Thursday, September 25, 2008

The Bailout Blues

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.


Anonymous said...

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.


Anonymous said...

i'm cleared up now.
i have not paid any attention to this cluster flop, due to the fact it is a man made catastrophe, unlike gustav or ike, that require true courage and perseverence to overcome.
this only requires more barnyard matter.
the speech last night was only meant to do one thing.
what is the word i'm looking for?
the current occupant of the white house will not assign blame or point any fingers.
that would be political grandstanding.
i don't think mccain will do that either.
the one detail that i disagree with ff about is the american people have their collective/progressive heads stuck up their posteriors so far they will only believe the one who screams the loudest. guess who that will be. the american people don't want to accept the blame for sending these crooks back to deecee due to the electorial intercourse they have with them time and time again.
with the nature and the cause of this man made disaster together with congressional approval ratings as they are, you would think this would have some effect come this november. but it won't. i bet they send 90 percent of them back to deecee. for another round of congressional intercouse.

Sabra said...

But, but, but... Didn't Katie Couric say - in her interview with Sarah Palin - that John McCain is getting $500 a month from groups that lobbied for this housing debacle, or something like that? And, you're trying to tell me that it is Chris Dodd and Barney Frank who somehow perpetuated this mess? [Please. By all means, let's just leave Obama out of this. He can do NO wrong. Right?]

The whole thing just makes me ill. My DH and I scrimped and saved to buy our first house - we needed X amount down - and it was a LOT of $$$ to us, at the time. We bought a little ranch for $58,000. Sure. It wasn't much, but is was what WE could afford. And we made our payments every month... And now, we're going to be paying for houses that a lot of people should never have been able to buy!

Okay. I'm done...

Freedom Fighter said...

Hi Louie,
Glad you liked my phraseology. He is a piece of work, isn't he?

You're right, I do give the American people credit for a certain amount of common sense. Otherwise, President Kerry would be running for his re-election now (shudder).Or his life.

A certain amount of what you call Congressional intercourse will continue to go one, as it does in all other democracies - nature o' the beast. A Churchillism you may have heard - "Democracy is the worst form of government known to man...except for all the others."

Nevertheless,when the situation is critical, the American voter has almost always behaved sensibly. Or at least enough have to make the difference.Don't despair.

Hi B! How are things for you,the 'kids' and DH in the Sandbox? Good, I hope.

Actually what Katie Couric was referring to was payments to McCain campaign manager Rick Davis' consulting firm, which he left to manage the campaign. The McCain camp denied this pretty unequivocally, and seeing as the source was the New York Times they're likely right.

I can appreciate your feelings,believe me. My wife and I lived in an apartment for a year to save up the downpayment for that first charming little 2 bedroom house we bought together.

What the CRA amountd to was a gun to Fannie and Freddie's andth emajor lender's collective heads to get more minority and low income people - AKA Democrat voters - into houses regardless and have the taxpayers subsidize it. In other words, just another Leftist transfer of income.Many state governments (including my very blue home state) followed up with similar programs.

Another cause of the problem was the dizzy rise in home prices, a subject I could write a whole seperate piece on.Many of these people used their houses like ATMs,encouraged by easy to get home equity lines and simply spent the money, refinancing 4 and 5 times to take cash out, pay debts and pump up their lifestyles.

When the values fell and the equity was spent, they owed more on the house than it was worth and the ones who haven't simply walked away are the ones I guarantee you the Democrats are screaming about bailing out on the taxpayer's dime.That is likely what's causing the holdup.

The bail out is a necessary choice,if not a very tasty one,but there it is.Provided the government manages this prudently in the way I suggested,we should at worst break even.Let's hope they do so.

All Best,

Anonymous said...

Actually I don't think Bush's speech writers are all that goo. Frankly, it would be more profitable for a speech writer to work on the Obama campaign or to write speeches for Ted Kennedy or any other "liberal" politician than it would be to work on speech writing for President Bush. Also, this president is the most hated in my life time by the general public and by the media and financial elites. Those who have stayed on with this administration will likely find future employment very difficult. No body likes this man.

Frankly Bush can't make the case becuase I don't think he fundamentally believes the bail out is in the national best interests. During the speech he had stated that his intsincts would be to oppose such a bail out. Unfortunately for him and perhaps fortunate for us is he no longer calls the shots any more. He's little more than a figure head at this time. Unfortunately the folks calling the shots are liberal Democrats in the House and liberal Democrats and liberal Republicans in the Senate. This may or may not be worse.

While you have made an eleoqent case for the bail out and almost have me convinced, I'm still skeptical. I think a bail out may make a bad situation worse. Frankly I think the US is probably all but finished as a major world power for the foreseeable future. The damage is already to extensive.

With this said there are two things that the government can do during this time of depression that would be constructive. This would be to preserve the nuclear arsenal and to preserve national unity. As a crucial step to preserving national unity, the borders should be secured. In time, this will work itself out and the bad investments will fail. This will pave the way to instituting sound economic policies in place of the failed ones. Unfortunately the United States is likely finished as a major world power for the foreseeable future and perhaps forever.

I could be wrong of course and I hope I am. A German financial leader has said that the US is all but finished as a major financial power. Is he correct or is this just wishful thinking on his part? After all, the EU has dreamed of America's demise for quite some time and they've done all they can to try and bring that about. Hopefully its wishful thinking on his part and America can continue to be a major global power but it sure does not look good right now.

Anonymous said...

Apparently the presidential debate will go on as originally scheduled. Mr. Obama would have been smart to postpone the debate, as McCain suggested, however, Obama should have tried to postpone the debates until after the election. McCain will destroy Obama in a fair debate. The only questions are will the debates be fair? I would not be surprised if Obama's allies in the media have already given him and Mr. Biden advanced copies of the questions. Also, will anyone actually be paying attention?

Freedom Fighter said...

Hi Poster,
The US finished as a world power? DOn't bet on it. A lot of people in the past have put money on that and gone bust.Don't confuse the poor leadership the country has right now with a decline.

And likewise, don't worry about Bush's people getting employment afterwards. Once you're plugged in to that circle, the fact that you worked in the White House and know a lot of influential people is not going to be a scarlet me on that.

As for the bail out, remember this. What we have in not a financial crisis but a confidence crisis. McCain was actually coirrect when he said that the fundamentals of th eeconomy are sound, and much of the turmoil has been deliberately stage managed by the Dems (starting with the refusal to legislate any creation of domestic energy)because they perceive that edconomic turmoil, or the appearance of it will help them gain the White House.

And yes, it's despicable.

Provided th eproposal is structured intelligently, it is a necessary evil to deal with the credit markets.


Anonymous said...

This time its real, Mexicans won't fight for America!

das said...

Duncan Hunter, a 28-year veteran Republican who is retiring at the end of this session, told the San Diego Union-Tribune that Cheney personally appealed for his support. Hunter told the vice president that the $700-billion bailout amounted to a "massive exposure for the American taxpayer for what's at best a very limited return."

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