Max 2X60 mortgage late payments in 2 years
• Borrower must benefit with either lower payment/rate, more stable payment (longer ARM fixed rate period, or from 30 to 15 or 25 fixed rate)
• Must be originated prior to June, 2009

Prospective borrowers can look up the Fannie Mae and Freddie Mac websites to ascertain if their mortgages are eligible for the program.

\http://www.fanniemae.com/loanlookup/

https://ww3.freddiemac.com/corporate/

Harlan Green © 2012

Greater Lawlessness Causes Great Recessions

Popular Economics Weekly

We know Greg Smith’s unveiling of Goldman Sachs’ ‘culture’ of GS profits ahead of clients’ interests was nothing new. And that real laws were broken—from conflicts of interest to outright fraud. The 2010 congressional hearings unveiled much of the double dealing that was rationalized by Goldman Sachs’ buyer-beware code—its clients should be sophisticated enough to know that Goldman would try to maximize its own profits, before its clients’ profits.

But other laws were broken; as well as economic rules that govern sound business practices in the runup to the Great Recession. Pundits have traced the decline of Wall Street ethics from the morphing of partnership-owned investment banks to corporations, as well as the enormous growth of financial markets that bred outright greed.

But there is little mention of how it caused our economic decline into the Great Recession. What was behind this culture of greed and unethical behavior; a culture of greater lawlessness can be traced back to the early 1980s when President Ronald Reagan trumpeted that government was the problem and more private enterprise the solution for greater prosperity.

In attempting to downgrade governmental powers, conservative regimes in particular began to consciously disregard the laws of our land—from not enforcing existing regulations, to Iran-contra gun-running in President Reagan’s case, to abrogating international treaties such as START nuclear non-proliferation, and muzzling Department of Justice Attorneys General under GW Bush, to name just a few cases.

The number of convicted criminals in those administrations tells part of the story. President Reagan’s administration was marked by multiple scandals, resulting in the investigation, indictment, or conviction of over 138 administration officials, the largest number for any U.S. President.

And Salon.com had documented 34 incidents of law-breaking in just the first 4 years of GW Bush’s Presidency, the most blatant being unmasking covert CIA operative Valerie Plame, and its fabricated claims that Iraq had weapons of mass destruction.

But even more damage was done via blatantly disregarded economic laws of successive Republican administrations. It was really the attempt by Big Business to unravel the economic safeguards of the New Deal, first spelled out in Paul Krugman’s The Great Unraveling, by advocating massive budget deficits to pay for a Pax Americana—with especially severe consequences for the old and poor.

“Deficits don’t matter” was the infamous chant of Bush VP Dick Cheney. At a time when economic inequality had risen to levels last seen in the 1920s, these administrations wanted to divert attention from a vanishing social safety net by proposing the ago-old Darwinian solution—the free market. For only the fittest will survive in a world that is ruled by self-interest, rather than laws and regulations.

The United States, beginning in the 1980s once again became the most ardent advocate and practitioner of the oldest form of capitalism, now a primitive relic of 18^th century enlightenment. This is but one part of our aging democracy that U.S. hegemonists put up as the model for western civilization. But it is a very imperfect model for the rest of the world as well.

A 2002 survey of 38,000 people in 44 countries by the Pew Center for the People and the Press found what they think of our American Way. “Since 2000, favorability ratings for the U.S. have fallen in 19 of the 27 countries where trend benchmarks are available…pluralities in most of the nations surveyed complain about American unilateralism,” says the study. They think we disregard their interests in pursuit of our own self-interest.

Few dispute that our capitalistic economic system has won the day. It produces great wealth, particularly for those at the top of the wealth pyramid. Robert Reich’s book, “The Future of Success” said it best: “By the end of the (20th) century, the richest 1 percent of American families, comprising 2.7 million people, had as many dollars to spend after taxes as the bottom 100 million.”

