Pain & Fear

If pain is nature's way of saying "Stop!" then fear is natur's way saying "Be careful."

Market Directions

Market Directions
September 21, 2008
A Brief History of the Financial Crisis

The outlines of the financial and credit crisis are clear though the blame will be argued and discussed far into the future. Three primary causes played out over the past decade culminating in the tumultuous events of the past two weeks with the American Federal Government on Friday putting forth a plan to buy the housing based bad debt of the entire United States financial system.

In the early part of this decade the Federal Reserve held interest rates at historically low levels for three years. In the mortgage industry increasingly lax credit standards were encouraged by government pressure to lend to marginal customers. Finally Wall Street firms became enamored of the profitability and supposed safety of their securitized credit derivative instruments, not only originating many products but also stocking their balance sheets with them.

In the aftermath of the 9/11 attacks in 2001 the Federal Reserve cut the Fed Funds rate in half, to 1.75%. The rate would stay below 2.0% for almost three years. Those low nominal rates, negative in real inflation adjusted terms, stoked a building and buying boom in housing that developed into a huge speculative bubble.

When the Fed brought rates back to 5.25% at the end of June 2006, the bubble began to deflate; the housing based credit crisis began a little more than a year later. Market bubbles always burst. Perhaps the fall of the housing market now seems preordained. But at the time the risk of the dicey mortgages spread throughout the financial system was disguised by the financially engineered instruments that had repackaged the questionable bits with higher quality debt, supposedly insuring the whole against default.

Starting in the closing years of the Clinton Administration the Community Redevelopment Act, a Carter Era program, was used to force banks to lend to mortgage customers formerly considered ineligible for loans. In pursuit of a social goal, universal home ownership, banks either lowered credit standards and granted mortgages or faced fines and business penalties for 'redlining'. Banks by and large complied with government dictates.

Two of the government sponsored enterprises (GSEs) in the mortgage field, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) bought much of the bank mortgage debt and sold it back to the market with their implied government guarantee behind it. The banks and loan companies used the cash obtained to sponsor more loans and keep the housing bubble inflating. As with the banks, the GSEs also brought some of this debt onto their balance sheets. All in all these two GSEs held title to or guaranteed upwards of 70% of residential mortgages in the United States. Their mortgage paper is endemic on the balance sheets of the world's financial institutions.

The nozzle through which much of the air inflating the housing bubble passed was the asset backed collateralized debt obligation (CDO) fashioned by Wall Street's leading investment houses and banks. Combining different types and grades of debt in one instrument these complex securities were supposed to reduce risk of the whole below the level of the individual pieces. Their complexity often rendered them opaque to the rating agencies whose rankings customers buying the securities relied on for risk measurement. Usually sold with default insurance these securities had one major flaw, their balance sheet value was assessed not by the value of the underlying income streams but by their sale price in the secondary market. If there were no market, if no one were willing to buy these securities, the theoretical book value fell to zero.

As the housing market stagnated and then fell, the value of those securities with housing components dropped as default rates on mortgages rose. But housing prices in the US have only declined on average about 20%. How could such a large but not catastrophic decline threaten the very foundations of the financial system? The crux is the mark to market nature of the security. As the financial markets progressively lost faith in asset backed securities and as housing prices continued to fall bids for these securities became scarce. The lower the prices for the securities the more capital the firm had to set aside to meet regulatory limits. The firms that owned large amounts of these securities were caught in a downward spiral of devalued securities requiring ever large amounts of the firm’s capital for support which progressively undermined the worth of the firm’s stock and market confidence in the firm's solvency which in turn demanded more capital support.

The United States has had market bubbles before, but none shook the financial system to its core and threatened the financial system. What has been different this time? The factor that levered a serious housing market bubble and collapse into a threat to the entire US and indeed world financial system was the asset-backed derivative. These new and poorly understood instruments were embraced by the financial world for their touted safety and for their high return. Yet their safety, the quality of their financial analysis and most importantly the underlying assumptions were completely untested.

Chief among the assumptions underpinning these derivative securities was the mark to market rule for valuation. Imposed by regulators in the aftermath of the failure of Enron it posits, natural enough in normal times, a functioning secondary market. Its purpose was to insure realistic pricing for securities. All is fine with the rule unless there is no market. As with the failure of Long Term Credit, it was the assumption that there will always be a functioning orderly market that was at fault. Markets are not always rational, they are voluntary and they are psychological. People and firms do not have to participate. When enough market participants choose abstinence the market collapses and all calculations that depend on market pricing are void.

Markets are reflections of the faith and credit of their participants. When that is lost no amount of financial engineering can make up for the loss of liquidity. In a panic the market vanishes. The asset backed derivative made the stability of the entire financial system beholden to its least stable component, the psychology of the market.


