Financial crisis price tag nears federal deficit
Recapping the day's news and newsmakers through the lens of CNBC.
Costs add up
Let's see, how shall we divide the tab? It comes to ... roundabout ... $14 trillion. That's with a T, not an M, or even a B. It's the all-in cost of the financial crisis that struck five years ago, according to an estimate from the Dallas Federal Reserve. Though, hedging a bit, the Dallas Fed said the bill could come to twice that, or perhaps a mere $6 trillion.
The total includes direct aid to financial institutions, the cost of lost jobs and other continuing problems. If each household had to ante up, the charge would be $50,000 to $120,000 apiece, or thereabouts. The $14 trillion—which could still go higher—is not that far off the running tab for the national deficit, now near $17 trillion. What's a few trillion here or there?
"Since the recession's onset in December 2007, more citizens believed their income would be lower in the future than thought it would be higher. This is the first time in any recession since the 1960s that income expectations turned negative."
—Dallas Federal Reserve
Keeping up with the Dow Joneses
The Dow Jones Industrial Average is nice and simple—an average of 30 stocks' prices—until you start asking questions like how come the number, now over 15,000, is clearly not an average of those prices. (Because of adjustments for stock splits, dividends and so forth.)
In the latest change, Alcoa, Bank of America and Hewlett-Packard have been replaced by Goldman Sachs, Nike and Visa. How come? Not because Dow Jones thinks the new stocks are better. Rather, it's to make the index better represent today's big-company stocks, and to keep low-priced issues from producing a misleading average.
"They need to keep up with the times. If there is more weighting in, say, the retail sector, then it needs to reflect that."
—CNBC's Bob Pisani
The new 401(k): Employer health care
Employers take note: private health insurance exchanges are small potatoes now, enrolling only about 1 million people, but that could explode to over 40 million by 2018, according to Accenture. Many companies, including Time Warner and IBM, are replacing employees' and retirees' traditional health plans with a menu of company-subsidized insurance policies. The exchanges may help employers better control costs and risks. The predicted shift would be much like the one from traditional pensions to 401(k)s.
"The last bastion of what you can't buy online is health insurance. That will fall, just like everything else did."
—Alan Cohen of Bright Choices Exchange
For sale: Housing bubble
A major cause of that crisis was the housing bubble, largely fueled by easy money. Could it happen again? Actually, one measure is flashing early warning signs. The home price affordability index tracked by the National Association of Realtors has come in below trend for four straight months. With the July figures released Monday, it is now at its lowest since July 2009. The median household can still easily afford the median-priced home, but rising mortgage rates and home prices, and stagnant incomes, are putting more homes out of reach for more buyers.
"This does not mean that home prices are poised to crash immediately. Keep in mind that home prices continued to climb for over two years after affordability fell below trend [in 2004], peaking in April 2006. But it may mean that the Federal Reserve might need to start raising interest rates sooner than some expect in order to deflate our new housing bubble."
—CNBC's John Carney
Supersized home loans
If you're thinking of buying a home and wonder what's best—to pay cash by liquidating some investments or get a loan—you might take a hint from the well-to-do, who are increasingly turning to jumbo mortgages.
According to RealtyTrac, 46 percent of those buying $2 million to $5 million homes used mortgages in July, up from 27 percent a year earlier. Housing experts say the wealthy are rushing to get loans before rates rise. Also, rates on jumbo loans are unusually low—lower, in fact, than those on conventional loans, the reverse of normal.
"With mortgage rates picking up, some of these folks decided to get off the fence and take advantage of the low rates."
—RealtyTrac's Daren Blomquist
—By Jeff Brown, Special to CNBC.com