But not for the 99 percent majority, in other words. Why so much greed, and willful lawlessness? This last happened in the 1920s run up to the Great Depression. Fear overruled both laws and common sense, so that the lobbyists of self-interest came to the fore. Our economy was being transformed from a rural to industrial economy, which drove workers into the cities. Wages plunged along with prices, and so did economic activity for more than 10 years. It was only the New Deal that brought benefits to the larger majority of citizens and leveled the economic playing field.

The same has happened today. Conservatives are again ignoring basic economic  truths in their attempt to destroy our working class as we know it, by passing laws that ban collective bargaining in states like Wisconsin, or right to work laws that say workers do not have to pay union dues even though they derive the benefits from belonging to a union. We know the results in Wisconsin after one year. Employment has plunged and is the worst of the Midwest states that surround it, according to the Economic Policy Institute.

Graph: EPI

It is no coincidence that those 23 states that have passed right to work laws are also the poorest states, with the highest income inequality, lowest educational achievement, and receive the most in public subsidies. Taking incomes and wealth away from workers in those states can only make them poorer in relation to other states and regions, and a continuing drain on public finances.

That is the real lesson of our greater lawlessness. By choosing to break laws and regulations that govern economic activity, economic activity is being pushed back to levels of past centuries. For workers will only have the incentive to produce more and better products and services when they have the incentive to do so.

In the end, such greater lawlessness means a disregard for everyone but one’s own clan or tribe, a greater selfishness, and no country can survive such a breakdown in social welfare. That is the lesson learned from the Great Recession. Policies that ignore economic as well as civil laws, that continue to divert incomes and wealth to the wealthiest, impoverish the majority.

Harlan Green © 2012

Employment Much Better Than Data

Financial FAQs
The pundits and some economists just don’t seem to get it. Friday’s unemployment report was gangbusters. The gains were not just ‘ok’, per Marketwatch, or are at a ‘speed-walk’, per Barron’s Gene Epstein. Gains are in fact accelerating with private payrolls’ 3-month average now 251,000, and unemployment rate steady at 8.3 percent, even with 428,000 re-entering the workforce in February that had stopped looking for work.

Graph: CBPP

This is the 24^th straight month of private-sector job creation, with payrolls growing by 3.9 million jobs (a pace of 164,000 jobs a month) since February 2010, reports the Center on Budget and Policy Priorities. Total nonfarm employment (private plus government jobs) has grown by 3.5 million jobs over the same period, or 144,000 a month. The loss of 485,000 government jobs over this period was dominated by a loss of 347,000 local government jobs.
One reason for the muted optimism is that last year payrolls actually increased 261,000 through April of last year, and then plunged. This was of course due to the Japanese Tsumani, political gridlock over the budget deficit that caused an S&P credit downgrade of U.S. debt, and euro worries. But even then, job growth was better than the data, which originally showed no jobs growth in August, for instance, that turned into 103,000 nonfarm payroll jobs when revised, and an additional 50,000 jobs in September.
It was the initial jobs estimates that caused recession talk at that time, and consumer and business confidence to plunge. The same underestimation could be happening this year, also, as December and January payrolls were revised upward by 61,000. On top of that, the Labor Department’s so-called ‘payroll-compatible’ Household Survey, which subtracts agricultural and self-employed workers from the separate Household Survey, showed 879,000 jobs created in February, and a 263,000 average over the past 12 months, vs. a 168,000 per month average from the nonfarm payrolls survey.  The real average is probably somewhere between the two surveys done by the Bureau of Labor Statistics.
We also know from consumer borrowing data that consumers are spending as if they believe the jobs picture will continue to improve, based on a major five-month surge in outstanding credit, the latest a $17.8 billion gain in January versus a revised $16.3 billion gain in December. During the five months, outstanding credit has jumped $68.5 billion. At $2.512 trillion, total outstanding credit is only $70 billion below its July 2008 peak of $2.582 trillion.

Graph: Econoday

Are there any flies in the ointment of continued strong U.S. growth, besides worries over the euro and Middle East stability? The primary one is the federal budget deficit, and there is but one way to fix it—by restoring the Clinton-era tax rates that created 4 consecutive years of budget surpluses. It would correct the mistakes of the Bush Administration that chose to waste those surpluses on two wars and tax breaks for those who didn’t need it. This resulted in soaring corporate profits, whose executives chose to invest in excessive salaries and risky market speculation, rather than boosting the jobs and incomes of ordinary citizens.

