Tuesday, September 30, 2008

Is the sky falling? UPDATED

I'm not sure what to make of the current or impending economic crisis. There are a lot of strange things going on. For example, the original plan (from last week) was drafted by Bush and the appropriate Cabinet members. This is the plan that was somewhat modified over last weekend, and pushed strongly by the Democrats. So, a plan crafted by Bush, who most Democrats regard as slow and stupid, was brilliant enough that Pelosi pushed to pass it. Strange bedfellows indeed.

Apparently, there is quite a lot of blame that can be doled out here, on both sides of the aisle. Yet one of the most vociferous voices in the fight so far has been that of Barney Frank, founding member of the Lollipop Guild, and also quite obviously at the heart of why FannieMae and FreddieMac went belly up. What's up with that? Have you no shame, sir?

When the original plan came out, it needed to be passed urgently, or the sky would fall and dogs and cats would start living together. Yet, for some reason Harry Reid attached a rider about discontinuing drilling for shale oil. What did that have to do with the bailout? If the sky is really falling, why don't you act like it? This was the same Harry Reid who said "we don't know what to do" and called on McCain (not Obama) for leadership on the issue.

I'm not sure about McCain's trip to DC last week--stunt or theater? Of course he has been accused of politicizing the process, although there are widely conflicting reports about what happened at that White House meeting (the one that they had to drag Obama back to DC for). Yet prior to the crucial vote on the House floor yesterday, Pelosi found it prudent to belch up a partisan rant against the Republicans and the Bush Administration (right--the one that came up with the original plan). Not exactly the kind of sober leadership that one looks for when the sky is falling. And she wasn't even able to convince all of the members of her own party to vote for the package; 40% of House Dems voted against. 40%.

Here's what I don't understand: When Republicans have control of Congress, it is Republicans' fault for not passing legislation to stave off economic trouble. When Democrats have control of Congress, it is Republicans' fault for not passing the bailout.

I don't know what to think here about this mess. It's not about the failure of the free market, because FannieMae and FreddieMac being government sponsored entities (kind of like the Post Office) were anything but free. Does that mean there was too much regulation? Not necessarily. Too little regulation? Maybe. I don't think it's about regulation; I think it's more about the law of unintended consequences (trying to provide more home loans to minorities and poor folks pushed banks heavily into sub-prime lending). I don't think there has been enough strong leadership from either side (including McCain and Obama, the current leaders of their respective parties). The failed bailout plan has been described as a crap sandwich without the bread. Too much extra stuff, like prohibitions on shale oil drilling; like money going back to ACORN and other controversial entitities; like the Treasury Secretary not having to answer to anyone at all.

We can do better. They need to all get out of their political uniforms and hammer something out that doesn't screw the taxpayer (no one wants their money going to fund someone's golden parachute). They can do this; they have to.

After all, the sky is falling, right?

UPDATE:n As of about 11:30 AM, the Dow is up about 230 points. So even in the absence of the bailout bill that is imperative to keep Armageddon from happening, the markets are calming themselves, and, it seems, recovering. Huh?


Anonymous said...

CRA determined to strike in the Unites States!

John McCain suspended his campaign until the crisis was resolved (it's still not resolved, that's weird), and in other astronomic news: the CRA went into the wormhole (caused no doubt by the French and their large Hedron Supercollider) and came back 31 years later, and tricked really large investment firms (and masters of the universe) into giving all our money to the brown people. That's some super colliding spacesh*t!

Subprime loan breakdown:

77% to white folks
13% to blacks
6% to latinos
4% to others

The main point of the CRA was to stop the practice of redlining by local and national lenders. Don't get all your information (or any, for that matter) from Rush and Drudge.

So, as I see it the CRA is not the goddamn problem. The problem is the mortgage brokers sold a bunch of crazy crap to people who may or may not have had bad credit (it really didn't matter). They made extra money on the points when they sold it. The people above them didn’t care if the loans were bad or because they were going to package them up and offload them to someone else anyway. Those masters of the universe didn’t care because they were going to repackage them again and in the worse case scenario (where we are now), they have an insurance company on the hook for it. The insurance companies let it ride, because they didn’t peer down into the garbage and normally it’s a safe bet (and free money!) for them to insure garbage.

The $700 billion bailout for Wall Street is neither. There is no more Wall Street (with 5 - and counting - of the largest investment banks now either gone or merged), and the cost will most likely begin at about $250 billion. Recent bailouts such as the S&L crisis (in the '80's) and loans to Mexico in the wake of the falling peso (in the 90's), actually made money for the government. The republican insurance proposal inserted into bailout is completely unrealistic. If the banks don't have money to lend, even to each other, where does the money for the insurance come from? Beyond this, no private insurance company would take on this risk (no matter what the premium) without some sort of government backing, leading us back to where we are now.

The Dow is up today because the market thinks that there will be a deal tomorrow. The 777 point loss in the market yesterday amounted to more than a trillion dollars.

Finally, no matter what you hear: the Alaska Independence Party flies the Swastika during Oktoberfest for the heritage, not the hate.

God Bless America...

Small Town Doc said...

Since my brain is tired right now, I'm just goin' to hafta get back to ya . . .

Small Town Doc said...

Ok--before I start incising abdomens this morning, let me address a few points.

Not sure what "redlining" is, but I do know that ONE of the purposes of the CRA was to increase lending to poorer folks and minorities, which is not a bad thing at all, just that there were unintended consequences that resulted from this noble endeavor.

Was there greed at the bottom of all this? Um, does a bear spit in the woods (family friendly)? The banks were greedy, and that's what banks do, right? The people who obtained these wonderful, 120% no-doc loans were greedy too, don't you think? I mean, if it's too good to be true . . . so, yeah, lots of greed everywhere.

Back later.

Small Town Doc said...

We can all agree that greed is at the root of this problem. And it is not simply a problem of more regulation vs. less regulation; it's too complicated and arcane for such a simple summary. There is a lot of blame to go around, and it's not just the CRA or Phil Gramm or Glass-Steagall.

But now is the time to FIX the problem, not fix the BLAME. Neither Obama or McCain or Pelosi's congress has shown much leadership here.

Petronia said...

I agree that greed is the problem, and with it the desire-turned-need for instant gratification. The bailout plan isn't going to be good for us in the long run, but for right now it makes people feel better because it softens the immediate consequence of their irresponsibility and greed.

I think that both sides of the isle suffer from the same illness, and I honestly don't hope for any good solution coming from this political system any time soon.