Joseph Trevisani
FX Solutions, LLC
Chief Market Analyst

The Ant and The Grasshopper, 2008 Edition

The Ant and The Grasshopper, 2008 Edition
Michelle Malkin
Friday, September 26, 2008
With what looks like imminent passage of the Mother of All Bailouts (following on the heels of a year's worth of government-funded rescues of private homeowners, lenders, insurers and automakers), Washington has turned Aesop's famous fable about prudence and hard work on its head. The time is ripe for a revised 2008 edition of "The Ant and the Grasshopper:"
In a meadow on a hot summer's day, a Grasshopper was chirping and carousing his time away. He watched scornfully as an Ant nearby struggled to store up large kernels of food and build a secure nest. The Ant pulled overtime shifts to pay off his loans and accumulate retirement funds for the future.
"Give it a rest," the Grasshopper said. "Why bother saving and slaving and toiling and moiling? Let's party!" The Ant demurred: "I am planning ahead for winter, and you should do the same." The Grasshopper blew off the Ant, squandered his supplies the rest of the season and abandoned his home while on vacation (paid for by tapping every last cent of his home equity gain) instead of holding down a job.
When winter came, the Grasshopper's pantry was empty, and his shelter ruined from neglect. The Ant, weary from planting, harvesting, and stocking up for months, was dining comfortably in his nest.
Cold, hungry, jobless, facing foreclosure and up to his two pairs of eyeballs in debt, the Grasshopper limped to the Association of Community Winged Insects for Rescue Now and demanded recourse. The office was swamped with thousands just like him. ACWIRN immediately put the Grasshopper to work registering dead ants as new voters.
Funded with tax dollars from the rest of the meadow's residents, ACWIRN organized mass protests at the Bank of Antamerica, ambushed its top officials at their private homes, harassed their children and demanded that the meadow's politicians halt all foreclosures ("We must keep Grasshoppers in their houses!") and outlaw discriminatory lending practices against starving, homeless Grasshoppers ("Well-stocked shelters are basic insect rights!")
The banking industry capitulated; the Orthoptera Lobby secured hundreds of millions of dollars in housing earmarks, grants and counseling subsidies to support the Grasshoppers with the shadiest credit and employment histories. Antie Mae, the meadow's government-backed home lending giant, fueled the push for increased insect homeownership in the name of biodiversity. Its executives cooked the books and headed for the hills. Katie Cricket and the Mainstream Meadow Media joined the grievance-for-profit circus, profiling Grasshopper sob stories and drumming up ratings as bewildered Ants wondered who was looking out for them.
The banks drowned in toxic debt. More Grasshoppers fell behind on their mortgage payments. Bailout mania and panic gripped the meadow.
Our little Ant, minding his own business, heard a knock on his door one late winter night a year later. It was his old, sneering Grasshopper neighbor. With ACWIRN's presidential candidate, Barack Cicada, now in office, the Grasshopper had been hired by the meadow as a tax collector.
"I'm here to take your provisions," the Grasshopper cackled.
But it was the Ant who had the last laugh. "I've learned my lesson," he told his shiftless friend. "Why bother saving and slaving and toiling and moiling? I've spent all my savings. I'm walking away from my mortgage. Thrift is for suckers," the Ant said as he headed out the door, leaving the Grasshopper empty-handed.
Copyright © 2008 Salem Web Network. All Rights Reserved.

How We Can Clean Up a Lot of the Economic Problems

Who do you go to when you are having problems with money?

-I go to my accountant. Dave Ramsey is one of my accountants because he has saved me more money than anyone I have ever listened to. Because of his counsel I am nearly out of debt and not that panicked about what is going on in the markets. Let’s look at his advice on the bailout plan:

How We Can Clean Up a Lot of the Economic Problems
Dave Ramsey
Remember Enron, WorldCom, Adelphia, and other companies had artificially put assets on the books? They'd say something was worth $10M when they bought it, but eventually it decreased in value, and they never updated the value in the books. That was part of the fraud. Under current laws at that time, they were all convicted and put in jail for fraud.
Then we got all mad and made all these new laws that are coming out the wazoo called Sarbanes-Oxley. It's a huge, massive law but the idea is that we were going to mandate ethics to corporate America because apparently they didn't have any, according to the Enron failure. It's now a total pain in the butt to execute it in a publicly traded company.
It didn't work because you can't cause ethics to happen. However, it does make each company each day restate what their assets are worth if sold on the market. This accounting procedure is mark to market accounting--you need to remember that. It's a good concept and keeps companies from having loaded balance sheets.
How This Affects Us Today
However, it's part of what's caused this in the news now. Merrill Lynch was sitting with $30 billion tied up in sub-prime loans with houses. Stupid! They get what they deserve for doing that, and I'm with you on that. Those houses didn't become worthless all of a sudden because those people couldn't sell their bonds. Since they couldn't sell them, they basically gave them away for 22 cents on the dollar. Now do you think all those houses lost 80% of their value underneath that deal? No, they didn't, so they gave them away for 22 cents on the dollar (about $6 billion total) because there was no market for them. Nobody wants to buy sub-prime bonds because they suck. They're junk bonds. But at 22 cents on the dollar, it's a bargain because even if you foreclosed on every one of the houses in there, you'd probably get $20 billion back out of $30 billion, and so the company that bought those for $6 billion got a deal! But there's no market for them. That's where these companies are stuck. They can't sell this stuff, but accounting-wise, they've had to mark it down to market and it's frozen the marketplace.
Economist Wesbury is saying that if we change that one rule and don't force them to mark down to market value and just let them hold on to all the stuff, and say just on sub-primes for this period of time you can change that rule -- a temporary change -- that'll free the market up. It's seized right now; it's frozen. This will thaw it out and get it going again. He says that'll solve 60% of the problem ... and I think he's right.
That one accounting rule is what made Merrill Lynch sell out. That one accounting rule is what's driving other ones into the dirt. Would you rather let them change their accounting rule or loan them $700 billion for us to buyout their bad paper?
I'd rather them work their own crap out than have us bail them out with $700 billion of our tax dollars.
I don't like giving them any money or any help with my tax dollars. But I'd rather see that than see the whole thing turn completely upside down in a fruit basket turnover than have a whole meltdown or something and freak out here in the middle of the election season. Why don't we just take the FHA insurance program and extend it across these sub-primes? What that means is that you and I are guaranteeing the lender that they're not going to lose as much or any money on those mortgages. Now I don't like guaranteeing them, but I like it better than buying them. In other words, instead of $700 billion in tax-payer debt going out there to bail out these companies, just extend the insurance out. You could probably do that for less than $40 billion. It's like a 95% savings!
If the government insured those mortgages, they would then be marketable. And could sell them. And the companies would stay afloat. And we, the people, don't have to get into the mortgage business. Now we're going to get in there a little bit because of the insurance on those getting foreclosed on. But foreclosures aren't causing this. This is being caused because these companies are frozen and seized up. We've got to let some of the steam come off and put some oil in there to get this thing moving again. We can do that without going into debt $700 billion.
Here's Your Plan
Call your Congressman. Call your Senator. Tell them to change the mark-to-market accounting law and to extend insurance but extend no loans. If they extend loans - if they borrow the money on the national debt in order for us to all go into the mortgage business a trillion dollars - you're going to fire their butts and send them home.
I've talked with several people today, and it's on the tables in Washington, but it's not something you're going to see on TV. If you'll let your Congressmen know you know about this and that you'll vote against them if they don't vote to change the mark-to-market law and you'll contribute your money to make sure they never serve in office again. That's what you need to tell them early and often.
If you're pissed, this is the time to step up and do something about it, America! You can stop this! It's being railroaded down your throat, but you can stop them if you call them in mass starting now. READY ... SET ... GO!
Contact:
Your representative
Your senators
Senate committee

