Wow...it's been nearly a month since my last post...definitely a record for me. I have been busy, but that's not the main reason. I've been in a funk due to all this bailout nonsense, not quite knowing how to express my thoughts due to not fully understanding it, but deep down knowing this isn't what we should be doing. Today's News and Views by Chuch Muth completely captures my thoughts and does a great job of explaining the situation, so I'll repost it here in full. Warning it is long for my normal post length, but I highly recommend reading the whole way through and to especially watch the video at the end.
RUSH TO JUDGMENT
The biggest problem I have with this bailout - other than the fact that it's decidedly socialistic in nature and sets a horrible precedent for taxpayer bailouts of other industries down the road - is the rush to "do something" by President Bush and Congress.
After eight years of "compassionate conservatism" which gave us Homeland Security, the TSA, No Child Left Behind and Medicare prescription drugs, I'm automatically suspect of ANYTHING President Bush says about a "crisis" necessitating government action. In fact, my knee-jerk response is automatic opposition until proved otherwise.
And when you consider that it was Congress and President Clinton who really set us on this path to financial meltdown over a period of more than 20 years, you'll pardon me if I'm skeptical of a "rescue" plan hatched by President Bush and Congress which is only about a week old.
The fact is, most Americans are just now starting to understand the issue itself. And before they fully grasp what went wrong and how, Congress will have approved the "fix." Unfortunately, the cure is likely to end up being worse than the disease.
Here are three items which I think will help you get your arms around this extremely complicated financial mess, including the fact that today's crisis isn't the fault of the free market. The "root cause" (liberals love to talk about "root causes") was Congress and the Clinton administration trying to manipulate the free market on behalf of a voter constituency. It was the push for "affordable housing" that caused this "disturbance in the force."
WALL STREET BAILOUT 101
"The meltdown in the financial markets has caused the finger of blame to spin like a weathervane in a hurricane. The underlying cause of the debacle, however, has been largely ignored. Driven by 'progressive' Democrats and Republicans, the cause is the relentless shift from a free market economy to a socialist economy.
"Until the Roosevelt era, the responsibility and privilege of having a home was left solely to the individual.
"Few people realize that Fannie Mae (Federal National Mortgage Association) was created in 1938 by FDR, to provide a federal guarantee for home loans extended by local banks. Freddie Mac (Federal Home Loan Mortgage Corporation) was created in 1970, during Nixon's reign.
"Both were designed to buy mortgages from local lenders as a way to insure an adequate supply of money for local lenders. These 'secondary' mortgages were packaged into 'bundles' of securities that were traded among an array of financial institutions.
"During the 1960s, the United Nations produced the International Convention on the Elimination of All Forms of Racial Discrimination. Article V(e)(iii) proclaimed that all people had a 'right' to housing. Both the Kennedy and Johnson administrations supported the treaty, but it was not ratified until the Clinton administration, Nov. 20, 1994.
"...To meet its obligations under the U.N.'s Racial Discrimination Treaty, the Clinton administration instructed Fannie Mae to expand loans to low-income borrowers, according to Franklin D. Raines, Fannie Mae's chairman.
"Thus, the 'sub-prime' market was born, and government guaranteed-loans were extended to millions of families who could not qualify for a mortgage in a free market economy, but easily qualified under the new socialist scheme.
"In 2005, Republican senators saw the danger and tried to reform these institutions with the Federal Housing Enterprise Regulator Reform Act (S.190), but Democrats blocked the bill.
"...AIG, the international insurance giant, and other Wall Street and international financial institutions bought the bundles of mortgage securities that Fannie Mae and Freddie Mac offered. Everybody involved made a ton of money, and housing for low-income families expanded exponentially - just as the Treaty on Racial Discrimination and the proponents of sustainable development had predicted.
"With all the new loans being made, the home building industry flourished, the real estate industry flourished, all industries related to housing flourished - until the market became saturated.
"Home values stopped rising. Housing inventories began to rise. Home values began to decline. Foreclosures began to rise. Homebuilding slowed, housing-related industries began to lay off workers. Energy prices began to rise. Paychecks fell short of family needs. Foreclosures skyrocketed.
"Suddenly, there was little or no value in the bundles of security Fannie Mae and Freddie Mac had packaged. Financial institutions found themselves in possession of massive 'assets' that had no value. Creak, crumble, crash! The financial markets came tumbling down.
"The piper must be paid. The question is whether to do it now - and let the chips fall where they may, or, to kick the can down the road and pay the piper later.
"The answer, of course, is to kick the can into the next generation, with another leap toward socialism. The bailout plan - whatever the particulars - is nothing short of a government takeover of the financial industry. The next president will have to sort it out and build the road toward future recovery or final disaster."
- Columnist Henry Lamb
BLAME CLINTON
The following story from WAY back in 1999, published by the New York Times, predicted that what is happening today would happen.
"In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
"Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
"In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates.
"In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
"'From the perspective of many people, including me, this is another thrift industry growing up around us,' said Peter Wallison a resident fellow at the American Enterprise Institute. 'If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'
"...Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites."
FAMOUS LAST WORDS
Actually, today's Famous Last Words is a brief You Tube video chronicling how the liberals, not conservatives, got us into this mess. Even if Congress unwisely rushes in to make matters worse with a bailout bill today, you should watch this video to understand and explain this issue better to those misguided souls who tell you they're voting for Obama.
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3 comments:
Well come back! GREAT post of a horrible situation. I was in the same predicament as you in that I just did'nt understand the rush to commit so much of our money to bailout these corrupt money markets. I still don't understand why we save one bank and let another go bankrupt?
S - Thanks for the great post and information. I've been overwhelmed and bogged down by everything in the news and this was a concise and easy read about the general issue. Glad you're back!
My Conservative Congressman voted against the plan and boy did everything hit the fan. The feedback before the vote was that people didn't like the bailout plan but when he voted against it his offices were bombarded with hateful calls threatening not to vote for him.
Then, that night when I came in to make phone calls my script including telling people that he voted against the bailout plan because he was for the taxpayers. It was a fairly hostile night but not too bad.
I think it was a no win situation. The bailout bill had too much junk in it but the panic people want something done. My husband has worked in the financial arena for years and says everyone is overreacting. It will be interesting to see what the House does now that the Senate passed a new version of it.
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