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Pearlstein: Global and U.S. Markets

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Steven Pearlstein
Washington Post Columnist
Wednesday, January 23, 2008; 11:00 AM

Washington Post business columnist Steven Pearlstein was online Wednesday, Jan. 23, at 11 a.m. ET to discuss the Fed's decision to cut rates and what's happening with Wall Street and the global markets.

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Read today's column: Only When the Bubble Bursts.

The transcript follows.

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About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

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Washington, D.C.: Do you anticipate lower prices this year for consumer goods and services in response to the financial turmoil, or is the high price of oil going to keep prices up? As an example, it doesn't seem like the travel industry is responding to the probability of fewer customers--in fact, airfares, hotels, etc. seem to be continuing to go higher.

Steven Pearlstein: The big drivers to inflation right now are energy and food, the prices for which are set on global markets. A global slowdown should take some of the pressure off those, so last year's increases are unlikely to be matched. Since inflation measures a rate of change, I doubt inflation from those factors will be as high as last year.

At the same time, prices of some things will come down, as you point out, like air fares and hotels and the price of homes.

But the trouble is that workers are demanding pay raises to cover the inflation of the last two years, and if they get it -- a big if -- then that would trigger yet more price increases in many sectors, and that could change the inflation psychology.

So its a mixed picture.

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Asheville, N.C.: Recession is exactly what we need.

We are already the most productive society around, and overconsuming and overextended in debt. Is another jolt of stimulation really what we need? This policy is for the investment class, not for the overstressed public. We should all be learning to live better with less.

Hype is not good.

Steven Pearlstein: We do need the corrective things that recessions do. But please let's not be cavalier about this: recessions involve a lot of pain to people who were living quite within their means, thank you very much. I'm not saying the government should try to prevent it. But it does need to strengthen the safety net.

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Annandale, Va.: I don't think there's been enough attention and criticism focused on some of the companies like Merrill Lynch, Countrywide, CitiBank and others that in effect have dragged the economy down because of huge write-offs they've taken for bad loans. What's your thought on this?

Steven Pearlstein: I'd phrase it a bit differently: they, and their friends in the rating agencies, with the approval of regulators, engaged in risky behavior that made them lots of money in the short run but in the long run not only hurt their own shareholders, but caused a financial crisis and a recession. For a great walk-through on this, you should read Bob Samuelson's wonderful column in today's Post.

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washingtonpost.com: Capitalism's Enemies Within by Robert J. Samuelson, Post, Jan. 23, 2008

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New Providence, N.J.: Have you heard any rumblings about whether stable-value funds may be vulnerable to fallout from the subprime mess? Though they are a generally conservative staple in 401(k)s, their investments often do include mortgage-backed securities, among other things. Is this another domino that's likely to fall at some point?

Steven Pearlstein: Its possible yes, but seems to be increasingly unlikely. That's because most of that asset-backed short-term paper was issued by spinoffs of big banks which have now agreed to step in and assume responsibility for these entities (maybe you've heard of them: SUVs). And by taking these obligations onto their own balance sheet, they essentially assure that the short-term paper will be paid off, which is why they had to take big writeoffs to account for the difference between the par value of the paper and the markt value, today, of the assets that secured the paper.

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Charlottesville, Va.: Quick real estate question: I have a 7/1 ARM that will reset in 2010. Plan to stay in the house till at least 2013. I have excellent credit, and owe about $250K on a house valued at $550K. Should I refinance now, or wait for rates to drop more?

Steven Pearlstein: Hard to answer because you forgot to say what your current rate is. But I doubt the Fed is finished cutting rates yet, so you may want to wait for a couple of weeks.

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Northwest D.C.: I think this whole mortgage meltdown/credit crisis issue just goes to show that these corporate pharoahs aren't a smart as everybody thinks they are. All of them, across the entire world got this whole thing wrong. They simply don't deserve the excessive pay packages that they recieve, and you will never convince me otherwise.