Democratic Platform's Hidden Soros Slush Fund

Democratic Platform's Hidden Soros Slush Fund
By Michelle Malkin
August 20, 2008
The Democratic Party platform is like a bag of pork rinds. You never know what high-fat liberal government morsel you're gonna get.
Buried in the 94-page document is a noble-sounding proposal to create a "Social Investment Fund Network." The program would provide federal money (i.e. your tax money) to "social entrepreneurs and leading nonprofit organizations [that] are assisting schools, lifting families out of poverty, filling health care gaps, and inspiring others to lead change in their own communities." The Democratic Party promises to "support these results-oriented innovators" by creating an office to "coordinate government and nonprofit efforts" and then showering "a series of grants" on the chosen groups "to replicate these programs nationwide."
In practice, this Barack Obama brainchild would serve as a permanent, taxpayer-backed pipeline to Democratic partisan outfits masquerading as public-interest do-gooders. This George Soros Slush Fund would be political payback in spades. Obama owes much of his Chicago political success to financial support from radical, left-wing billionaire and leading "social entrepreneur" Soros. In June 2004, Soros threw a big fundraiser at his New York home for Obama's Illinois Senate campaign. Soros and family personally chipped in $60,000. In April 2007, Obama was back in New York for a deep-pocketed Manhattan fundraising soiree, with Soros lurking in his shadow.
No doubt with Soros' approbation (if not advice from the hands-on "progressive" activist or his advisers), Obama fleshed out his Social Investment Fund Network plan last December. In concert with his mandatory volunteerism pitch and $6 billion anti-poverty plan, Obama called for the creation of a "Social Entrepreneurship Agency" to dispense the funds in unspecified amounts. The agency would be a government-supported nonprofit corporation "similar to the Corporation for Public Broadcasting," which runs public television. (And we've all seen how fair and balanced that lib-dominated, Bill Moyers-boosting private-public enterprise turned out.)
Obama cites the Harlem Children's Zone, which provides after-school activities and mentors to children in New York, as an example of a program that should be funded. (HCZ's former senior leader Shawn Dove is now an official at Soros' Open Society Institute.) The problem with such initiatives, as Mitchell Moss pointed out in the Manhattan Institute's City Journal several years ago, is that these private-public partnerships formed under the guise of economic renewal often become nothing more than fronts that coordinate "an enormous safety net for social services." Private donations give the illusion of self-help and philanthropic independence, but in reality, the "clients" are never weaned from the teat of the welfare state. They simply learn how to milk it more efficiently.
Even more troubling is how the Democratic Party/Obama plan would siphon untold millions or billions of public tax dollars into the Soros empire without taxpayer recourse. Obama promises "accountability" measures to ensure the money is spent wisely. But who would assess effectiveness of the spending? Why, experts in the social entrepreneurship community, of course. Fox, meet henhouse.
Soros has donated some $5 billion of his fortune to left-wing nonprofit groups through the Open Society Institute -- an institution committed to Soros' militant ideology of toppling the "fascist" tyranny of the United States, which he says must undergo "de-Nazification" in favor of "justice." The mob at Obama-endorsing MoveOn, purveyors of the "General Betray Us" smear against Commanding General, MNF-I, David Petraeus, is the most notorious Soros-backed political arm. But scores of other activist nonprofits have received Soros funding under the guise of doing nonpartisan "community" or "social justice" work -- and it is exactly such leftist activist groups that would be first in line for the Democratic Party/Obama's "social investment" seed money.
Point in case: ACORN. As I've reported before, Obama's old friends at the Chicago-based nonprofit now take in 40 percent of their revenues from American taxpayers. They raked in tens of millions in federal antipoverty grants while some of their operatives presided over massive voter fraud and others were implicated in corporate shakedowns and mortgage scams across the country. Soros has donated at least $150,000 to the group, according to Investor's Business Daily, and "heads a secretive rich-man's club called 'Democracy Alliance' that has doled out $20 million to activist groups like ACORN."
Once the spigot is turned on, there's no turning back.
Where are fiscal conservatives on this far-left boondoggle? Well, if you're wondering why the McCain campaign doesn't raise hell over this proposed left-wing nonprofit/government pipeline, it's because McCain himself is a Soros beneficiary. His "Reform Institute," a tax-exempt, supposedly independent 501(c)(3) group focused on campaign finance reform, was funded by the Soros-funded Open Society Institute and Tides Foundation.
Birds of a Big Government feather flock together -- and look out for each other. Watch your wallet.
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Michelle Malkin is author of "Unhinged: Exposing Liberals Gone Wild." Her e-mail address is malkinblog@gmail.com.
COPYRIGHT 2008 CREATORS SYNDICATE, INC.
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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.