Graph: CBPP

The Center for Budget Policies and Priorities said it best:

• The average income of the top 1 percent of households rose by nearly 12 percent from 2009 to 2010, after adjusting for inflation.  The average income growth for the richest households at the very top of the income distribution was even stronger.
• The average income of the bottom 90 percent of households, in contrast, which fell substantially during the recession in both 2008 and 2009, remained at its lowest level since 1983, in inflation-adjusted dollars.   

So without putting more money back into their pockets, consumers and the middle class in particular will not be able to bring incomes and job growth back to Clinton-era numbers—for instance, 22.3 million additional jobs during his 8 years, vs. the 5 million jobs created during GW Bush’s tenure.
Harlan Green © 2012

2012 Economic Growth Accelerating

Popular Economics Weekly

Economic growth is finally accelerating. Consumer demand plus manufacturing are continuing to increase, and even the fourth quarter was a little stronger as Q4 GDP growth broke the psychological 3 percent boundary. The Commerce Department revised fourth quarter GDP growth up to 3.0 percent from the initial estimate of 2.8 percent.  The latest figure compares to a modest 1.8 percent rise in the third quarter.

Graph: Econoday

The major reason was increased consumer spending. Consumer spending in January improved to a 0.2 percent gain from no change in December.   The goods components were stronger as durables gained 0.9 percent after a 0.5 percent increase in December.

Graph: Econoday

This mainly due to the increase in household debt, as banks are easing their credit for consumers. For the first time since the Great Recession, household debt saw a quarterly gain, according to Federal Reserve data released Thursday that shows American deleveraging has at the very least paused. Household debt edged up 0.3 percent in the fourth quarter, the Fed reported in its flow-of-funds report, as consumer credit surged an annualized 7 percent. Household debt had declined for 13 consecutive periods before the slender fourth-quarter advance.

Spending has been increasing from 4 to 5 percent per year for the past 2 years, mainly from automobile sales. Total unit sales jumped 6.5 percent in the month to an annual rate of 15.1 million. The gain was centered in cars, especially imports. But this aside, gains in February data were strong and do include trucks. January sales actually squeaked higher than the cash-for-clunkers surge in August 2009 and February notably topped that month’s 14.2 million unit sales pace, said Econoday.

Graph: Econoday

And as a prelude to Friday’s unemployment report, Automatic Data Processing, or ADP, a payroll servicing company, estimates that February private payrolls in Friday's employment report will rise by 216,000, up solidly from January's revised rise of 173,000.

Graph: Econoday

Even better news was that service sector activity, which is some 80 percent of U.S. business, continues to expand. Rising orders headline a very positive non-manufacturing report from the ISM where the headline composite index is up five tenths to a better-than-expected level of 57.3. But the composite may understate underlying strength in the bulk of the nation's economy where order levels are building with new orders up nearly two points to a very strong 61.2 vs January's already very strong 59.4. Strength in new orders is feeding a build in backlog orders which rose 3.5 points to 53.0 which is a strong level for this reading.

Graph: Econoday

All-in-all we are seeing a very good start for 2012, which is also a presidential election year, don’t forget. And that means the Obama Administration (and Federal Reserve) will be doing all government can do to boost growth.

Harlan Green © 2012

Attacks on Women’s Contraception Harms Our Economic Health

Popular Economics Weekly

Republicans, whether knowingly or unknowingly, not only court political disaster when they attack women’s contraception, but risk economic disaster as well, since without readily available contraception—from the pill onward—women would not have been able to contribute to economic growth as they have today and boost family incomes, when males’ head of households incomes began a steady decline in the 1970s.

This is a well-known fact, yet Republicans led by the religious extremists in their party, don’t want to realize that without women’s work outside of the family—which was severely restricted before birth control and family planning became possible in the 1970s—our economy would be in much more dire straits than it is today.