I would also like to commment on the poor regulation. I tend to be a free-market/little regulation guy, and I'm not really upset with the government allowing all of theses new financial "products" that led to this crisis. I am upset with all of the mergers that are happening (and continue to happen) in the financial world. Our banking system in a lot of ways is the backbone of our country, why are we letting it be controlled by fewer and fewer decision makers who dont have a great track record ???? What happens when the foreign invetors who are saving us now decide they dont want to fix our next crisis? Who comes to save us then???

Steven Pearlstein: All great points. Thanks.

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potomac, Md.: Is a depression a likely possibility?

Steven Pearlstein: Not likely. My best guess, and it is only that, would be a fairly moderate recession that gives way to a very shallow recession (or negligible growth) that lasts for a couple of years.

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Los Angeles, C.A.: George Bush and the Republican controlled Congress set the U.S. economy on its current negative trajectory. It started with Bush's tax cuts, escalated with excessive "pork barrel" spending, accelerated with WMD-less Iraq war spending and continued with the $41+ billion/year Medicare Drug. Bush never vetoed spending bills when his Republican cohorts controlled Congress and never proposed significant spending cuts.

With the U.S. Economy in or nearing recession (i.e., sub-prime mortgage crisis, declining business profits and stock market prices and personal/credit-card debt increases -- high oil prices don't help), Bush's solution is more Federal spending -- euphemistically referred to as stimulus -- principally financed through additional foreign borrowing and National Debt increases.

Republicans running for President propose making Bush's tax cuts permanent. However, they're just as irresponsible as Bush since they don't balance that with spending cuts but merely pass the debt to future generations. Isn't this proof that Bush and Republicans running for President are not truly committed to so-called conservative economic principles but are just pandering politicians who resort to handing out more government money (those rebates and no-bid contracts) to woo voters and reward supporters?

Steven Pearlstein: I make no brief for the Bush tax cuts but, I'm sorry, you have overstated the impact of federal spending and deficits on the economy. Obviously, it contributed to a situation where the country lived beyond its means and ran a huge and unsustainable current account deficit. But it wasn't the primary cause, not even close.

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Edgewater, Md.: Mr. Pearstein - thank you for taking my question. I've wondered for some years if one of the very significant factors in rising home prices has not been the transaction cost. When look at realty fees, transfer taxes, moving expenses, extra furniture, etc. It appears that the cost of selling a $400K residence and buying a $400K replacement is probably between 40K and 50K so the seller has to get $450K to break even. I'm wondering if some of this "virtual appreciation" hasn't been a large part of the problem with the over pricing of homes.

Steven Pearlstein: The seller can ask for $450,000, but if someone isn't willing to pay it, then he doesn't get it.

No, the reason someone was willing to pay it is that they may have had a false sense that the price would keep rising at 10 percent a year forever. Or maybe they were willing to pay $450,000 because, with mortgage rates so low, and no downpayment, they thought they could afford the monthly payments.

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Appleton, Wisc.: What do you think will happen to the dollar, in light of trade imbalances and budget deficits? Do you think the Emerging Markets is/was in a bubble or an alternative safe haven as some think?

Steven Pearlstein: Its going to be complicated over the next year, the dollar thing. The dollar generally drifts down with interest rates, but not if interest rates elsewhere also drift down and economic activity slows with it. On the other hand, the trade deficits and budget deficits are likely to rise, which would be bad for the dollar. On the other hand, if oil prices and gold prices continue to moderate, that would be good for the dollar.

Get my point? It's really hard to predict currency movements over the short and medium term. Long term, the dollar probably still has a way to go, down, before it is priced against most currencies, to reflect the lowered standard of living we are going to have to get used to as a country.

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Bernardsville, N.J.: Are the Asian/European markets, but especially the Asian markets, part of a speculative bubble that is beginning to show signs of popping as a result of weaknesses in the American markets? Also, if these foreign markets continue to decline, what will it mean for foreign investment in the US market, particularly in U.S. banks, some of whom have been relying on foreign investment to bolster them?