Dave Walker's Op-Ed in the Financial Times

Dave Walker's Op-Ed in the Financial Times
Dave Walker was formerly the US Comptroller General (think of him like the government’s head accountant)

Washington must heed fiscal alarm bellPublished: September 22 2008 18:57 Last updated: September 22 2008 18:57
What do AIG, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch have in common? Some thought that these companies were too big to fail. They were wrong: all of these companies have either filed for bankruptcy, been "bailed out" by the government, or, owing to the sub-prime crisis, have been acquired. Over the weekend, the US government went one step further, with its proposals for an estimated $700bn (€493bn, £391bn) bail-out to ease the credit crisis.
The US government truly is too big to fail. However, there are disturbing parallels between the factors that led to the sub-prime crisis and the deteriorating financial condition and fiscal foundation of our federal government. These similarities ought to ring an alarm bell for Congress and the presidential candidates. The question is, will they hear it and wake up?
The first parallel relates to the dangerous disconnect between the parties who benefit from various imprudent practices and those who bear the related risk and ultimately pay the price. In the housing crisis, some originators of unwise mortgages have not paid a price for their actions. In the case of our federal government, politicians have increased spending, expanded government entitlement programs, and agreed tax cuts without considering their long-term costs.
Second, a lack of transparency facilitated the crisis. Banks and other financial institutions created off-the-books entities so that regulators would find it hard to track the risks to their health. The US federal budget does not reflect the government's huge off-balance sheet and unfunded promises, commitments and contingencies that stood at over $40,000bn at September 30, 2007.
Another similarity has been the role of credit rating agencies, which blithely rated securitized mortgage packages without looking at the weaknesses of underlying mortgages. In similar fashion, purchasers of American debt issued by Fannie Mae and Freddie Mac assumed that it was guaranteed by the US government. The resulting expectation gap among foreign investors resulted in their demand that the government make explicit what until then had been only an implicit guarantee. The result is that the US taxpayer now stands behind more than $5,000bn in mortgages. It is too soon to say what the ultimate cost will be to taxpayers.
Finally, while there were private sector and executive branch failures, Congress also bears responsibility. It writes the laws and is charged with oversight of these formerly quasi-governmental entities and regulatory agencies. The sad but simple truth is that our country has strayed a long way from the principles and values that made this nation great. Washington has grown increasingly out of touch and out of control. Personal responsibility and stewardship for our collective future are largely absent in too many government areas. This must change.
Are there lessons from the sub-prime crisis? The answer is yes. The recent actions had to be taken because the government failed to establish an effective regulatory structure in connection with mortgages, derivatives and other securities. Greed was rampant. Fannie Mae and Freddie Mac strayed from their original mission, becoming too focused on profit and personal gain rather than their public purpose. Lax oversight was facilitated by powerful Wall Street lobbies and the lobbying of Fannie Mae and Freddie Mac.
Beyond the turmoil for banks and homeowners, however, there is a super-sub-prime crisis brewing in Washington. Our fiscal policies have created a disconnect between today's citizens and future taxpayers. Today's taxpayers benefit from high government spending and low taxes, while future generations are expected to pay the bill. Our real challenge is where we are headed on our do-nothing fiscal path.
Washington has charged everything to the nation's credit card - engaging in tax cuts and spending increases without paying for them. Washington's imprudent, unethical and even immoral behaviour is facilitated by a lack of transparency. For example, as of September 30, 2007 the federal government was in a $53,000bn dollar fiscal hole, equal to $455,000 per household and $175,000 per person. This burden is rising every year by $6,600-$9,900 per American. Medicare represents $34,000bn of this deficit and the related Medicare trust fund is set to run dry within 10 years. The Social Security program is projected to have negative cash flow within about 10 years.
What needs to be done? First, we need leadership from the presidential candidates and members of Congress. We need to re-impose tough budget controls, constrain federal spending, decide which Bush tax cuts will stay, and engage in comprehensive reform of our entitlement, healthcare and tax systems. A bipartisan commission that would make recommendations for an up-or-down vote by Congress would be a positive step to making this a reality.
While the US government is too big to fail, continuing on our current path will have adverse implications for our economy and international standing. The sooner Washington acts, the better. Our country, children and grandchildren deserve no less. In the interim, the government needs to decide how to account for its radical actions in the financial statements for the year to September 30. The Treasury has a responsibility to disclose and account for these costs adequately and the Government Accountability Office has a duty to insist the Treasury does so.
The writer is president and chief executive of the Peter G Peterson Foundation and former Comptroller General of the United States
Copyright The Financial Times Limited 2008

4XIsland

A couple of people commented on my previous 4XIsland, on Mon 04 Aug 2008, today. And that reminded me that I have not told everyone what 4XIsland did about a month ago. A big wig at 4XIsland called me and asked me to remove my post about 4XIsland, and he'd give me 3 days to do so, because he said it is slander (I think he ment to say liable). I told him I would not. He then said to expect to see papers for a lawyer. Well I have not seen any nor do I expect to. Telling someone what happened, if truethful, is not liable. If it was untruethful I would have to take it down. But it is the trueth. It has been a while since it happened, but he did have me a bit worried for a while. Because companies that have money can buy a lawyer to scare people to do what they want just because they have the money and resources to do so and there is no recourse. He even went to point of saying I have you recorded and you said otherwise, I said I know it is legal to record, and I did not contradict myself. In fact if you look at the post it has good and bad points.

