NEW YORK (Reuters) – More than three years after the financial crisis struck, the U.S. economy remains stuck in a consumer debt trap.

It’s a situation that could take years to correct itself. That’s why some economists are calling for a radical step: massive debt relief. Federal policy makers, they suggest, should broker what amounts to an out-of-court settlement between institutional bond investors, banks and consumer advocates – essentially, a “great haircut” to jumpstart the economy.

What some are envisioning is a negotiated process in which cash-strapped homeowners get real mortgage relief, even if it means forcing banks to incur severe write-downs and bond investors to absorb haircuts, or losses, in some of the securities sold by those institutions.

“We’ve put this off for too long,” said L. Randall Wray, a professor of economics at the University of Missouri-Kansas City. “We need debt relief and jobs and until we get these two things, I think recovery is impossible.”

The bailout of the nation’s banks, a nearly trillion dollar stimulus package and an array of programs by the Federal Reserve to keep interest rates near zero may have stopped the economy from falling into the abyss. But none of those measures have fixed the underlying problem of too much U.S. consumer debt.

At the start of the crisis, household debt as a percentage of gross domestic product was 100 percent. Today it’s down to 90 percent of GDP. But by historical standards that is high. U.S. households are still more indebted than their counterparts in Austria, Germany, Spain, France and even Greece – which is on the verge of defaulting on its government debt.

Tens of millions of U.S. citizens remain burdened with mortgages they can no longer afford, in addition to soaring credit card bills and sky high student loans. Trillions of dollars in outstanding consumer debt is stifling demand for goods and services and that’s one reason economists say cash-rich U.S. companies are reluctant to hire and unemployment remains stubbornly high.

NEW YORK (Reuters) – More than three years after the financial crisis struck, the economy remains stuck in a consumer debt trap.

It’s a situation that could take years to correct itself. That’s why some economists are calling for a radical step: massive debt relief. Federal policy makers, they suggest, should broker what amounts to an out-of-court settlement between institutional bond investors, banks and consumer advocates – essentially, a “great haircut” to jumpstart the economy.

What some are envisioning is a negotiated process in which cash-strapped homeowners get real mortgage relief, even if it means forcing banks to incur severe write-downs and bond investors to absorb haircuts, or losses, in some of the securities sold by those institutions.

“We’ve put this off for too long,” said L. Randall Wray, a professor of economics at the University of Missouri-Kansas City. “We need debt relief and jobs and until we get these two things, I think recovery is impossible.”

The bailout of the nation’s banks, a nearly trillion dollar stimulus package and an array of programs by the Federal Reserve to keep interest rates near zero may have stopped the economy from falling into the abyss. But none of those measures have fixed the underlying problem of too much U.S. consumer debt.

At the start of the crisis, household debt as a percentage of gross domestic product was 100 percent. Today it’s down to 90 percent of GDP. But by historical standards that is high. U.S. households are still more indebted than their counterparts in Austria, Germany, Spain, France and even Greece – which is on the verge of defaulting on its government debt.

Tens of millions of U.S. citizens remain burdened with mortgages they can no longer afford, in addition to soaring credit card bills and sky high student loans. Trillions of dollars in outstanding consumer debt is stifling demand for goods and services and that’s one reason economists say cash-rich U.S. companies are reluctant to hire and unemployment remains stubbornly high.

NEW YORK (Reuters) – A $2.3 billion investment fund managed by bond giant Pacific Investment Management Co that is largely targeting distressed U.S. banks is trying to get regulatory approval for one of its first major transactions — a deal involving a North Carolina community bank.

The Federal Reserve Bank of Richmond is reviewing an application for a company set-up by the year-old PIMCO Bravo Fund to acquire an ownership stake of roughly 20 percent in ECB Bancorp Inc (ECBE.O: Quote, Profile, Research, Stock Buzz).

The PIMCO fund is making a $25 million investment in the parent company of The East Carolina Bank as part of a $79.7 million recapitalization of the Engelhard, N.C. based lender. The PIMCO Bravo fund is the single largest investor in the deal announced in June by the bank, which has 25 branches and about $945 million in deposits.

“I have always described this as partnership,” A. Dwight Utz, ECB Bancorp’s president and chief executive officer, said about the deal with PIMCO and five other investment firms.

In dollars, the transaction is small, but it appears to be the first investment in a bank by the PIMCO Bravo fund, which has aggressively raised money from retail investors for over a year.