Steven Pearlstein: Good questions. Not much of a bubble in Old Europe, except for property and stock bubbles in Ireland and Spain, which are already being unwound. Not sure about eastern Europe. Russia definitely yes. There are big property and stock bubble in China. I doubt any of these bubbles survive the current financial shakeout.

Those foreign investors you speak of have tons of dollar and are getting more every day, so if they want to invest in the U.S. and in its banks, they will have the wherewithall.

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Anthony, N.M.: How can any stimulus package work in a service economy? Always before stimulating a production econmy could work at least a little.

Steven Pearlstein: There's no particular problem there. At the margin, people demand services as they do goods. When you go to a restaurant, that's a service. Or take a trip, that involves lots of services. Or hire a carpenter to fix the roof, that's a service.

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Alexandria, Va.: Strange idea but it seems that we should start regulating pricing on certain items and maybe regulate more that more goods MUST be produced in the U.S. It seems the US companies overprice a lot of things it produces just because they can and are greedy for profit.

Steven Pearlstein: All bad ideas, in my opinion. It never worked very well in Russia and China, and people in both countries are much happier and richer today now that they basically let the market set prices. The one place where they still do it is North Korea, and that's an economic basket case.

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Shelton, Wash.: Once we hit bottom, what about government support of alternative energy (house design, solar, geothermal), retrofitting standing homes to be more energy efficient...as a means of creating jobs?

Steven Pearlstein: Would be a good use of long-term investment funds. Yes.

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Rochester, Mn.: Mr. Pearlstein,

I feel I am pretty diversified in my retirement portfolio with domestic and international large, mid, small caps, both value and growth along with U.S. and international REITs. I also have at least 20 years before retirement. What further diversification is needed? Commodities in the form of an ETF? I live in an agricultural state so is farmland a valid option to consider? Thanks tons, as always, for these opportunities to chat. Wash Post needs to deliver in Mn.!

Steven Pearlstein: I'm a bit of a skeptic on ETFs, but there are certainly other ways to invest in commodities without having to play directly on the futures market. Otherwise, you seem to have a handle on things. Obviously, you might consider rotating some of your investments to stocks that pay higher dividends and have low downside price risks, to ride out the storm.

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Arlington, Va.: Those "players" from those companies that made out like bandits but causes this collapse should all be rounded up, taken to court, and thrown in the slammer, their assets taken and accounts taken and the money given back to stock holders.

No different then the Enron scammers, just another canvas.

Steven Pearlstein: Maybe that's a bit harsh, except for the money part.

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Maryland: Your statement, that Countrywide and others "engaged in risky behavior that made them lots of money in the short run but in the long run not only hurt their own shareholders, but caused a financial crisis and a recession" doesn't address the issue of redress. How are the INDIVIDUALS that profited from this risky behavior being punished?

Steven Pearlstein: They're not unless they engaged in fraud and get caught. Although you have to remember that, say, in the case of Countrywide, nobody has suffered more from the decline in its stock price than its founder and chief executive. That doesn't mean he leaves with nothing. But his net worth was cut to a fraction of what he once thought it was.

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New Hampshire: After listening to Judd Gregg this morning, I began to think that the Republicans won't sign off on any relief for payroll-only voters. Do you think that's true? If so, are they making a mistake? And will it hurt the Democrats?

Steven Pearlstein: The Republicans will come around on this, I imagine. Don't want to get blamed for having no stimulus package, particularly one supported by the President and the leadership.

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The Hague, N.L.: Thanks for an interesting piece on yesterday's action by the Fed.The markets hiccuped and the Fed flinched. It's hard to say what that will do in the longer term (more than a couple of weeks).Now we have a few points to keep in mind:

1. What happens when next quarter's earnings from banks and retailers are dismal? We only have so far to go in lowering rates to stimulate the economy. What tricks will the Fed use then?

