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Financial Meltdown Story

September 30, 2008

As we come to the last trading day of the third quarter, it’s hard to imagine things could get worse- but they can and most probably will. Even if Congress can revive a bailout bill, is there enough money to save the world from a serious recession or mild depression? Obama blames McCain, McCain blames Obama, Democrats blame Republicans, and Republicans blame Pelosi. Alot of good all that crap will do us!

Who Wants Cheaper Auto Insurance?

Why don’t we look at “we the people” who vote for Congressmen and women who give us what we want, bring home the bacon (can you say pork barrel spending), and artificially prop up the economy with entities such as Freddie Mac and Fannie Mae.

Congress has balked at the Bush administration’s proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the “troubled assets” of financial institutions in an attempt to avoid economic meltdown. Why should we bail out Wall Street? Who is going to bail me out if I go bankrupt? No one! Absolutely NO ONE!

What happened? Can you say GREED? Can you say CORRUPTION?

The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk. Hey, if I have a sugar daddy saying they’ll fund me, or back me on any losses at the roulette table, I’m going to play a little more loose.

Wait! That’s a LOT MORE LOOSE!

Beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared. This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

There is plenty of blame to go around. And, once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets. And now we want to say get back in there and gamble some more? Here’s $700 billion to keep you at the tables.

No way, no how! There’s only one way to break the addiction(s). Leave Vegas and go back home and go to work. The party is over. Let’s not put another billion at risk! The financial meltdown story is going to run its course!

Written by Ernie · Filed Under Daily Commentary 

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