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Can You Hear Us Now? (We Said NO!)

Posted by Doug on Friday, October 03, 2008 2:05:43 PM

The Paulson Bailout, proposed at $700 Billion, has now grown in the Senate to $850 Billion with the addition of absolutely ridiculous “sweeteners” like free bicycles and tax breaks to wooden arrow makers!  The Senate has completely lost its way.

But before the House considers, or worse, ACCEPTS any permutation of the Paulson Bailout Plan, they must remember that you can’t make a silk purse from a sow’s ear… and no amount of lipstick will sell this stinker of a porker to the American people!

Even without the additional $150 in pork, think about this:
 
How much is $700 Billion?
 
More than the government spent COMBINED in Fiscal 2006 for:
 
Medicaid    $180.6 in Billions
 
Education     $118.6
 
Health     $ 63.9
 
Transportation   $ 70.2
 
Veterans Benefits   $ 70.0
 
Community Development   $ 54.5
 
Food & Nutrition Assistance  $ 53.9
 
Justice System    $ 41.0
 
Housing Assistance   $ 38.3
 
TOTAL:     $691.0
 
Source: Budget of the United States Government, Fiscal Year 2006
 
According to CNN August 14, there were 750,000 homes currently in foreclosure. In addition to hurting the homeowners, these troubled assets set the value of the lenders' capitol plummeting due to the “Mark to Market” Accounting rules.
 
$700 Billion divided by 750,000 homes = 933,333 PER HOME!
 
As ridiculous as this might be, and I'm not actually proposing it (just using it to illustrate JUST HOW bad the Paulson plan is!), why don’t we just give each troubled homeowner $100,000 toward their mortgage to keep them in their home and reduce or eliminate their balance? We can then refinance any remaining balances for 15 years at 7% fixed.

This would cost taxpayers only $75 Billion, the homeowners get to keep their homes and reduce or eliminate their house payments. The banks get instant liquidity. Balances under $100,000 are paid off and come off the lenders’ books! The lenders get to convert bad loans over $100,000 balance to smaller, better risk loans at a nice fat 7% and suddenly have VALUE again.
 
The only loser... the guy who bought a home he can afford, and who continues making his payments, on time.
 
Of course, this would be an unconscionable giveaway bailout, giving taxpayer money to people who bought houses they couldn't afford... and yet it's more measured, more reasonable and more likely to WORK than the Paulson plan... which does nothing to address the cause of the problem: the CRA, Mark to Market, and corruption at Fannie & Freddie, which MUST be dismantled or at least downsized!  And it doesn’t help the people who took loans they couldn’t afford either!  It bails out the lenders for making bad loans and taking unacceptable risks.

But… we have to do SOMETHING!!  Or do we?

We’re told that inaction will melt the economy.  But it won’t!  And WHAT does the Government do WELL anyway?  Do you trust them to fix the problem?  Most often (and in this case), Government IS the problem; see http://www.youtube.com/watch?v=NU6fuFrdCJY&feature=bz301 and www.youtube.com/watch?v=fa0agm711PQ. 

No bailout has passed yet.   The day the House failed to pass it, the market dropped 777 points.  The doomsday crowd went berserk!  Yet when you realize that the market was down over 300 points BEFORE the vote, the failure of the bill only accounts for a 400 odd point drop.  Interestingly, the very next day, the market bounced back with the 3rd largest point daily gain in history… and essentially nullified that post-vote loss!  Then the Senate passed their pork-laden version of the bailout, and the market dropped precipitously again!  I guess you could say the market reacted NEGATIVELY to the bailout!!

So how does it affect “Main Street”? You can still go down to the bank and get a home loan or a car loan… IF YOU QUALIFY.  Folks are still driving to work at jobs they still have, in cars they still own, burning gas that they still pay too much for.

Remember EF Hutton?  When they spoke, people listened… till they stopped listening.  Where are they now?  Do you care?

Remember Smith Barney?  They made money the old fashioned way… they earned it!  They’re not earning much now, are they?  Did their evaporation off the face of the earth hurt you?

The fact is that brokerages and even banks have failed before and will again.  YOUR deposits are insured and you retain access to your funds.  YOUR stock assets in your portfolio are YOURS and not your brokers.  If your broker goes under, you still own your stocks.  Find another broker to handle your trades!

