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Something Every American Should See...

politiconomist — Sat, 11 Oct 2008 01:51:00 GMT

During the second Presidential Debate, Barrack Obama, Presidential candidate and leader of the Democratic Party, criticized John McCain for supporting deregulation and implied that this was a factor leading to the current financial crisis. In addition, during debate in the House of Representatives on the bailout bail, Speaker of the House, Nancy Pelosi (D-CA), blamed the Bush Administration and Republicans for letting greed and corruption on Wall Street "run wild" leading to excessive risk. If that isn't the pot calling the kettle black, I am not sure what is. Democrats in the House and Senate misguided regulators and defended the very risky lending practices and deceptive accounting practices of Fannie Mae and Freddie Mac which led to the subprime lending at the root of the economic crisis and provided bonuses for Fannie and Freddie Executives - something Democrats criticize Wall Street Executives for. Meanwhile, Barrack Obama points out in the aforementioned debate that one of McCain's advisors was a Fannie Mae lobbyist. McCain failed to point out that Barrack Obama in just three short years in the Senate (most of which he has spent running for President) ranks second highest in campaign contributions from Fannie Mae and Freddie Mac, second only to Senator Chris Dodd (D-Conn).

Once again, Democrats display hippocracy in their politics by pointing fingers at Republicans supporting deregulation. Not only did Democrats block Republican efforts to regulate Fannie Mae and Freddie Mac but deceived OFHEO about its lending and accounting practices while these GSEs got deeper in the subprime hole.

Does Senator Dodd Deserve Credit for the Bailout?

politiconomist — Sat, 11 Oct 2008 00:37:00 GMT

Senator Chris Dodd, D-Conn and Chairman of the Senate Banking Committee, has taken a lot of credit for the role he played ingetting the $700 Billion bailout bill through Congress. Today, Senator Dodd criticized John McCain for interrupting the process and painted McCain as a mad deregulator. Interference of regulation and oversight on the part of Democrats as it pertains to Fannie Mae and Freddie Mac is a major cause of this current financial crisis. Senator Dodd is part of the problem. Not only did he accept special favors from Countrywide, he is one of the Democrats in Congress who shielded Fannie Mae and Freddie Mac from srcutiny around its lending practices and financial stability. We might be in this crisis if we had not been deceived by Senator Dodd and Congressman Barney Frank and had access to the truth about Fannie Mae and Freddie Mac earlier.

The only thing I give credit Senator Dodd credit for is helping to craft a bill that is prolonging this market correction and giving the federal government enormous and unpredented power to directly intervene in the stock and financial markets by taking ownership of U.S. banks. What happened to only purchasing the troubled assets of these institutions? Government was too slow to take action on that strategy and now this strategy might not be effective and more drastic action is required. This is more evidence that this entire bailout strategy and this massive effort to intervene in the market is not the right strategy.

Paulson - Secretary or Dictator?

politiconomist — Fri, 10 Oct 2008 00:04:00 GMT

Our Forefathers, and the patriots who fought and died for this country, are all rolling over in their graves right now. In the founding of our great nation, the vision for the federal government was to play a minimal role in our daily lives and "promote the general welfare." The federal government was originally intended to keep peace among the states and for the defense of the nation. Now, it seems the federal government has gotten so big and out of control that it now sees within its duty to guarantee our general welfare and totally violate the fundamental ideals of the United States of America.

Amidst a drastic crash of the DJIA today, after a failed and unprecedented global interest rate cut, Secretary Paulson is now considering directly purchasing equity in U.S. banks to get the flow of credit moving again - just like his plan was needed to avert the market crash that we have experienced the past few days. Chuck Schumer supports this idea and feels it is one of the better ideas proposed to intervene in this crisis. This New Deal style of government intervention sounds rather similar to the initiatives of a dictator of a socialist country in South America. Hugo Chavez detests the ideals of capitalism and freedom and everything that America stands for. It wasn't too long ago when we were in the biggest conflict in our nation's history against communism. When are Americans going to wake up and realize we are on a very slippery slope towards becoming a socialist country.

