Tuesday, September 23, 2008

Sorry it took so long

As the title of this post says, I am sorry it took so long for me to put down another post. There has been quite a bit going on around here. Plus, I was sick and I have been reading quite a bit about this economic mess so that I could make an informed post on everything that is going on.

Let me first take an aside and wish my lovely wife a late HAPPY ANNIVERSARY!!! It was on Saturday. I was sick. Sorry about that my love, but, you continue to make me the happiest man on the face of the earth.

Now, down to the political business. Like I said, I have been doing quite a bit of reading on everything that is going on. Forgive me, this will be a little long, but, you really do need to stick with it to the end.

So far, we have the fact that the government has to bail out Fannie Mae and Freddie Mac. First of all, they kind of had to do this. They are government entities. Now, another investment bank went under and one was bought out by Bank of America. See, it is kind of essential to understand that investment banks get all of their money through their investments. Regular banks have people who deposit their money. That is a big source of capital. Well, now, the government has to bail out an investment bank branch of the largest insurance agency in the world and the treasury is asking for $700 billion to correct the market.

Most people have already heard all of that. What they don't know, because the media won't tell them, is what truly lead to all of this. I am going to do a little comparison here.

Something happened almost 40yrs ago called affirmative action. This, in case you don't know, set quotas on the amount of minorities everyone had to hire. What it did was to force companies to hire non-qualified people for positions based solely on the fact that they were a minority. Something very similar happened in the housing market a few years back. The Department of Housing and Urban Development (HUD) set quotas on Fannie Mae and Freddie Mac as to how much of their portfolio was to be considered "affordable housing". The problem was, they never defined what affordable housing was. They set such high quotas, that it encouraged companies to broker mortgages that encouraged people to buy houses that they truly could not afford. They had programs that would provide mortgages to people with little or no verification of income. The mortgage companies would lend the money because they knew that Fannie and Freddie would buy the mortgages. HUD, who was supposed to be overseeing the activities of these two companies, never did.

Alan Greenspan, the Chairman of the Federal Reserve from 1987 to 2006, warned that all this was going to happen in 2005. He told Congress, "If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

A reform bill went before the Senate Banking Committee. This bill gave a regulator the power to crack down and would have required the companies to eliminate their investments in risky assets. Freddie and Fannie would have had to sell off all of the bad paper that they held. Some large institutions would have been buried, but, the market for these mortgages would have no longer existed. Problem averted.

But, the bill never even got to the full Senate. It was defeated by a party line vote in the committee. Opposed by the Democrats. The Securities and Exchange Commissions chief accountant actually wrote that this was a classic case of "socializing the risk while privatizing the profits".

Now, let's look at the fact that many of the Senators that blocked this bill, protecting Fannie and Freddie, received sizable amounts of financial support from these two institutions. Guess whose names are at the top. Chris Dodd is first with $165,000. Second, in only two years, is Barack Obama at $125,000. Hillary Clinton is actually 12th with $75,000. These are the people who could have helped to prevent the record number of foreclosures we see to day as well as the unstable market that this country is seeing. These are the very same people who want to oversee the bail-out proposed by the Treasury. One of these people wants to run our entire country.

Now, to quote one of Obama's own ads, "do we really want more of the same?" Or is this the type of change that we can believe in?

Oh, yes. One final thing I found out while reading over all of this material. Guess who was one of the co-sponsors for the bill the could have prevented this whole mess. That's right, Senator John McCain. Who, if enough people educate themselves and truly make a decision that would be right for this country, WILL BE THE NEXT PRESIDENT OF THE UNITED STATES.