I recently proposed a workable plan that would bolster confidence in the markets and ease the capitalization/credit/valuation problems without socializing the markets or giving corporate welfare to Wall Street or handing over inordinate power to Paulson.  Read it at http://starboard.blogtownhall.com/2008/09/30/fixing_the_financial_crisis_without_socializing_the_market.thtml.  If our lawmakers would consider implementing such a plan our economy would improve without mortgaging our future generations to throw $700 Billion or more at it.

For too long Fannie/Freddie and Wall Street have played fast and loose, always with the understanding that if things turned sour, the Government would come to the rescue.  They’ve behaved (even if we exclude corruption and cooking books) like spoiled children who act irresponsibly and get in trouble frequently, only to look to their parents to bail them out – and their expectations keep getting met!  The best thing such a parent can do is put a stop to it – and institute some “tough love”.  When they begin to stand firm, saying “NO, you made your bed, now bear your consequences”, that is the beginning of the maturing of the child.  It’s time that the Wall Street institutions begin to grow up.

Will some firms fail?  Yes.  And they’ll be scooped up at bargain prices by firms who HAVE investable capital!  Will people lose jobs?  Yes.  Will they get other jobs?  If they have marketable skills, they will!  Will the “Market” handle their absence… sure.  The services they provided will be offered by other, more innovative, more competitive and more successful enterprises.  THAT is our capitalistic market-driven system… and when ALLOWED to work, it DOES.

Copyright © 2008 by Doug Edelman
 
Doug Edelman is a conservative political commentator and has been a contributing editor for The Conservative Voice.  His work is also seen on News By Us, The American Daily, The Post Chronicle, New Media Journal, Capitol Hill Coffee House etc. For the support of his family, however, he is also an IT Consultant/Contractor and owner of a Computer Services Business.  He has taught PC Maintenance & Repair and Networking at his local Community College, and maintains a blog at http://edeldoug.blogs.com/.

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Fixing the Financial Crisis Without Socializing the Market

Posted by Doug on Tuesday, September 30, 2008 12:07:21 PM

A giveaway of hundreds of billions of dollars is not only bad policy, it is not necessary! Unfortunately, the Democrats have successfully brainwashed the public into believing that the problem was caused by deregulation, when in fact it was caused by Democrat inspired rules and regulations which set up a house of cards in our economy.

When it became apparent that this house of cards was getting large, and wobbly, those who raised the warning flag (Republicans) were shot down by defenders of the system (Democrats). See: http://www.youtube.com/watch?v=fa0agm7lIPQ There you’ll see video of the 2004 Fannie/Freddie hearings. You’ll see who tried to forestall the collapse, and who denied there was a problem. Who questioned the management of Fannie & Freddie, and who declared the raising of the question to be a “lynching” of Franklin Raines, and who praised Raines management at the helm.

Despite the minimal likelihood that the fix outlined below would stand a chance of being implemented, given our current political environment, I will outline a plan that WOULD work in the hopes that SOME of these proposals might be incorporated into any plan that makes its way thru congress.

