Rouse or Reality

October 10, 2008

I want to start this entry disclaiming the fact that I know I am not an expert about the current market situation.  However, as most of us are, I am very frustrated with our government officials and how they are handling things.  Having said that, with some of the many crazy things that are happening in Washington each day I begin to wonder, do I really know that much less than those who are leading us?

 

We have been told by our leaders that we needed to get the “Bailout” plan adopted immediately to insure stability in our financial markets and the economy.  That they needed to get this money infused into the system to buy up these underperforming loans and it would fix it.  However, for some reason last Monday the 29th of September after a day of turmoil wondering if the plan would fail or pass, the plan failed.  The market closed down almost 800 points.  The next day it rebounded about 500 points.  If this was such a bad situation for Wall Street and the economy, why did the market rebound the next day after the plan failed?  We then proceed through the next couple of days with the politicians pointing fingers at each other over whose fault it is that it failed.  I especially liked Barney Frank stating that it was the Republican’s fault that it didn’t pass.  I guess he doesn’t realize that the Republicans are in the minority still.  So, it finally passes on Friday the 3rd of October and the market still closes down 157 points.  Now as I write this the market closed today the 9th of October at 8579.  The lowest level since April of 2003.  If this was the end all, the silver bullet, what the hell happened!  If this doesn’t show the incompetence of our leaders, I don’t know what does. They still think that merely throwing money at problems will fix them.  How many more times will they make these attempts only to fail before it resonates to them that more thought is necessary?  The reality is, the more the government meddles in the market system the more they will screw it up.  

 

Proof of this goes back to 1999.  The Clinton administration pressured Freddie Mac and Fannie Mae to lessen the lending requirements to start making loans to low and moderate income people. This was addressed in a September 30, 1999 story written by Stephen Holmes in the New York Times called, “Fannie Mae Eases Credit to Aid Mortgage Lending”.  The Mr. Holmes wrote, “Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.”

Once Pandora’s Box was opened the Mortgage industry had a hay day.   The story even stated that it was a concern even back then that this might happen.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

 

To read this article in its entirety see this link:

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&n=Top/Reference/Times%20Topics/Subjects/H/Housing&scp=2&sq=Fannie%20Mae%20to%20help%20them%20make%20more%20loans%20to%20so-called%20subprime%20borrowers&st=cse

 

I found another story that I think illustrates just how this mess got started and where the blame lies.  In a great story written by Charles Calomiris and Peter Wallison in the WSJ, “Blame Fannie Mae and Congress for the Credit Mess”.  Their story stated that, “The poor choices of these two government-sponsored enterprises (GSE’s) – and their sponsors in Washington – are largely to blame for our current mess.”

 

They go on to say, “Freddie Mac and Fannie Mae committed to increase financing of “affordable housing”.  They became the largest buyers of Subprime and Alt-A loans mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion.  In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse.”  Again, I think the intentions were good, but the competence was not.  It should really scare you that the same people involved in creating this are the same people holding the purse strings on an attempt to clean it up.  I’m sorry, but that is just messed up.

 

To see the complete story go to: http://online.wsj.com/article/SB122212948811465427.html

 

The long and short of this is that nothing that we are hearing from our government leaders we can count on.  We need to just stay the course the best we know and not panic.

I am hearing stories of people taking there money out of Banks.  Some even thinking that this is of “Great Depression” proportions. It is not and it won’t be if we keep our heads. At the end of the day we need to take care of ourselves. Continue through our days keeping a positive attitude.  We can’t worry about what is out of our control.  We are in control of our own lives and our families lives, which is what we need to stay focused on.  We are resilient people and so is our US Economy.  It will rebound to be the strongest economy in the world and so will our own personal finances to the comfort that we once had. 

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One Response to “Rouse or Reality”

  1. Jamie Holts Says:

    Great post. I will read your posts frequently. Added you to the RSS reader.


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