PIMCO, home to the world’s largest bond fund and managed by its highly-visible founder, Bill Gross, was recently granted full control of its various investment products by its parent company, Allianz SE (ALVG.DE: Quote, Profile, Research, Stock Buzz) — a move that gives the Newport Beach, Calif. firm more independence to expand into new businesses.

This latest move, which follows PIMCO’s major push into equities, could make Warren Buffett-style profits by purchasing stakes in distressed and undervalued U.S. banks still struggling to get by in the wake of the financial crisis.

Sept 14 (Reuters) – Katinka Domotorffy, the head of Goldman Sachs Group Inc’s (GS.N: Quote, Profile, Research, Stock Buzz) quantitative investment strategies group, will leave the bank at the end of the year, according to an internal memo, as one of its biggest hedge funds continues to suffer from weak performance.

Domotorffy is a Goldman veteran who joined the bank in 1998 as a portfolio manager and researcher.

She took on her most recent title as chief investment officer and head of QIS within the asset management division in 2009 when Mark Carhart and Raymond Iwanowski, co-founders of Goldman’s prominent Global Alpha Fund hedge fund, retired.

Armen Avanessians will be taking over as head of the global quantitative business, according to the memo obtained by Reuters that was sent by Timothy O’Neill and Edward Forst, co-global heads of investment management.

Goldman also hired Ron Hua as a partner to serve as chief investment officer and head of quantitative equity alpha businesses.

The Global Alpha Fund is down 12 percent this year, according to sources familiar with the matter.

As a quantitative hedge fund, Global Alpha hops in and out of positions quickly and uses arbitrage strategies to heighten gains. The fund gained prominence in the boom years leading up to the financial crisis and was seen as a proxy for Goldman’s market savvy, but has been riddled with losses and redemption requests since then.

NEW YORK (Reuters) – It worked for asbestos so why not for toxic mortgages?

When some look at all of the litigation arising from Bank of America’s big role in the U.S. mortgage mess, they start thinking of asbestos and how thousands of lawsuits arising from that cancer-causing product brought down many manufacturers more than a decade ago.

The solution back then to dealing with claims filed by more than 750,000 workers exposed to asbestos was the creation of dozens of “asbestos settlement trusts,” which have paid out tens of billions dollars in damages. Some of them are still going strong today.

The asbestos trusts were seen as an innovative approach to deal with seemingly endless litigation and provide a measure of compensation to sick workers and their families. The system for dealing with claims also allowed some of the hobbled manufacturers to emerge from bankruptcy largely free of the crushing weight of lawsuits.

Now some investors in soured mortgage-backed bonds sold by Bank of America and advocates for struggling homeowners are wondering whether a similar strategy can be used to deal with litigation claims that Wall Street analysts estimate could cost the nation’s biggest bank more than $50 billion.

“We’ve suggested an asbestos-style settlement as a solution. It makes the most sense,” says Vincent Fiorillo, a portfolio manager with DoubleLine Capital, a $15 billion bond shop that has its own pending claims against the Charlotte, North Carolina-based lender. “It is better than where we are right now.”

The idea of using the asbestos litigation wars as a model for dealing with the fallout from the financial crisis is more talk than anything else. There’s no indication an asbestos-style litigation trust is something Bank of America is actively considering at the moment.

NEW YORK (Reuters) – It worked for asbestos so why not for toxic mortgages? When some look at all of the litigation arising from Bank of America’s big role in the U.S. mortgage mess, they start thinking of asbestos and how thousands of lawsuits arising from that cancer-causing product brought down many manufacturers more than a decade ago.

The solution back then to dealing with claims filed by more than 750,000 workers exposed to asbestos was the creation of dozens of “asbestos settlement trusts,” which have paid out tens of billions dollars in damages. Some of them are still going strong today.

The asbestos trusts were seen as an innovative approach to deal with seemingly endless litigation and provide a measure of compensation to sick workers and their families. The system for dealing with claims also allowed some of the hobbled manufacturers to emerge from bankruptcy largely free of the crushing weight of lawsuits.

Now some investors in soured mortgage-backed bonds sold by Bank of America (BAC.N: Quote, Profile, Research) and advocates for struggling homeowners are wondering whether a similar strategy can be used to deal with litigation claims that Wall Street analysts estimate could cost the nation’s biggest bank more than $50 billion (31.5 billion pounds).

“We’ve suggested an asbestos-style settlement as a solution. It makes the most sense,” says Vincent Fiorillo, a portfolio manager with DoubleLine Capital, a $15 billion bond shop that has its own pending claims against the Charlotte, North Carolina-based lender. “It is better than where we are right now.”