We are moving in a direction where the U.S. will no longer be that shining beacon on a hill where everyone in the world wants to come to enjoy the prospect of achieving the American dream. The American dream will be no longer because there is no dream that government can bring to life. Our Forefathers knew this which is why they drafted the greatest constitution ever created and bore the greatest nation on earth. They realized that the proper role of the federal government is to protect the God-given rights of individuals and empower individuals to achieve their very best - anything more than that is getting in the way of achieving that dream - anything more than that is government ensuring the general welfare - anything more than that is socialism.

University Offers to Bailout Congress

politiconomist — Thu, 09 Oct 2008 02:34:00 GMT

With the best idea I have heard yet to help the current economic crisis, Andrew Jackson University has offered members of Congress free Economics 101 courses via online courseware. Now this is something that would actually help and is worth paying for with tax payer dollars. If members of Congress had a basic knowledge of Economics, maybe would have gotten the right response from the Government to this crisis - nothing. Maybe we would have gotten a bill with real solutions - market based solutions like lowering some of the regulatory barriers around bancrupcy, addressing some of the accounting rules that have led to the devaluation and mystery around these mortgage-based assets, or insuring the assets rather than purchasing them. Instead we got more legislation filled with "extras" that don't have anything to do with the the problem at hand. You would think that out of 535 members of Congress, that someone would have a clue.

Thank you, Mr. Paulson. May I have another?

politiconomist — Thu, 09 Oct 2008 01:14:00 GMT

When I was young, I learned that you should never feed a dog from the dinner table because as a result, it will always be there begging for more. Three weeks ago, in order to prevent a collapse of the world's sixth largest company, the Federal Reserve bailed out AIG with an $85 Billion loan. Just like a puppy that was fed from the dinner table, AIG has returned to ask the Fed for an additional $37.8 Billion of "much needed cash." You got what you asked for, Mr. Paulson - the biggest corporate welfare program in history.

When the market gets wind of possible intervention, like a bailout, it siezes to solve its own problems in anticipation of what the government can provide. How do we expect to solve the problems of greed and bad financial behavior when we don't let the market correct itself. Sometimes, we as humans need to fail in order to learn how to succeed. - both as consumers and as corporate citizens. Many economists feel that we should let institutions fail in lieu of any bailout financed by taxpayers. I thought this bailout was supposed to stop the bleeding? The DJIA has dropped over 10% since the bailout passed and we are still hearing about businesses not being able to get credit for payroll and inventory. Since when did businesses become dependent on credit for things like payroll and inventory anyway? Maybe because there is so much credit available because of low interest rates and the weak dollar. What happened to good-ole fashioned organic growth from, I don't know - profits?! Our government is making us lazy.

How did we get into this crisis?

politiconomist — Mon, 06 Oct 2008 23:21:30 GMT

Most critics, including those in congress and the media, are blaming the current financial crisis in the United States on President Bush and the GOP’s economic policies. Many feel that the GOP’s laissez-faire policies have led to corruption and greed on Wall Street. A recent poll shows that almost half of North Carolinians feel that the Republican party is to blame for the current economic crisis. A closer look at the facts and events that led up to the current credit crisis reveals a different story. The cause of the current economic crisis is a result of Government intervention in financial markets, growth and corruption of the United States government, and an increase in credit use in the United States. Let’s examine how government intervention, in large part by Democrats, through supplying capital to secondary mortgage markets, influencing markets through social and political pressure, and the use of interest rates for economic stimulation have impacted the current financial crisis.