America Beyond The Point Of No Return

America Beyond The Point Of No Return
By Doug Patton
September 23, 2008
"Liberty means responsibility. That is why most men dread it." - George Bernard Shaw
A half century ago, Russian-born writer Ayn Rand warned about the creeping socialism she saw in America even then. In her thousand-page tome, "Atlas Shrugged," Rand told the story of John Galt, a shadowy figure who is so fed up with high taxes, burdensome regulations and interference from government, he secretly recruits the best and brightest of American capitalism - the captains of industry - to withdraw from society to the mountains of Colorado, leaving the growing welfare state without any visible means of support.
Imagine what Ayn Rand would say about the federal government coughing up quantities of cash even career bureaucrats didn't talk about in the 1950s; all to bail out quasi-government entities whose overseers were complicit in the failures of those very institutions.
Republicans and Democrats alike share the blame for this mess. It was largely created out of a misguided need (mostly by Democrats) to feel as though America was actually doing something to help the poor own their own homes. This may be a worthwhile goal, but when people who have absolutely no hope of paying back loans are approved to buy a home, one has to ask, "Who is going to pick up the tab for all this?" Answer: You are, to the tune of at least a trillion dollars, a sum most of us cannot even fathom.
Over the last decade, Democrats like U.S. Rep. Barney Frank, D-MA, chairman of the House Financial Services Committee, and U.S. Sen. Christopher Dodd, D-CN, chairman of the Senate Banking Committee, have insisted that these ridiculous loans be made. Former Attorney General Janet Reno, carrying out the wishes of her boss, threatened legal action against any institution that discriminated or "redlined." I was very disappointed to hear John McCain say on CBS's "60 Minutes" that he admired New York State Attorney General Andrew Cuomo and would consider him to head up the Securities and Exchange Commission. As Bill Clinton's Secretary of Housing and Urban Development (HUD), Cuomo was up to his eyeballs pushing the sub-prime mortgages that started these dominoes tipping in the first place.
And where were Newt Gingrich and the Republicans in the 1990s when Clinton and his cronies were building this house of cards? The GOP held the House and the Senate during most of Clinton's tenure. After 2000, they also held the White House. Why did this situation continue?
The rule in Washington seems to be this: If you squander your money and fail to provide for yourself, the government will take care of you. If you save, invest wisely and prepare for your retirement, you will be penalized in order to pay for those who did not. A perfect example was the tax increase passed by Clinton and the Democrats who still controlled Congress during the first two years of his administration. Seniors who had saved and invested for retirement, and who made more than $34,000 ($44,000 per couple) received a tax increase under that plan.
The frightening thing about the trillion dollar bailout is that everyone seems so willing to go along with it. It is as though we have finally accepted the idea that government is the one entity that has the resources to pull off such a plan. Well, guess what. Government doesn't have a nickel. Government is in the hole to the tune of ten trillion dollars (Not including the unfunded liabilities of Social Security, Medicare and Medicaid which total around $40 trillion dollars). But government has two things no one else has. Government has the power to print money and the power to raise taxes.
Alternatives may yet see the light of day in Congress. Perhaps in this hour of crisis, our representatives will see that the private sector could probably pull itself out of this with some very favorable tax policy. At least try repealing the capital gains tax to see if private firms wouldn't consider buying up these companies.
Or better yet, how about the Fair Tax, so that the billions in offshore accounts can come flooding back into the economy without fear of being sacked by the feds?
Those who for years have predicted America's slide into the cesspool of collectivism have been vindicated by the taxpayer-financed bailout of the mortgage and insurance industry. In essence and in fact, the United States government has nationalized these industries. Hugo Chavez no doubt is amused.
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Doug Patton is a freelance columnist who has served as a political speechwriter and public policy advisor. His weekly columns are published in newspapers across the country and on selected Internet web sites, including Human Events Online, TheConservativeVoice.com and GOPUSA.com, where he is a senior writer and state editor. Readers may e-mail him at dougpatton@cox.net.

The Rest of the Meltdown Story

The Rest of the Meltdown Story
Neal Boortz
Friday, September 19, 2008
What in the world is going on here?
You’ve seen the headlines, and you heard of the failures and buyouts. Lehman Brothers, Bear Stearns, Merrill Lynch, AIG; all big names and all in big trouble. Then those mysterious quasi-government agencies with names like Freddie and Fannie become wards of the state and you learn that you and your fellow taxpayers are potentially on the hook for tens of billions of dollars. At the end of the week Washington Mutual is looking for a buyer, and you start to wonder about the security of your own bank and your own savings account. Let’s change that ad copy to WaMu -- boo hoo.
Somewhere in the back of your mind you understand that this is all tied somehow to bad mortgages. If you start reading a bit further to enhance your understanding you run into terms like Mortgage Backed Securities (MBS) and credit-default swaps, whatever in the world those are. Read further and you find out that a combination of falling home prices and mortgage defaults have put many investment banks and other financial institutions in deep puddin’. All this reading, all this watching the talking heads on TV, and you still don’t really know what in the world is going on here.
Fear not. I’m here to help. I know … I’m just another talk show host; but the fact is that when the stage was being set for the problems we’re seeing today I was making most of my money as a real estate lawyer .. closing loans for some of the very institutions that are the tank today. This rather unique combination – closing lawyer and radio talk show host – gave me a front row seat to the politicization of mortgage loans that led us to today’s headlines.
OK .. so we all know that a lot of really bad real estate loans were made. The political class would sure love for us to believe that the blame here rests squarely on “greedy” (try to define that word) mortgage brokers and lenders. The truth is that most of the blame rests on political meddling in the credit decisions of these mortgage lenders.
Twenty years ago the buzz-word in the media was “redlining.” Newspapers across the country were filled with hard-hitting investigative reports about evil and racist mortgage lenders refusing to make real estate loans to various minorities and to applicants who lived in lower-income neighborhoods. There I was closing these loans in the afternoons, and in the mornings offering a counter-argument on the radio to these absurd “redlining” claims. Frankly, the claims that evil mortgage lenders were systematically denying loans to blacks and other minorities were a lot sexier on the radio than my claims that when credit histories, job stability, loan-to-value ratios and income levels were considered there was no evident racial discrimination.
Political correctness won the day. Washington made it clear to banks and other lending institutions that if they did not do something .. and fast .. to bring more minorities and low-income Americans into the world of home ownership there would be a heavy price to pay. Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank’s efforts to grow if that bank didn’t make loans to unqualified borrowers. Enter, stage left, the “subprime” mortgage. These lenders knew that a very high percentage of these loans would turn to garbage – but it was a price that had to be paid if the bank was to expand and grow. We should note that among the community groups browbeating banks into making these bad loans was an outfit called ACORN. There is one certain presidential candidate that did a lot of community organizing for ACORN. I won’t mention his name so as to avoid politicizing this column.
These garbage loans to unqualified borrowers were then bundled up and sold. The expectation was that the loans would be eventually paid off when rising home values led some borrowers to access their equity through re-financing and others to sell and move on up the ladder. Oops.
Right now this crisis is being sold to the American public by the left as evidence the failure of the free market and capitalism. Not so. What we’re seeing is the inevitable result of political interference in free market economics. Acme bank didn’t want to loan money to Joe Homebuyer because Joe had a spotty job history, owed too much money on his credit cards, and wasn’t all that good at making payments on time. The politicians told Acme Bank to figure out a way to make that loan, because, after all, Joe is a bona-fide minority-American, or forget about opening that new branch office on the Southside. The loan was made under politicial pressure; the loan, with millions like it, failed – and now we are left to enjoy today’s headlines.
So … why aren’t you reading the whole story in the mainstream media? Come on, are you kidding me? Do you really expect the media to blame this mess on deadbeat borrowers and political interference in the free market when it is so easy to put the blame on greedy lenders and evil capitalists? Remember … there’s an election going on. One candidate is decidedly anti-capitalist. Do the math.
Copyright © 2008 Salem Web Network. All Rights Reserved.