The idea of using the asbestos litigation wars as a model for dealing with the fallout from the financial crisis is more talk than anything else. There’s no indication an asbestos-style litigation trust is something Bank of America is actively considering at the moment.

But efforts to find a creative solution to Bank of America’s multi-pronged exposure to Countrywide’s ailing mortgage portfolio become more urgent with each downward tick in the bank’s already depressed share price.

NEW YORK, Sept 9 (Reuters) – It worked for asbestos so why not for toxic mortgages?

When some look at all of the litigation arising from Bank of America’s big role in the U.S. mortgage mess, they start thinking of asbestos and how thousands of lawsuits arising from that cancer-causing product brought down many manufacturers more than a decade ago.

The solution back then to dealing with claims filed by more than 750,000 workers exposed to asbestos was the creation of dozens of “asbestos settlement trusts,” which have paid out tens of billions dollars in damages. Some of them are still going strong today.

The asbestos trusts were seen as an innovative approach to deal with seemingly endless litigation and provide a measure of compensation to sick workers and their families. The system for dealing with claims also allowed some of the hobbled manufacturers to emerge from bankruptcy largely free of the crushing weight of lawsuits.

Now some investors in soured mortgage-backed bonds sold by Bank of America (BAC.N: Quote, Profile, Research) and advocates for struggling homeowners are wondering whether a similar strategy can be used to deal with litigation claims that Wall Street analysts estimate could cost the nation’s biggest bank more than $50 billion.

“We’ve suggested an asbestos-style settlement as a solution. It makes the most sense,” says Vincent Fiorillo, a portfolio manager with DoubleLine Capital, a $15 billion bond shop that has its own pending claims against the Charlotte, North Carolina-based lender. “It is better than where we are right now.”

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

NEW YORK (Reuters) – The best thing to be said of the recent stomach-churning turmoil on Wall Street is that it’s taking place in August, a time of year when many people are lounging at the beach or camping in the woods and not paying attention to stocks.

But for everyone else not on a ‘stockation,’ watching the markets rise and fall like giant ocean swells has been an unnerving experience that some finance professionals worry could reshape investor behavior for months and years to come.

“Everyone felt this was idiotic,” says Susan Kaplan, president of Kaplan Financial Services, referring to last week’s volatility. “Most clients didn’t want to deal with the markets anymore and went back to their summer vacations,” said Kaplan, whose firm manages about $1.3 billion in customer money.

In the short term, doing nothing may well prove to be the best strategy for dealing with the kind of dizzying gyrations that occurred the week of August 8 in the U.S. stock market. At one point, the S&P500 was down 8 percent for the week before it erased all of those losses and then some in the ensuing days.

Thursday brought another August storm. The S&P500 plunged 4.46 percent and the benchmark 10-year Treasury note yield fell below 2 percent for the first time in 70 years. And the trouble is this turmoil may not be some temporary anomaly.

FREE FALLIN

Experts say investors should expect even more volatility in stocks, as herd trading by hedge funds, knee-jerk trader reaction to news and lightning fast computer programs combine to make for a new and uncomfortable normal on Wall Street.

NEW YORK, Aug 19 (Reuters) – The best thing to be said of the recent stomach-churning turmoil on Wall Street is that it’s taking place in August, a time of year when many people are lounging at the beach or camping in the woods and not paying attention to stocks.

But for everyone else not on a ‘stockation,’ watching the markets rise and fall like giant ocean swells has been an unnerving experience that some finance professionals worry could reshape investor behavior for months and years to come.

“Everyone felt this was idiotic,” says Susan Kaplan, president of Kaplan Financial Services, referring to last week’s volatility. “Most clients didn’t want to deal with the markets anymore and went back to their summer vacations,” said Kaplan, whose firm manages about $1.3 billion in customer money.

In the short term, doing nothing may well prove to be the best strategy for dealing with the kind of dizzying gyrations that occurred the week of Aug. 8 in the U.S. stock market. At one point, the S&P500 was down 8 percent for the week before it erased all of those losses and then some in the ensuing days.

Thursday brought another August storm. The S&P500 plunged 4.46 percent and the benchmark 10-year Treasury note yield fell below 2 percent for the first time in 70 years. And the trouble is this turmoil may not be some temporary anomaly.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Sidebar: Death Cross rocks Wall Street: [ID:n1E77H1YR]