  • NO taxpayer giveaway of hundred of billions of dollars and don’t put it in the hands of Paulson and Bernanke!
  • Provide assistance in the form of LOANS and INSURANCE. The government does not need to take OWNERSHIP of private institutions like AIG! Do NOT SOCIALIZE our markets.
  • Prohibit all naked market trading. If you want to trade it… OWN it!
  • ELIMINATE the “Mark to Market” rule – which artificially pulls capital off the books of financial institutions and is a contributing factor to the crisis. This rule requires securities to be recorded on the books at the lowest value it might be sold for in a panic firesale – even zero - rather than their ACTUAL value. This results in under-capitalization even when REAL assets are adequate!
  • REPEAL the Community Reinvestment Act, and dismantle or downsize Fannie Mae & Freddie Mac
    • Well intentioned, the act sought to end the practice of “redlining” where certain neighborhoods were deemed unsuitable risks for mortgage loans. While the purpose to put homeownership within the reach of more lower income people is laudable… the execution was poor.
    • As Fannie Mae and Freddie Mac grew under Clinton, and the “Affordable Housing” mandates forced the lowering of lending standards to allow more and more people to “qualify”, the “sub prime” market ballooned. Variable rate loans with low intro rates to get people INTO homes were the norm for these “sub prime” loans.   But adjustable rates WILL adjust, and if artificially low at inception, the direction of that inevitable  adjustment is most assuredly upward. Lenders and borrowers alike completely ignored the factor of affordability AFTER an upward adjustment in the interest rate!
    • Lending institutions were COMPELLED by federal regulators to write more and more of these sub-prime loans. They had target numbers of low-income homes they had to finance or face penalties and further regulation. So qualification requirements were further relaxed, and more “creative” financing options emerged. No money down; Interest Only financing; Negative Amortization loans. Anyone who was paying attention at the time was asking, “How the heck can that work??
    • Mortgage brokers ORIGINATED loans, with no intention of CARRYING the loan thru amortization! They wrote the paper to sell it to a larger entity – who was happy to buy them up, as they were securitized by the GSEs (Government Secured Entities) such as Fannie and Freddie. Fannie & Freddie grew and grew, securitizing ultimately 80% of all mortgages – meaning they held just about ALL the bad paper! A house of cards DOOMED to fall!
  • Institute a moratorium on Capital Gains taxes… allow businesses to put their OWN money to work to climb out of the crisis.
  • Make the Bush Tax Cuts permanent. More money in the hands of consumers will stimulate the economy. Raising taxes in a period of economic downturn is suicidal.
  • PULL DOWN the tax DISincentives to repatriating overseas operations back home in the USA.
    • There are no tax INCENTIVES (existing or proposed) to move job overseas, Obama ads notwithstanding. There are, however tax BARRIERS to bringing overseas operations BACK HOME.
    • A company with offshore operations pays the taxes in that country. If those taxes are lower than US taxes… the difference is owed to the USA. BUT as long as they REMAIN overseas, they defer that debt. An incentive to STAY overseas.
    • Upon repatriating those operations, a company would owe ALL the difference in tax. A company will not have to pay that for as long as they REMAIN overseas.
    • A moratorium on collecting the deferred tax difference for companies repatriating operations back home would stimulate the economy by creating domestic jobs and returning industry to our shores.
  • ENFORCE our borders and our immigration laws. Illegal immigration is a huge drain upon our nation’s resources.
  • Return to the gold standard. Set the dollar at 1/500 of an ounce of gold and back our dollar with more than a promise to pay. Stabilize the dollar's value abroad and eliminate short selling of our currency.
  • Eliminate the Federal Reserve. A PRIVATE CORPORATION which creates currency out of nothing, and LENDS it to the government at interest! The CONGRESS is constitutionally empowered to coin money… not the FED.
  • REPEAL Sarbanes-Oxley. Another well-intentioned but poorly executed regulation crafted in the wake of Enron/Worldcom. (Which are small potatoes scandals when laid next to Fannie/Freddie!!) SARBOX compliance has placed an undue burden upon “play by the rules” companies, but has done little to curtail the abuses by those who have purposed to “cook the books”.

Of course, too many have too much vested interest in NOT implementing the above for it all come about, though if it did our economy would BOOM!

On the other hand, if SOME or ANY of the above can be incorporated into any next attempt at a rescue bill… we may achieve a bill that will stop the bleeding and restore confidence in our markets.

Copyright © 2008 by Doug Edelman

Doug Edelman is a conservative political commentator and has been a contributing editor for The Conservative Voice.  His work is also seen on News By Us, The American Daily, The Post Chronicle, New Media Journal, Capitol Hill Coffee House etc. For the support of his family, however, he is also an IT Consultant/Contractor and owner of a Computer Services Business.  He has taught PC Maintenance & Repair and Networking at his local Community College.
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Goodbye USA, Hello USSA!

Posted by Doug on Monday, September 22, 2008 12:07:02 PM

Welcome to the United Socialist States of Amerika!!

The Wall Street Bailout as currently proposed is going to cost taxpayers $700 Billion. A $700 BILLION Bailout??? Half the Federal Annual Budget??

Let's see... wasn't it just 4 years ago that $87 Billion could run a WAR for a YEAR? And Congress balked at that figure ("I voted FOR the $87 Billion before I voted against it..."). What have we spent IN TOTAL on Iraq? I don't think we've gotten close to $700 Billion yet, and now they want to spend that amount on bailing out a bunch of misbehaving children on Wall Street??