2. As the Fed lowers rates, the dollar tanks and inflation picks up. That's not a desirable outcome.

3. The Fed does not operate a time machine. Lowering rates will not take us back a couple of years to a time when real estate prices were rising and people were spending. Falling house prices are still with us and credit is tightening. Our trading partners need to sell to us to keep growing, but they are sounding the alarm on financing our reckless ways by buying into a falling currency and a failing economy.

In closing, how productive is this rate cut, really? Rates are still at historically low levels. Rate cuts of late do not seem to encourage banks to loan. What lowering rates may do is force the ECD to lower its rates because the Euro is getting to be a drag on exports. This will be a race to the bottom leading to inflation for all and a nice recession down the road that will be bigger than what we might have to deal with now.

Wow that was long winded!

Steven Pearlstein: Yeah, it was. I know the problem, though. It looks like the first draft of one of my columns.

You have to consider the context. Lowering interest rates to historically low levels in the middle of a boom causes a bubble. Lowering rates at the outset of a recession, in the middle of a credit crunch, does not cause bubble. People aren't going out and speculating in real estate at this point, no matter what the Fed does. That's why they say its a bit like pushing on a string.

The trick will be to begin moving back up as soon as things stabilize and not leave them there too long.

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Rolla, Mo.: I thought I was smart by going heavier in international (mix of developing and developed nation mutual funds) stocks over the past couple of years, and that the US economy would have less and less effect on those stocks. Am I wrong?

Steven Pearlstein: No, I don't think so.

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Freising, Germany: I wonder often about the future of Western business culture. An article about the debt related fall of the Ottoman Empire (http://www.ft.com/cms/s/6667a18a-b888-11dc-893b-0000779fd2ac.html) didn't help. With upwards of 1.5 billion people, China seems destined to achieve the status of eventually having the world's biggest economy.

What is your opinion of the U.S.'s continually rising national debt and the willingness of other nations to finance this debt?

Steven Pearlstein: To say a country has the biggest economy doesn't really have much meaning. If I cared about being rich, I'd rather live in Switzerland than China. What matters is GDP per person.

As to other nation's financing our debt, many of them don't really have much choice, do they, if they want to keep their currencies roughly pegged to ours, which is what the Chinese, other Asian export countries, and the Middle East oil countries all do. They aren't just going to put the dollars under the mattress. And if they aren't going to exchange them for their own currencies, then they have to buy dollar-denominated assets. Since Treasury bonds are the safest and most liquid, they'll continue to buy those, and that is how they finance our current account deficit, in siginficant part.

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Ogden, Utah: Two questions, steve -- one, where is this $145 billion coming from? new taxes? Visa?

Second -- when will the government, if ever, reward savers? Every time the banks and credit companies get in trouble loaning out too much money to people who spend it all, and then some, the fed has to ride to the rescue, the donald trump rule about when you owe the bank $8 billion and all that. But this lowers interest rates and hurts savers. Shouldn't someone, somewhere, reward savers for once?

Steven Pearlstein: Visa.

Savings is its own reward. It shouldn't need more government incentives beyond those we already have, like tax-free savings account and no tax on unrealized capital gains.

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Arlington, Va.: Is it true that the rebates will only be for people making under $100,000 a year even if they paid no taxes? I don't make much over that amount but in this area with the cost of living and commuting I still barely manage to make ends meet sometimes. How can it be fair to take tax money from people that max out on SS tax and give it to people that pay almost no tax? Is this just a stereotypical wealth redistribution plan?

Steven Pearlstein: Look, let's not get too excited about the distributional aspects of this stimulus plan. The main idea is to get money in the hands of those who need it, not rectify the longterm income trends.

Over the years, we have made the tax code more progressive by basically exempting low income wage earners from the income tax (but not the payroll Social Security and Medicare tax). So you can't give them a tax break or rebate because they don't pay income taxes. If you're aim, however, is to get money in the hands of people who will spend it (and not save it or use it to pay down debt), those are your best prospects. You can do it a number of ways, but its probably a good idea. And, in truth, as hard a time as you are having, they are probably having a harder time these days.

