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...effort to free international trade and fund postwar reconstruction, the member states agreed to fix their exchange rates by tying their currencies to the U.S. dollar. American politicians, meanwhile, assured the rest of the world that its currency was dependable by linking the U.S. dollar to gold; $1 equaled 35 oz. of bullion. Nations also agreed to buy and sell U.S. dollars to keep their currencies within 1% of the fixed rate. And thus the golden age of the U.S. dollar began...
...housing market, stupid." That's what an increasing number of policymakers and economists are saying as they push for widespread mortgage modifications as a way to address a root cause of the financial crisis. With more than 1.5 million houses in foreclosure (three times the normal rate) and about 3.5 million other homeowners behind on mortgage payments, the idea of rewriting loan terms has broad appeal. As advocates contend, homeowners will keep their houses, and lenders as well as investors in mortgage-related securities will recoup more money than is typically netted in a foreclosure. As a bonus, property prices...
There is little evidence, however, that they will succeed in the long run. In fact, most studies of what happens after loans are modified show that a big percentage wind up in default anyway. In one such study, the ratings agency Moody's looked at a group of subprime adjustable-rate mortgages modified in the first half of 2007. It found that by March 2008, only a third were either still current or had been fully paid...
Consumer groups argue that part of the redefault problem is lenders' reluctance to make the sorts of changes that will really improve a homeowner's chances. While the popular notion of loan modification might have the lender lowering an interest rate or reducing the overall loan balance, many work quite differently. For example, one of the most widely implemented changes is to simply spread missed payments over the remaining life of the loan. That has the perverse effect of raising, not lowering, a homeowner's monthly payment. The nonprofit Center for Responsible Lending estimates that nearly half of the loan...
...foreclosure. A recent Credit Suisse report looked at modifications made to subprime loans in the last quarter of 2007 and found that 44% of loans with increased monthly payments were more than 60 days delinquent within eight months. What had a much better shot of working: reducing interest rates and principal. Only 15% of loans that had received an interest-rate reduction and 23% in which the principal balance had been reduced were more than 60 days delinquent after eight months...