As you've noticed, I deliberately have avoided commenting much on the proposed federal bailout now being proposed on Capitol Hill.
Having been involved in the industry and having seen (and to be honest, profited) from the laxity in credit standards and loan underwriting standards, I saw this coming quite some time ago, although even I wasn't aware of how deep the rot went.
There's a part of me that's viscerally opposed to the idea of the Feds bailing out companies that made millions pushing paper through the system by buying up assets that are now severely devalued because of their own greed and lack of basic ethics.And if it was simply a matter of letting a few of these companies go under,that would be one thing.
Unfortunately, it's not that simple. Few things are. Markets survive on confidence as much as profit, and when confidence is lacking, things can quickly spiral out of control. And like a rock dropped into a pond, that lack of confidence sends out ripples far afield of the actual companies affected...which means your small business line of credit,your ability to get a mortgage or an auto loan, your credit card balances, your pension, your home equity loan, and perhaps ultimately your job as commercial credit tightens and investment and expansion suffer.
The current occupant of the White House, with access to the best professional speechwriters in the country took 12 minutes out of everyone's life last night and somehow wasn't able to make that clear, so as a public service I'm doing so now.
As distasteful as it might be, the bail out is necessary and needs to be done.
But I think a few things ought to be crystal clear before we sign on to this.
First of all, bi-partisanship be damned. John McCain has been the prime mover in taking this bill from something that looked like it was going to fall apart because of the obstructionism of Harry Reid and his Donkey cohorts to something that now looks like fairly certain to pass.
He needs to speak to the American people and remind them that the Democrats created this mess by supercharging the Community Recovery Act and leaning on Fannie and Freddie as well as lenders to relax standards to get more people in homes, whether they were qualified or not.He needs to tell them how he attempted to rein in Fannie and Freddie some time ago and that it was the Democrats who torpedoed it..something even Bill Clinton, of all people admitted to Chris Cuomo on ABC yesterday when he accused Democrats for years of "resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac".
(the relevant section is at around 2:41)
Moreover, he needs to let the American people know that this plan is necessitated by years of looking the other way abetted by certain legislators who received considerable financial contributions from the management of Fannie and Freddie in order to stonewall any oversight like Chris Dodd, Barack Obama and Barney Frank.And that there are risks involved, but that this is the best possible solution to a bad situation, and that he personally will keep the electorate informed to make sure this isn't simply another raid on the treasury.
If McCain makes that case to the American people, not only will his credibility go up on economic management but he will go into the debates with a full head of stem and rocket ahead in the polls. People understand leadership and the ability to make tough choices in a crisis...something Barack Obama is noticeably deficient at.
As far as the plan itself goes, one thing that has to be avoided at all costs is exactly the kind of cronyism that got us into this mess in the first place. These properties will one day rebound in value. Rather than simply selling off these assets at fire sale prices to well connected 'investors' the Federal Government needs to make sure that these assets are resold and utilized at maximum value for the taxpayer's benefit. And if that means kicking some of these deadbeats out of these houses and creating a federal office or simply opening bids for federal contractors to repair the properties and rent them out profitably for a fee until they can be profitably sold, so be it.Handled correctly, there could be some fairly sweet lemonade in these lemons.
In any event, seeing as the alternative is financial meltdown in the credit sector, we have little choice.