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danvers, Ma.: It appears that even after 75 bips the new fed funds target is STILL higher than the 10 year treasury yield. Isn't this contractionary?

Steven Pearlstein: Don't read too much into that. Investors have been buying up Treasuries after selling stocks because they don't know what else to do with their money, and that has had the effect of driving down Treasury rates. So its a supply and demand thing that, over the longer run, will work itself out.

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Washington D.C.: What can the "average" consumer do to weather this recession? Delay non-essential purchases? Save more? If we save more, won't we hurt the economy?

What's your best advice about surviving, if not doing well, in a recession?

Steven Pearlstein: Basically, just make sure you have some savings and keep it liquid and safe, and pay off credit card balances as best as you can. Not much else to do. If you don't lose your job, you shouldn't notice it much.

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Tacoma, Wash: S. Pearlstein: "Obviously, it contributed to a situation where the country lived beyond its means and ran a huge and unsustainable current account deficit. But it wasn't the primary cause, not even close."

A great point that should be reiterated. I disagree with the tax cuts as much as anyone, but the ridiculous interest rates coupled with an insane rise in housing values created this mess.

You mention above that you think it won't experience a depression. What about the argument that as we start to head out of this recession (if even recession, I see a more slow growth period) that the boomers will be starting to retire and that decrease in consumer spending will drive us to a depression?

The demographic charts I've been reading it compare the year 2008 to 1927.

Steven Pearlstein: You'd be surprised how much spending retired boomers do.

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Georgetown, Del.: Human endeavors usually have costs and benefits. What are the costs of giving each family a $1600 cash payment? Sure, the benefit is that recipients may spend the money and perhaps jump start the economy a bit. But what is the downside to such a program?

Steven Pearlstein: Downside is that some day someone will have to pay back that $1600, because it will be borrowed money. But he -- we may be able to pay it back in inflated dollars.

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Chevy Chase, D.C.: The root cause of the excessive pay packages seems to me to be the corporate governance structure. Shareholders are denied the opportunity to nominate their own candidates to the board of directors, and thus the board is a captive of the executive side of the company. A board which was actually looking out for the interests of the shareholders rather than the executives would demand more accountability in the pay packages.

Better governance laws would have the salutary effective of better aligning the interests of the executives with the interests of the owners, and would thus reign in the speculative incentives which have caused the current problems. Having incentives only for the upside and no disincentives for the downside (options rather than stock ownership) of course is going to cause risky behavior! That's what I would do if I were a CEO.

Steven Pearlstein: Not sure it is a root cause, but it would change the culture in the board room over the long haul.

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Annapolis, Md.: Hi Steven - to me, the Fed's latest gambit is just another mistaken attempt to keep the good times rolling a while longer. What this country needs is to be in a recession. We need the wealthy to suffer losses to their investments. We need the rest of the world to feel the pinch of Americans cutting back. And, most of all, much of America needs to realize the value of money, the value of saving, the folly of buying McMansions, SUVs and plasma TVs.

I often have admired my grandparent's generation, who scrimped and saved and cared about others. They'd be embarassed at the Wall Street execs pocketing hundreds of millions while people are losing their homes. We need to seriously readjust our country's thinking about all of this. We need to suffer.

OK, off my soapbox.

Steven Pearlstein: Be careful about taking the "we need to suffer" attitude too far. You can get a very bad dynamic going that leads to things like the Great Depression, as I tried to suggest this morning. You want to let this deflation of asset values happen in an orderly way. Stampedes do nobody any good, and lots of innocent people get run over in the process.