In effect, Republicans really are saying they want to take away a woman’s ability to earn her own living, necessary in this modern age with divorce so prevalent, and family incomes declining. Women constituted 47 percent of the American workforce, will remain 30 years at work, and the typical American family today is the dual-earner family, says a 2000 academic paper, entitled Professional Women, The Continuing Struggle for Acceptance and Equality. Women’s work numbers are even higher today after the worst recession since the Great Depression.

The paper’s research said employed women, regardless of marital status, reported greater happiness than the nonemployed women, and are less depressed. In fact, women who participate in multiple roles (such as mother and working professional), actually experience lower levels of stress-related mental and physical problems and feel generally better than their cohorts who engage in few roles. So women’s work also strengthens families, contrary to right wing dogma that says she must remain in the kitchen to support ‘family values’.

It wasn’t always so. Rising household incomes after WWII had helped to establish our middle class. But a combination of circumstances beginning in the 1970s, including the growing power of Big Business to weaken labor laws that took away the earning power of men, caused household incomes to begin a steady decline. In fact, incomes could no longer even keep up with inflation, as detailed in Jacob Hacker and Paul Pierson’s Winner Take All Politics: How Washington Made the Rich Richer--and Turned Its Back on the Middle Class.

The widespread availability of contraceptives and birth control in the 1970s that enabled intelligent family planning and women’s wholesale entry into the workforce, is documented with countless research, such as a National Bureau of Economic Research working paper by Harvard economists Claudia Goldin and Lawrence Katz.

Wikipedia also cites women’s history from home base to workforce. “The fourth phase, known as The Quiet Revolution, began in the late 1970s and continues on today. Beginning in the 1970s women began to flood colleges and grad schools. They began to enter profession like medicine, law, dental and business. More women were going to college and expected to be employed at the age of 35, as opposed to past generations that only worked intermittently due to marriage and childbirth.”

Wikipedia continues: “The reasons for this big jump in the 1970s has been attributed by some scholars to widespread access to the birth control pill. While "the pill" was medically available in the 1960s, numerous laws restricted access to it. See, e.g., Griswold v. Connecticut, 381 U.S. 479 (1965) (overturning a Connecticut statute barring access to contraceptives) and Eisenstadt v. Baird, 405 U.S. 438 (1972) (establishing the right of unmarried people to access contraception).”

It should also be obvious that women’s health is crucial to a family’s physical (as well as economic) health. So attacks on women’s availability of contraceptives is a direct threat to the family’s health and well-being. These attacks take many forms, including forced vaginal ultrasound before an abortion is allowed in Texas, as well as nationally with the Blunt U.S. Senate amendment (that was barely defeated) that allowed employers to ban insurance coverage for contraceptives based on moral grounds—theirs, not a woman’s.

Dr. Hal C Lawrence III, as cited in the New York Times, the executive vice president of the American Congress of Obstetricians and Gynecologists, opposed the Blunt amendment and affirmed the values of contraception, saying, “it improves and saves babies lives, improves maternal health and can be life-saving for women with serious medical problems.”

Senator Barbara Boxer has called it a “systematic war against women” in Senate hearings on the Blunt amendment. But it is in reality a war against women in the workplace, where women have in fact not yet achieved income equality with men.

As cited in a 2010 Center For American Progess editorial, without contraception, women cannot plan their pregnancies, and that need is more important than ever. By the end of 2009, men had lost 7 out of 10 jobs in the Great Recession. Some two million working wives had an unemployed husband, making women’s income even more critical to a family’s economic well-being.

Need we say more? The Republican’s attack on women’s contraceptive rights is therefore not only an attempt to put her back in the 1950s kitchen, but an attack on America’s overall economic health.

Harlan Green © 2012

Are We Ready For The ‘Big Data’ Revolution?

Popular Economics Weekly

Is the Information Age intimidating? Have you been struck with information overload? Help may be on the way. There is so much in the news about it, but little on how to manage so much information inundating us daily—not only via computers and emails, but our 24/7 news cycle. But research is beginning to show us how we can benefit from such increasingly available information.

