December 2009

DECEMBER 2009 REMINDER 

Don’t forget to join me on December 3, 7:30 – 8:30 a.m., at Panera’s, 7739 Wadsworth Blvd., for coffee (or tea or breakfast).  I don’t have agendas for these Legislative Coffees and I don’t put on programs – so take advantage of the opportunity to chat with me about issues of concern to you. I am hosting these on the first Thursday of every month.   
 

REVIEW OF TOWN HALL MEETING 

For those of you who missed my Town Hall Meeting on November 21, our guest speakers were Tim Powers from the Colorado Bankers Association and Tim Dore from the Colorado Credit Union Association.  Their presentations focused primarily on understanding the current financial crisis.  Here are some of the key points:

• The crisis happened because of excessive debt incurred by businesses and consumers, which resulted from a combination of overzealous mortgage brokering and securitization, imprudent lending (mostly by investment banks and insurance companies, not regular banks), numerous incentives for home ownership, and “cheap” money.  Investors took advantage, and some consumers ignored principles of sound financial management.
• Investors thought mortgage-backed securities were good investments, and they leveraged far beyond the amount of capital needed to protect their investments.
• The capital that banks have to loan comes from deposits and from profit made from interest on loans.  Banks lost capital as asset values dropped and loan losses grew.
• As borrowers’ income dropped, delinquency on loans and foreclosures increased, further decreasing lenders’ capital.
• The government’s reaction to the crisis has been to pass regulations that lenders feel are too restrictive to allow them to recover, such as requiring more capital to be held back and increasing the standards for good “performance” of loans.
• Credit unions are subject to similar regulations as banks, but unlike other financial institutions, they are nonprofits, and their earnings are returned to their members in the form of lower loan rates and higher deposit interest rates.  Most of their capital is invested in auto loans, not mortgage loans.  They have a lower default rate than banks.
• The financial crisis pointed out the importance of “financial literacy” – people need to understand amortization, interest rates, and macro- and micro-economics.
• If you get into financial trouble, notify your lender immediately. 
• The Colorado Banking Association has resources at www.financialinfo.org.
• Information about credit unions can be accessed at www.colocu.com.
• The Foreclosure Hotline is 1-877-601 HOPE.

 
To get further information about the State Legislature, go to the General Assembly website at www.leg.state.co.us.  For more information about the Senate Democratic Majority, go to www.coloradosenate.org/home.