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Rolla, Mo.: Can you comment on the true meaning of the unemployment rate as an indicator of health in the economy? I ask because I hear that unemployment is low, but I see around me people who are employed, but making $9 an hour at Wal-Mart (with little or no health insurance) instead of $20 an hour at the manufacturing plant that closed and shipped the job overseas. They're part of the 95% employment rate, but boy, jobs aren't what they used to be. Isn't income a better measure?

Steven Pearlstein: Every measure is flawed to some extent. I don't think this is one of the worst, however. We have data on wages and on longterm unemployment. Wage gains recently have been pretty good, which you'd expect at the end of an expansion. And rates of longterm unemployment have been rising, even among college graduates, as my colleage Michael Fletcher pointed out in an excellent story on Page A1 of the Post on Monday.

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McLean, Va.: First off, I think you're entitled to a lot more credit than you've taken in this episode. You were the first columnist in a major publication to warn all of this was coming, and you stuck to your guns in September and October when things momentarily looked better. Well done, and thank you.

I guess I'm having trouble seeing the forest for the trees on the rate cut. Lower interest rates are going to assist only two players -- very creditworthy people (who didn't really need any help), and banks. Everyone else is still not getting new credit in the near term. The banks aren't really assisted all that much, but I guess this increases their margin on some things. But by and large, this thing still needs to just unwind on its own, doesn't it? How exactly is the Depression/Japanese-type crisis averted?

Steven Pearlstein: Thanks for noticing.

You're analysis is right, except that you underestimate the importance of increasing the banks' spread, or margin, as you call it. It helps them a lot.

As for the Depression thing, one lesson we learned is that you have to keep the financial system healthy and operating, even at a lower level, because if it collapses, then you can have years when there is very little intermediation between savers and borrowers and companies that need capital. There's a reason they call it capitalism, because capital is its lifeblood. And you don't want to get things into a vicious downward spiral where its very difficult to pull out of it and it destroys too much in the process.

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Minneapolis, Mn.: Thanks for another good article today. You point out that the Fed's action is designed to calm the market's potentially irrational response to global market sell-offs from Monday. What can the Fed and/or Congress & the President do to address some of the underlying issues in the economy? As you note, food and energy prices are up, the dollar is down, wages are flat & the real estate market is stalled. It seems like even a $150 billion stimulus package would be ineffective at causing the fundamental changes our economy needs. Or am I way off base?

Steven Pearlstein: The underlying problems need to get worked out by the market, not primarily by the government.

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Richmond, Va.: How come Bush and the GOP aren't taking the heat on this meltdown. How come they are escaping the outrage?

Steven Pearlstein: Maybe because it is not primarily their fault.

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Anonymous: I'm a Delaware lawyer who does a lot of real estate law and land conveyances. With the interest rate being slashed, does this mean I will likely be seeing a flood of home refinancings?

Steven Pearlstein: We're getting back into refinancing territory again, for conforming loans, at least.

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Buffalo, NY..: Your comment regarding price controls that "It never worked very well in Russia and China, and people in both countries are much happier and richer today now that they basically let the market set prices" could use a bit of clarification. I lived in the former USSR for several years, and I can tell you that while there are many who are doing a lot better than they did then, there are also millions who have lost out- whether it be senior citizens whose pensions are now virtually worthless or simply many whose economic circumstances are much less rosy than the "new rich." I heard plenty of people, many of them very intelligent and hard working, who were nostalgic for the "old days." In looking at the effects of the collapse of the USSR, we Westerners need to get beyond the flashy rich in the big cities- there's a lot of people living in the equivalent of North Dakota- the economic revolution has left them behind, but they are still people..

Steven Pearlstein: Point well taken. And China...?

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Troy, N.Y.: How would the Federal Reserve prick a bubble or deflate it in an orderly manner? The only answer I see is not allowing bubbles to form in the first place. However, if you read Extraordinary Popular Delusions and the Madness of Crowds it seems these things are a part of the human fabric. Your thoughts???