I thought investors understood that they're putting their money at RISK, and that RISK was part and parcel of the opportunity for high returns! Why is it now the responsibility of the average taxpayer to bail out those who managed their money with less responsibility than a drunken sailor? (With apologies to our sober and responsible men and women at sea!)

Understand this: It was not DEREGULATION that caused this meltdown of the markets. It was Democrat Do-Gooding REGULATIONS that caused it!

When congressional pressure was brought to bear on the Mortgage Industry to put more “disadvantaged” people into houses, it became necessary to reduce the creditworthiness standards required to qualify for the loans – as these people could not qualify under reasonable risk assessments for conventional lending at the time. So money became cheaper, and the “sub-prime” mortgage market was created with relaxed creditworthiness requirements. Teaser rates were offered to get people INTO houses they couldn’t afford. Adjustable rate mortgages were originated, making money for brokers – and then sold off to bigger players like Countrywide. With Fannie and Freddie saying “Go, Go, GO” while relying on government backing. This house of cards was BUILT by the Democrats trying to put unqualified people into houses. The Democrats could not abide the reality that SOME PEOPLE CANNOT AFFORD HOUSES! To them, the right to homeownership meant more than the right to purchase what you can AFFORD to buy. For these utopian dreamers, the right to home ownership was akin to the right to an attorney… “If you so desire and cannot afford, one will be provided for you…”

It is a fascinating exercise to lay Obama next to McCain on the issue of the collapse of Fannie/Freddie...

From Barack Obama:

We're told that the current financial crisis and the collapse/bailout of Fannie Mae and Freddie Mac are the result of "Bush/McCain Policies."

It seems like all he has to offer is to paint McCain as Bush 44... and exploit Bush Derangement Syndrome!

(Isn’t it interesting to note that behind Sen Dodd - the chairman of the powerful banking committee - Barack Obama received more money from Fannie/Freddie than any other lawmaker of the over 300 who received contributions between 1989 and 2008... and Obama was only in the Senate for 3 of those years!)

On the other hand; John McCain, who has never taken an earmark and has campaigned actively against them, sought to reign in the abuses of Fanny/Freddie in 2005 by co-sponsoring the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 1 90 http://www.govtrack.us/congress/bill.xpd?bill=s109-190 - which was shot down by Democrat resistance!

Note his statement from the Congressional Record, quoted below, in support of the Bill. Seems he had a crystal ball!! (This from a guy who stated self-effacingly that he doesn't understand the economy as well as he'd like! If only more people understood it as well as he does!)

Statement by John McCain (R-AZ) May 25, 2006

Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.

 

The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

 

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

 

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

 

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 1 90 <http://www.govtrack.us/congress/bill.xpd?bill=s109-190> , to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

 

I urge my colleagues to support swift action on this GSE reform legislation.

Think about this for a moment. Suppose you are a family earning $100,000 a year. You are $400,000 in debt including your mortgage. You live paycheck to paycheck, meeting current expenses and making payments on your debt – and putting money into savings or investments is a nice goal, but hardly a reality. You have a wild and irresponsible child who has run himself into $50,000 debt with drunken gambling. You then take a loan to hand him a $50,000 check to bail him out.

Is that SANE?? Yet that’s exactly what we, as taxpayers, are about to do if the proposed bailout goes through!

Our Manufacturing Industry has already been taxed and regulated into moving off-shore. Maxine Waters revealed that she wants to take over the Oil Industry. Hillary wants to take over the Health Care Industry. And now the Financial Industry is in the process of being taken over. Socialism IS conquering us!

Paulson and Bernake are about to END the USA as we knew it. Good bye, America... you've had a nice run.

Property values in New Zealand are now going to climb thru the roof!

Copyright © 2008 by Doug Edelman

Doug Edelman is a conservative political commentator and a contributing editor for The Conservative Voice.  His work is also seen on News By Us, The American Daily, The Post Chronicle, New Media Journal, Capitol Hill Coffee House etc. For the support of his family, however, he is also an IT Consultant/Contractor and owner of a Computer Services Business.  He has taught PC Maintenance & Repair and Networking at his local Community College, and maintains a blog at http://edeldoug.blogs.com/. 

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