The Global Economy - Update

The global economy is suffering from a combination of credit-related instability and a recession. The combination could be brutal (turning into a much deeper and longer recession), especially if the credit-related issues aren't addressed.

From what I understand, there are three key pieces to cleaning up the credit aspect of the financial mess.

1) Stabilize the credit system and keep credit flowing
2) Stabilize the insurance system that backs up the credit system
3) Stabilize prices/foreclosures in the housing market so that mortgage-backed securities have a market value

Here is a new development regarding #3 above:

"J.P. Morgan Chase & Co. launched an ambitious plan Friday to modify the terms of $70 billion in mortgages for borrowers who are behind on their payments or soon could be. The move by the New York bank will cover as many as 400,000 borrowers. They'll be moved into loans carrying lower interest rates, smaller principal amounts or other more-affordable terms. The changes will particularly focus on a type of loan structured in such a way that the borrower's outstanding balance sometimes grows month after month. J.P. Morgan inherited $54 billion of such loans with its takeover of the beleaguered thrift Washington Mutual Inc. in September. The plan comes amid intense national focus on a root cause of global financial turmoil: rising home foreclosures, and what the role of banks and government should be in helping struggling homeowners. The banking industry is under much political pressure address the foreclosure problem. Rival Bank of America Corp. has two loan-modification pools in place, one hashed out with state attorneys general." Massive Effort to Save Mortgages - WSJ.com