The Dangers of Government Guarantees

The Dangers of Government Guarantees
Fred Thompson
Monday, September 08, 2008
I’ll bet it came as a surprise to most folks that the financial stability of the world as we know it depends upon the survival of a couple of outfits called Fannie Mae and Freddie Mac. Yet that’s what the so-called experts are telling us. Moreover, we taxpayers are now being asked to guarantee Fannie and Freddie’s tab, one that could make the $124 billion S&L bailout of the late 1980s look cheap.
So how did we get stuck with this bill? Well, Congress wanted to “do something” about what it saw as a “housing problem.” To them that meant that they should create an even bigger problem.
So Congress passed laws that made it easier for hopeful home-buyers to buy houses … even when they couldn’t afford them. Then the Fed and other regulators helped, in the form of easy money and loose credit standards for mortgages.
Not surprisingly demand for houses grew, home prices rose, lenders financed additional questionable mortgages, fueling even higher prices and so on. You get the picture. This is called a bubble.
Then an amazing thing happened – apparently impossible to foresee. Home prices did not continue to rise forever! Home prices came down and easy money dried up, causing the above mentioned cycle to reverse. In other words, the bubble burst.
So you’d think the in-over-their-heads homebuyers and the mortgage bankers would take the hit, and the market would right itself. No reason for an international meltdown here, right?
Not so fast my friends. Years earlier Congress established Fannie and Freddie as purchasers of these mortgages, which they could bundle up, repackage and sell to investors, freeing up more mortgage money. As government creations tend to do, the two companies grew until they either owned or guaranteed about half the nation’s $12 trillion dollars in mortgages.
Fannie and Fred were “government sponsored enterprises” which means heads they win, tails you lose. If they make money stockholders, creditors and Fannie and Freddie employees – some making millions annually – get the benefit. But now that mortgages have hit the skids, with mounting losses, the taxpayers potentially face trillions in exposure. This is because there is an “implicit” (read “actual”) government guarantee of Fannie and Freddie’s obligations and both are now too big to be allowed to fail. This is called the “bailout phase,” which will probably lead to a bigger bubble in the future.
Lost in this immense, complex mess is the root problem most people are missing: the government is gradually becoming the guarantor of seemingly every important aspect of American secular life, creating incentives and bureaucracies that cause failure and invite fraud.
In Fan and Fred’s case, it was in no one’s interest to turn off the bubble machine. Just the opposite. The system induced borrowers to take on financial obligations they could not afford and lenders to lower lending standards. Fannie and Freddie went along because their managers’ compensation depended on the firms’ short term financial performance. And investors continued to buy complex security packages they didn’t understand, because the securities were viewed as government-backed.
Heavy campaign contributions by those benefiting from this scheme induced Members of Congress to avert their gaze from the ugly mess that was unfolding.
You’d think we’d have learned by now: when the backstop of the federal treasury makes it easier for politicians, lenders, borrowers, welfare recipients, government contractors, or anyone else, to serve their own self interest at the expense of the taxpayer, many will do just that.
That is why we continue to see self-dealing, moral lapses, outright fraud and lack of management and oversight in a wide array of programs and government-sponsored entities, from housing to Medicare, education and the Small Business Administration, all costing taxpayers billions, even trillions of dollars.
Our Founding Fathers knew more than a little bit about human nature. It is one reason why in the Constitution, the federal government was given certain delineated powers and no others. I hate to burst another bubble, but our government simply doesn’t have the authority or the capability to be the guarantor or insurer of our every need or desire. Isn’t it time we started sending that message loud and clear to the big enablers in Washington?
Copyright © 2008 Salem Web Network. All Rights Reserved.