Steven Pearlstein: You can prick a bubble with interst rates, which is probably not the best way because it is such a blunt instrument. But you can prick it by using the regulatory power of the fed to increase margin requriements and reign in loosey-goosey bank lending and securities underwriting.

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Canada: Dear Steven,Thanks to you, I have been out of the marker for the last three months. Any suggestions on where to put the money, or sit out a bit longer.Best

Steven Pearlstein: Sit tight, crack open a Molson and enjoy Hockey Night in Canada!

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Arlington, Va.: RE: Samuelson article.

He hit it on the head. We have people in positions of power and control that have compensation practices skewed so heavily toward bonuses based on annual profits.

This needs to change badly.

Steven Pearlstein: Now you have to wonder why we haven't heard from Hank Paulson or his deputy, Bob Steel, or the chairman of the Securities and Exchange Commission, Chris Cox, on this issue. Why do you think that is?

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Princeton, N.J.: But isn't the basic cause of our problems the ever growing disparity in wealth and income between the Rich and the rest of us. The Rich and especially the super-duper Rich use their money to get political power and thus to have the country make decisions that they think are good for them, but are not good for the copuntry as a whole--too little regulation, lower tax rates on some Billionaires than on their secretaries, free trade that is not fair trade, bashing of unions, etc. etc., etc.

Lefty

Steven Pearlstein: Interesting, although you're probably stretching a bit.

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Savage, Md.: Edgewater does have two real good points:

1. Real estate transaction costs are very high; don't make a round trip lightly.

2. Since real estate professionals are paid by the transaction, they always think it's a good time to buy. (Personally, I think the profession would work better if they got a small commission like 0.25% for every year you stayed in your house.)

Steven Pearlstein: Thanks.

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Reston: I am a finance idiot but I wanted to let you know that I greatly enjoy your articles and chats and I read them as often as I can (which makes me less of a finance idiot each time). I also pass them on to friends and I'm not just saying that in the hope that you will answer my question!

Would you be able to point me in a direction to find a good financial adviser (website, association). I'm single and my investment portfolio includes a lot of designer shoes and some real estate (home, vacation home). I make very good money and fritter away far too much of it so I suppose some tough love from a financial adviser is in order.

many thanks.

Steven Pearlstein: Thanks for your kind comments. And it would be inappropriate for me to suggest a financial adviser here, if I knew one, which I don't.

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Washington, DC..: How does the lowered interest rate help those with sub-prime home loans?

Steven Pearlstein: It may make it possible to refinance.

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McLean, Va.: I understand that every chat is going to have some comments from the fringe, but I find it a bit disturbing how many chatters seem to be ignoring (or ignorant of?) a fundamental premise.

Look -- if you make an investment, you are accepting the risk that the value of your investment goes down. It doesn't matter if it's stock or real estate or whatever else. It's not a contract -- you do not have any rights to get your money back or to get a return. Yes, there were some instances in which people were defrauded by shady lenders. We can deal with that separately, but I suspect it's really an insignificant number.

Everyone else is a victim primarily of their own failure to better research their investment choices.

Steven Pearlstein: Welcome reminder. Thanks.

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Silver Spring. Md.: So for people who are looking to buy a home right now, do you suggest waiting a couple of weeks to see the full impact of this rate cut or will it have no effect on mortgage rates? Thanks.

Steven Pearlstein: Yup. Of course you can buy and lock in the rate later.

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Great Falls: People keep pointing to food and energy prices as evidence of inflation. But isn't OPEC correct in saying that much of the reason for the high price of oil in the U.S. is the weak dollar? How much higher is the price of a barrel of oil in London relative to a year ago? And if that's true, then isn't the incessant rate-cutting only making things worse? I fear that the ECB might be playing this a bit more sensibly for the long-term view.

Steven Pearlstein: I guess I disagree on that one. I think the ECB has its head in the inflation-phobic sand.

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Steven Pearlstein: That's all the time we have today. Sorry I couldn't get to every comment. I'll be away next week (skiing!), but "see you after that.

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