Kinsey and Company consulting has taken the side of businesses in its McKinsey Quarterly report, Are You Ready for the Era of ‘Big Data’? “In 15 of the US economy’s 17 sectors, companies with more than 1,000 employees store, on average, over 235 terabytes of data—more data than is contained in the US Library of Congress”, said its report.

All of this new information is laden with implications for leaders and their enterprises, said the Kinsey report. “Emerging academic research suggests that companies that use data and business analytics to guide decision making are more productive and experience higher returns on equity than competitors that don’t. That’s consistent with research we’ve conducted showing that “networked organizations” can gain an edge by opening information conduits internally and by engaging customers and suppliers strategically through Web-based exchanges of information.”

And the big data revolution will result in much greater efficiency on how private households use information as well. Yale Economist Robert Shiller looks into the future in his book, The New Financial Order, Risk in the 21^st Century. In it Shiller describes six fundamental ideas for using modern information technology and advanced financial theory to temper basic risks that have been ignored by risk management institutions--risks to the value of our jobs and our homes, to the vitality of our communities, and to the very stability of national economies.

“Right now we are witnessing an explosion of new information systems, payments systems, electronic markets, online personal financial planners,” he says, “and other technologically induced economic innovations, and consequently much in our economy will be changed within just a few years. Almost all of our economy will be transformed within just a few decades.”

Informed by a comprehensive risk information database, this new financial order would include global markets for trading risks and exploiting myriad new financial opportunities, says Amazon’s description of The New Financial Order. “From inequality insurance to intergenerational social security. Just as developments in insuring risks to life, health, and catastrophe have given us a quality of life unimaginable a century ago, so Shiller's plan for securing crucial assets promises to substantially enrich our condition.”

As information becomes more readily accessible across sectors, says McKinsey, it can threaten companies that have relied on proprietary data as a competitive asset. The real-estate industry, for example, trades on privileged access to transaction data and tightly held knowledge of the bid and ask behavior of buyers, information owned by Brokers. Both require significant expense and effort to acquire. In recent years, however, online specialists in real-estate data and analytics have started to bypass agents, permitting buyers and sellers to exchange perspectives on the value of properties and creating parallel sources for real-estate data.

So the results will give us a better understanding of our own finances as well. But greater access to personal information that big data often demands will place a spotlight on another tension, between privacy and convenience, says McKinsey. Their research shows that consumers benefit greatly from data in lower prices, a better alignment of products with consumer needs, and lifestyle improvements that range from better health to more fluid social interactions. The tradeoff is less privacy, as companies collect more information on individual consumer’s behavior.

Professor Shiller is one of the economic trail blazers of the information revolution. Not only did he study U.S. stock market behavior over the last century in his book, “Irrational Exuberance” (Princeton U. Press, Princeton, N.J., 2000) that predicted the dot-com implosion (and the housing bubble, in its second edition). He and Wellesley Professor emeritus Karl Case have set up the S&P Case-Shiller Home Price Index that tracks the historical swing of home prices in 10 and 20 metropolitan markets, which has helped to establish a futures’ market for home prices, and in turn helps to make such market swings more predictable.

Establishing and disseminating the historical record should also help policy makers avoid endlessly repeating history’s mistakes, which is something easy for the general public to understand. I.e., historical study of the Great Depression is one reason Presidents Bush and Obama were able to inject enough stimulus into our economy to avoid another Great Depression. And it helps bring about our own greater awareness of the financial environment that affects us as consumers and investors.

So the information age is a two-edged sword. The greater access of consumers to information via the Internet means companies will collect more privately held information of consumers. But, conversely, as more information becomes public, less can be hidden by insiders such as financial traders, corporate executives, and the like. More transparent financial markets should also decrease the occurrence of busted asset bubbles—two of which we have experienced just since 2000 (i.e., dot-com and housing)—which were mainly based on irrational exuberance—i.e., ignorance of the underlying facts.

How to manage such information then becomes ever more one of individual choice, thereby placing more responsibility on the informed consumer. That is really the sword’s other edge. More than ever, we are living in a ‘buyer-beware’ world of individual decision-making, requiring ever higher levels of education.

Harlan Green © 2012