Stubborn Ignorance

Stubborn Ignorance
Walter E. WilliamsWednesday, September 17, 2008
Here's what the U.S. Constitution says: "All bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills." How many times have we heard politicians, pundits and guardians of our news media say that President Bush cut taxes, or Obama is going to raise taxes? The fact of the matter is that presidents have no power to raise or lower taxes. They can propose tax measures or veto them but it is Congress that has the ultimate power to raise or lower taxes since they can, with a two-thirds vote, override a presidential veto. The same principle applies to spending. Presidents cannot be held responsible for budget deficits or surpluses. A president cannot spend a dime that Congress does not first appropriate. Given these plain facts, are politicians, pundits and media people -- who persist in talking about a president cutting or raising taxes, or creating a budget deficit -- ignorant, stupid or deceptive?
Did President Clinton create more jobs, or did President Bush? Let's look at it. In 1996, I landed a job at Grove City College team teaching a course with one of its faculty members, Professor Dirk Mateer. I would like someone to tell me how President Clinton created that job for me. Did he call the college president and say, "Hire Williams"? Did he give Grove City College, a private college, resources to hire me? He surely didn't call me up and say, "Williams, there's a job waiting for you at Grove City College." So what precisely do people mean when they say this president or that president created jobs? You might argue, "You're right when it comes to a president creating jobs, but Congress can create jobs through appropriating money for infrastructure such as highways and bridges."
That's true in one sense and false in another. You can see this by asking, "Where does Congress get the money to create the jobs?" They won't get it from the Tooth Fairy or Santa Claus; they must get the money from taxpayers. That means if Congress collects $100 from a taxpayer for highway construction, he cannot use that $100 for some other expenditure that would have created a job. If Congress borrows the money for highway construction, it causes interest rates to be higher and therefore less job-creating investment. The bottom line is that Congress can only shift employment or unemployment but cannot create net new jobs.
Many politicians and pundits claim that the credit crunch and high mortgage foreclosure rate is an example of market failure and want government to step in to bail out creditors and borrowers at the expense of taxpayers who prudently managed their affairs. These financial problems are not market failures but government failure. The Community Reinvestment Act of 1977 is a federal law that intimidated lenders into offering credit throughout their entire market and discouraged them from restricting their credit services to low-risk markets, a practice sometimes called redlining. The Federal Reserve Bank, keeping interest rates artificially low, gave buyers and builders incentive to buy and build, thereby producing the housing bubble. Lenders were willing to make creative interest-only loans, often high-risk "no doc" and "liar loans," in order to allow people to buy more housing than they could afford. Of course, with the expectation that housing prices will continue to rise, it was no problem for lenders and borrowers but housing prices began to fall, leaving some people with negative home equity and banks in trouble.
The credit crunch and foreclosure problems are failures of government policy. In fact, what we see now is a market correction to foolhardy government policy. Congress' move to bailout lenders and borrowers who made poor decisions will simply create incentives for people to make unwise decisions in the future. English philosopher Herbert Spencer said, "The ultimate result of shielding men from the effects of folly is to fill the world with fools."
Copyright © 2008 Salem Web Network. All Rights Reserved.

The Real Culprits in This Meltdown

The Real Culprits in This Meltdown
By INVESTOR'S BUSINESS DAILY Posted Monday, September 15, 2008 4:20 PM PT
Big Government: Barack Obama and Democrats blame the historic financial turmoil on the market. But if it's dysfunctional, Democrats during the Clinton years are a prime reason for it.
Read More: Business & Regulation
Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the "trickle-down" economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.
But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.
Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.
The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory."
Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.
And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.
As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.
Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.
Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.
In the end, Fannie had to pay a record $400 million civil fine for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.
But it was too little, too late. Raines had reportedly steered Fannie Mae business to subprime giant Countrywide Financial, which was saved from bankruptcy by Bank of America.
At the same time, the Clinton administration was pushing Fannie and her brother Freddie Mac to buy more mortgages from low-income households.
The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists, resulted in today's nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.
And the worst is far from over. By the time it is, we'll all be paying for Clinton's social experiment, one that Obama hopes to trump with a whole new round of meddling in the housing and jobs markets. In fact, the social experiment Obama has planned could dwarf both the Great Society and New Deal in size and scope.
There's a political root cause to this mess that we ignore at our peril. If we blame the wrong culprits, we'll learn the wrong lessons. And taxpayers will be on the hook for even larger bailouts down the road.
But the government-can-do-no-wrong crowd just doesn't get it. They won't acknowledge the law of unintended consequences from well-meaning, if misguided, acts.
Obama and Democrats on the Hill think even more regulation and more interference in the market will solve the problem their policies helped cause. For now, unarmed by the historic record, conventional wisdom is buying into their blame-business-first rhetoric and bigger-government solutions.
While government arguably has a role in helping low-income folks buy a home, Clinton went overboard by strong-arming lenders with tougher and tougher regulations, which only led to lenders taking on hundreds of billions in subprime bilge.
Market failure? Hardly. Once again, this crisis has government's fingerprints all over it.