Government intervention in financial markets through the supply of capital is one of the primary causes of the credit crisis. It all started in the Great Depression when there was a general lack of confidence in the free market due to the severe economic correction in the 1930s. In 1938 as part of Franklin D. Roosevelt’s (D) New Deal, the largest expansion of the federal government in U.S. history, The Federal National Mortgage Association, better known as Fannie Mae, was created as a federal agency to support the mortgage market with cash to increase home ownership. This Government Sponsored Enterprise was created to provide capital to loan originators – banks and other financial institutions. In 1968, Fannie Mae was made a private corporation in an attempt to balance the federal budget. In 1970, to provide competition for Fannie Mae and to expand the secondary mortgage market, the Federal Home Loan Mortgage Corporation, or Freddie Mac, was formed. Freddie Mac bought mortgages in the secondary market, packaged them, and sold them to other financial institutions as investments. Fannie Mae and Freddie Mac are the root cause of the current credit crisis because they provided the “guarantee” of capital to banks and other lending institutions and kept the flow of credit running.

Further influence on financial markets came in 1977, when the 95^th United States Congress passed and President Jimmy Carter (D) signed into law the Community Reinvestment Act which encouraged U.S. banks to lower their lending standards to increase lending to lower income applicants. In 1999, the Clinton Administration encouraged Fannie Mae to increase lending to low-and moderate-income borrowers. In the mid 2000s, Fannie Mae and Freddie Mac began investing billions in subprime loans as a public good to provide liquidity to the secondary mortgage market and provide loans for subprime borrowers – putting people into homes that they couldn’t afford. As part of their class-envy and income redistribution ideology, Democrats used their influence over financial markets through Fannie Mae to encourage home ownership for those who couldn’t afford them. When credit is added to the housing market, especially at the rate mortgages were being given from 1999 to 2007, demand for housing was artificially increased. Millions of Americans were able to get mortgages who were never able to get them before under normal lending standards. Thus, millions of additional Americans flowed into the housing market in the 1990s and 2000s, increasing home prices dramatically. Towards the end of the .com bubble, interest rates would play a role in adding more buyers to the U.S. housing market.

It disappoints me greatly to hear democrats in Congress blame the “free market” for our current problems and to know that some Americans agree with them. When discussing credit markets, the price of the products sold – i.e. mortgages, loans, etc. – is controlled centrally by the Federal Reserve Bank which is part of the federal government. This is far from a free market. In a free market, interest rates would be allowed to fluctuate with supply and demand. Towards the end of the Clinton Administration, Alan Greenspan, Chairman of the Federal Reserve, began using interest rates as an instrument to stimulate the economy when the stock market began a downward trend during the .com bust. The Federal Reserve began slashing interest rates as a policy to help grow the economy with debt. This policy discouraged saving and encouraged Americans to invest money in real estate using risky, subprime loans backed by Fannie Mae and Freddie Mac. From 2000 to 2007 Average Americans with extra money to invest saw traditional investment vehicles as fruitless because of artificially low interest rates , were weary of the stock market because of the .com bust, and saw real estate as a sure thing. They put their savings down on a mortgage, leveraging debt to speculate in the real estate market. This introduced more buyers into the housing market which drove prices higher, especially in key markets such as California, Nevada, Arizona, and Florida.

Together with government-sponsored, low-income borrowers, these investors met the supply of sub-prime loans driven by Fannie Mae and Freddie Mac putting the entire U.S. financial system at risk and dependent on one thing – the hope that home prices would continue to rise. In 2006, when the revelation that Fannie Mae and Freddie Mac had grown out of control and inflated with these sub-prime assets, the lending machine began to slow leading to a slowdown in the housing market. Declining home values along with sub-prime borrowers defaulting on their mortgages are the culprits that led to the downfall of all of the institutions that invested sub-prime mortgage assets including Fannie Mae and Freddie Mac, Lehman Brothers, AIG, etc. What we have is the perfect storm of government intervention – a supply of money through Fannie Mae and Freddie Mac, government policy applying pressure to lending institutions to give mortgages to people who couldn’t afford them, and monetary policy that uses interest rates as the tool to promote debt as a way to acquire wealth.

Many Americans are looking for information on who’s to blame for the crisis we are in. I thought I would share my thoughts on the real problem – Government, especially Democrats who have created enterprises who pump cash into credit markets, have made homeownership into an implied right, and who have used monetary policy to get Americans further in debt.

Tell us what you think and come back for more truth about the bailout.