Archive for bail out

Tracing the Market Melt Down

Posted in civil rights, Constitution, Economy, Elections, politics with tags , , , , , on October 6, 2008 by heapotrouble

http://online.wsj.com/article/SB122298982558700341.html

 

http://online.wsj.com/article/SB122290574391296381.html?mod=article-outset-box

 

Having read these articles, many others, and relying on memory that becomes less trust worthy with time, I think it is naïve, or politically contrived to pin the blame on any individual, administration, or party. There is plenty of blame and demonstrated incompetence to go around.

 

I read one article that traced the roots of the current crisis to the Johnson administration. The author made the case that in order to get Fannie Mae and Freddie Mac off the federal books to support spending for the war in Vietnam, Johnson privatized both of these organizations. Because it was politically expedient to obfuscate the true relationship between the federal government and these mortgage corporations, the implication was let stand that they operated with the full backing of the Federal Reserve. While this was not true, the stock price of Fannie Mae and Freddie Mac soared on initial public offering because of the implied safety. This swelled the corporate coffers and entrenched a culture of inordinate risk and cavalier risk assessment.

 

Another article I read cited the Community Redevelopment Act of 1977 and the Carter administration as “ground zero” in the current fiasco. By law, these lending institutions were required to meet quotas on minority lending to borrowers that would not normally qualify. Again, it was implied that the Federal Government would cover any losses due to loan default. The program expanded to include not just minorities but all borrowers who would not ordinarily qualify for mortgage loans.  

 

Yet another article blamed the Reagan administration for “deregulating” the mortgage industry. However, it does point out that this deregulation began during the Carter years. It goes on to say that the problem wasn’t that the industry was under-regulated, but that it was poorly regulated. Laws were enacted to meet political needs of elected officials of both parties that did not serve the public in the long run, but did serve the immediate political needs of the representatives.

 

More recently, I think you will remember two incidents that seem to have escaped wide publication. The first was the lost opportunity to mobilize the nation in the wake of 9/11 when President Bush advised the public that the best way to beat Al Quida was to “keep shopping.” That put the consumer credit lenders on notice to open the flood gates. The second was during a State of the Union Address. I can not remember exactly which one, but it was early in the Bush administration. The President voiced his goal that “all Americans should reap the benefits of home ownership.” Once again the signal was received loud and clear, not only by mortgage lenders, but by enabling politicians whose near term political goals coincided with the President’s vision, and once again we were off to the races.

 

I think all these instances can be grouped into two broad categories. The first is where the motivation is noble, but the logic is tragically flawed. The politician truly desires to better the lot of the electorate, but doesn’t understand the root issue. Home ownership is a sign of prosperity. If it becomes easier to obtain credit to buy a home, the owner becomes prosperous with the purchase of a house. Continuing that logic, if the government were to buy everyone a Lexus, Mercedes, or BMW, we’d all be considered “rich” and could afford higher taxes. This group proves once again the old axiom; “The road to hell is paved with good intentions.”

 

The second broad group is as dangerous as the first, but much more pernicious. They are the ones that see the Treasury as an extension of their campaign funds. They use the power of the pen to enact legislation that will direct common resources to benefit their constituency, and support their re-election. In effect, they buy your vote with my money, and visa-versa. This, unfortunately, has become the Washington way of doing business. The McCain-Feingold Act attempts to address this issue, but while trampling the Constitution under heel, misses the point. Because the bill did not address the root cause; there is so much money in politics because there is so much money in government, it serves as the “incumbent protection act” and does more harm than good. Once again, the road to hell…

 

The unfortunate part is that come January, none of this will change. McCain, while he preaches systemic change, is too impulsive to look beyond the surface and address root causes. He is a bull in a china shop, and he doesn’t mind bringing his own china shop. Obama sees change as implementing expanded policy and legislation, delivering more power into the hands of the very people who have brought us to this crisis, either through benign incompetence or malevolent self promotion.

 

In either case, I fear we will get the change promised. But we will find out that disaster is also a form of change.

Revenge!: Piping hot.

Posted in Economy, News, politics with tags , , , , on October 2, 2008 by heapotrouble

 For months, if not years now, both current nominees for President have ascribed to populist sentiments to advance their cause. According to John McCain, Congress is a ravenous, greedy beast residing in a cesspool of self serving corruption. Only he has the requisite virtue to defend your fiscal honor and cast out the demons from, and rebuild, a fallen Jerusalem.

 

Barack Obama, on the other hand, cast the ubiquitous and shadowy “rich” as the nemesis of government “of the people, by the people, and for the people.”  Only he can bring forth to this continent the necessary policies that will enable the healing hands of benevolent government to force these effete, “fat cat” bloodsuckers off the backs of the noble working man.. Pay no attention that his proscription of “change” is the platform of policies the Democratic party has been trotting out for years.

 

Add to these provocations of class warfare the current market debacle and House of Representatives rejection of the Wall Street “Rescue” plan and you have, as Reverend Wright so eloquently posed, the “chickens coming home to roost.” Is it any wonder that the population is close to pitchforks and torches on this issue when we have been programmed to believe that this is nothing more than a theft of treasure from the hard working common man, who can not get ahead because of inherent injustice in the system, by the corrupt, for the benefit of those who won’t pay their fair share.

 

As one would expect after failure of the bailout plan to pass in the House, the excuse matrixes of both parties are excruciatingly well defined. However, beyond Speaker Pelosi’s attack speech, or Republican pig headedness, there is ample anecdotal evidence to believe that the Representatives that voted against the bill did so based on strident and overwhelming feedback from their constituency. Imagine that; Representatives representing the wishes of their constituents.

 

I don’t believe I have ever seen the American people so riled. Not even after 9/11. In typical congressional fashion, a non sequitur codicil was added to the bill to assuage voter anger. They would limit compensation for the executives who took over the failing companies that would be propped up by tax payer financed crutch.

 

If you crash a car, you pay a price. If you crash a segment of the US economy, you walk away with millions. Suppose you dropped off your ’67 Camaro at a body shop. Next day when you return to get your car back, you are directed to a smoldering pile of wreckage. “That will be $700,000,000,000 please.” You won’t pay the original mechanic, but you will pay dearly to anyone who can put your car back together.

 

We really don’t care how much the next wave of executives get paid if they can pull a recovery off. However, after all the money lost through costs associated with another stellar example of Congressional over sight, the Sarbaines-Oxley Act, there should be arrest warrants for, and the seizure of assets of, the executives responsible for the current market melt down.

 

No recovery bill will have the support of the electorate until there is a long humiliating “perp walk” by many, many Wall Street “Masters of the Universe” and perhaps even government officials who’s incompetence has led us to the current market situation.  It is said that revenge is a dish best served cold. Right now the American people are demanding theirs piping hot.