The Vision of the Left

The Vision of the Left
Thomas SowellTuesday, September 09, 2008
Conservatives, as well as liberals, would undoubtedly be happier living in the kind of world envisioned by the left.
Very few people have either a vested interest or an ideological preference for a world in which there are many inequalities.
Even fewer would prefer a world in which vast sums of money have to be devoted to military defense, when so much benefit could be produced if those resources were directed into medical research instead.
It is hardly surprising that young people prefer the political left. The only reason for rejecting the left's vision is that the real world in which we live is very different from the world that the left perceives today or envisions for tomorrow.
Most of us learn that from experience-- but experience is precisely what the young are lacking.
"Experience" is often just a fancy word for the mistakes that we belatedly realized we were making, only after the realities of the world made us pay a painful price for being wrong.
Those who are insulated from that pain-- whether by being born into affluence or wealth, or shielded by the welfare state, or insulated by tenure in academia or in the federal judiciary-- can remain in a state of perpetual immaturity.
Individuals can refuse to grow up, especially when surrounded in their work and in their social life by similarly situated and like-minded people.
Even people born into normal lives, but who have been able through talent or luck to escape into a world of celebrity and wealth, can likewise find themselves in the enviable position of being able to choose whether to grow up or not.
Those of us who can recall what it was like to be an adolescent must know that growing up can be a painful transition from the sheltered world of childhood.
No matter how much we may have wanted adult freedom, there was seldom the same enthusiasm for taking on the burdens of adult responsibilities and having to weigh painful trade-offs in a world that hemmed us in on all sides, long after we were liberated from parental restrictions.
Should we be surprised that the strongest supporters of the political left are found among the young, academics, limousine liberals with trust funds, media celebrities and federal judges?
These are hardly Karl Marx's proletarians, who were supposed to bring on the revolution. The working class are in fact today among those most skeptical about the visions of the left.
Ordinary working class people did not lead the stampede to Barack Obama, even before his disdain for them slipped out in unguarded moments.
The agenda of the left is fine for the world that they envision as existing today and the world they want to create tomorrow.
That is a world not hemmed in on all sides by inherent constraints and the painful trade-offs that these constraints imply. Theirs is a world where there are attractive, win-win "solutions" in place of those ugly trade-offs in the world that the rest of us live in.
Theirs is a world where we can just talk to opposing nations and work things out, instead of having to pour tons of money into military equipment to keep them at bay. The left calls this "change" but in fact it is a set of notions that were tried out by the Western democracies in the 1930s-- and which led to the most catastrophic war in history.
For those who bother to study history, it was precisely the opposite policies in the 1980s-- pouring tons of money into military equipment-- which brought the Cold War and its threat of nuclear annihilation to an end.
The left fought bitterly against that "arms race" which in fact lifted the burden of the Soviet threat, instead of leading to war as the elites claimed.
Personally, I wish Ronald Reagan could have talked the Soviets into being nicer, instead of having to spend all that money. Only experience makes me skeptical about that "kinder and gentler" approach and the vision behind it.
Copyright © 2008 Salem Web Network. All Rights Reserved.

When Did Freedom Become an Orphan?

When Did Freedom Become an Orphan?
Steve ChapmanSunday, September 07, 2008

"We must, and we shall, set the tide running again in the cause of freedom. And this party, with its every action, every word, every breath, and every heartbeat, has but a single resolve, and that is freedom." -- Barry Goldwater, accepting the 1964 Republican presidential nomination
This year's Republican National Convention had a different theme for each day. Monday was "Serving a Cause Greater than Self." Tuesday was "Service," Wednesday was "Reform" and Thursday was "Peace."
So what was missing? Only what used to be held up as the central ideal of the party. The heirs of Goldwater couldn't spare a day for freedom.
Neither could the Democrats. Their daily topics this year were "One Nation," "Renewing America's Promise" and "Securing America's Future." The party proclaimed "an agenda that emphasizes the security of our nation, strong economic growth, affordable health care for all Americans, retirement security, honest government, and civil rights." Expanding and upholding individual liberty? Not so much.
Forty-four years after Goldwater's declaration, it's clear that collectivism, not individualism, is the reigning creed of Republicans as well as Democrats. Individuals are not valuable and precious in their own right but as a means for those in power to achieve their grand ambitions.
You will scour the presidential nominees' acceptance speeches in vain for any hint that your life is rightfully your own, to be lived in accordance with your beliefs and desires and no one else's. The Founding Fathers set out to protect "life, liberty and the pursuit of happiness," but Barack Obama has a different idea.
The "essence of America's promise," he declared in Denver, is "individual responsibility and mutual responsibility" -- rather than, say, individual freedom and mutual respect for rights. The "promise of America," he said, is "the fundamental belief that I am my brother's keeper; I am my sister's keeper."
In reality, that fundamental belief is what you might call the promise of socialism. What has set this country apart since its inception is not the notion of obligations but the notion of rights.
"All previous systems had regarded man as a sacrificial means to the ends of others, and society as an end in itself," wrote the novelist and philosopher Ayn Rand. "The United States regarded man as an end in himself, and society as a means to the peaceful, orderly, voluntary co-existence of individuals."
That idea got lost somewhere between Thomas Jefferson and John McCain. What do Republicans believe in? McCain told us Thursday: "We believe in a strong defense, work, faith, service, a culture of life, personal responsibility, the rule of law. … We believe in the values of families, neighborhoods and communities."
Would it be too much to mention that what sustains the American vision of those things is freedom? That without it, personal responsibility becomes hollow and service is servitude?
Apparently it would. Republicans are big on promoting freedom abroad, but in this country, the term encompasses a lot of things they don't like -- the right to a "homosexual lifestyle," the right to protest the Iraq war, the right to privacy, the right not to recite the Pledge of Allegiance, and more. Conservatives who once thought Americans had too little freedom now sometimes think they have too much.
Liberals, on the other hand, are wary of embracing freedom precisely because of its historic importance to the right. They fear it means curbing the power of a government whose reach they want to expand.
While they value many personal liberties, they have no great attachment to forms of freedom that involve buying, selling, trading and accumulating. Those, after all, can involve selfishness, and Democrats, like Republicans, don't want to protect selfishness.
But freedom isn't freedom without the right to pursue what you value -- money or knowledge, pleasure or sacrifice, God or atheism, community or misanthropic solitude -- rather than what others think you should value. It includes the right to go to hell, and the right to tell others to do the same.
The latter is a valuable prerogative that we have not yet lost. After watching the conventions, if you have the urge to use it on either of the two major parties, feel free. If he were alive, Barry Goldwater might join you.
Copyright © 2008 Salem Web Network. All Rights Reserved.

Circuit City

Bought a radio for Suzie car yesterday from Circuit City. If you buy a radio that is over $100.00 then you get your installation for free. Well that is what they say. My free installation turned into $100.00 installation part of it was parts which is fine, but some of it is labor. I got stuck with $100.00 of hiden fees at the register. I sure don't want to buy from Circuit City again.