Top 7 Requirements for “Real” Economic Recovery

This is the fourth in a series of posts that will note the key points from Directions 2010.

Dean Schultz, the President of the Federal Home Loan (FHL) Bank of San Francisco touched on a very important aspect with respect to the structure of our financial system, and that is: “[t]here is an implied guarantee that the government will back the investors.” He believes that in 1-3 years we will see legislation debate about the strength of the FHL system. FHL functions as a very important intermediary between capital markets and investors. The FHL bank is strong because it requires that the capital of participating banks must equal their assets. Mr. Schultz provided us with the top 7 requirements for “real” economic recovery.

Top 7 Requirements for “Real” Economic Recovery:

1. A “reduction in the unemployment rate” by creating jobs, and encouraging small business owners to hire new employees. (Recently, there has been discussion of awarding incentives to small business owners that hire new employees. The crux of the problem is that they will not hire new employees unless their customers are spending money.)
2. A “stabilization of housing prices.” (In reality, people will not feel wealthy again until they start to see their home values increase.)
3. “We must see the foreclosure and default rates in residential and commercial property turn around.” (Most experts predict the commercial market will see an increase, not a decrease in this during 2010.)
4. Lending institutions that can “meet the needs of the community”, without collapsing internally.
5. “Strong capital position”
6. “Sound underwriting standards”
7. Finally, liquidity! He also notes that “funding from the FHL banks when necessary” is going to be an important component to “real” economic recovery.

I am optimistic about the opportunity for the economy to recover, and individuals like Mr. Schultz have an important role to play.

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