Bye-Bye Bad Bill, But Why Was It Bad?
Posted by: Kevin D. Korenthal | 09/30/2008 9:35 AM
As we approach the 24 mark since the attempt to institute the biggest socialization of our economy since the New Deal FAILED, cooler heads are offering some sage analysis on why the bailout bill that Congress voted on yesterday was a non-starter.
Andy McCarthy at The National Review is seriously questioning how those that voted against the bill can be called irresponsible. He also questions whether there is anything at all in that bill that would have helped us out of the crisis. Read it here.
CNN (of all places) is running a piece by Harvard economist Jeffrey A. Miron which seeks to explain the more solid aspects of the libertarian argument against the bailout. When all is said and done, the libertarian argument appears to be the same argument that 9 in 10 Americans are sharing with their Representatives. Read it here.
Next up we have Joseph Calhoun with RealClearPolitics who explains that the ONLY solution for failure in the markets is the removal of the government apparatuses that intervened against Capitalism to cause this mess. In other words, "In Times of Crisis, Trust Capitalism:" Read it here.
Finally, Walter E. Williams' position that the markets can and must be allowed to correct themselves is presented in an article by Carol Hazard. Check it out here.
The bottom line here is that for all of the support that some Republicans gave to the bailout, it was not enough to distill a sense that this was the correct path. Time will tell if I and others that have opposed this method for addressing the crisis were correct to council the avoidance of haste. It may turn out that in the end, the inability of Congress to pass this bill will amount to the complete meltdown of the economy. If that happens, I will be the first to admit I was wrong. It wouldn't be the first time. But it remains uncertain to me if those that have thrown axes at me for criticizing those who would rush to address a problem created by Washington politics by infusing more politics into the problem will do the same if it turns out that either the delay caused a better bill to be devised or that no bill was necessary to stabilize the markets at all.
UPDATE: Reuters has a decent report on Conservative objections, including those from Rush Limbaugh, against the bailout of the U.S. financial markets by the taxpayers. Other than the fact that it minimizes Democrat objections to the bill, it's a pretty fair report.
Andy McCarthy at The National Review is seriously questioning how those that voted against the bill can be called irresponsible. He also questions whether there is anything at all in that bill that would have helped us out of the crisis. Read it here.
CNN (of all places) is running a piece by Harvard economist Jeffrey A. Miron which seeks to explain the more solid aspects of the libertarian argument against the bailout. When all is said and done, the libertarian argument appears to be the same argument that 9 in 10 Americans are sharing with their Representatives. Read it here.
Next up we have Joseph Calhoun with RealClearPolitics who explains that the ONLY solution for failure in the markets is the removal of the government apparatuses that intervened against Capitalism to cause this mess. In other words, "In Times of Crisis, Trust Capitalism:" Read it here.
Finally, Walter E. Williams' position that the markets can and must be allowed to correct themselves is presented in an article by Carol Hazard. Check it out here.
The bottom line here is that for all of the support that some Republicans gave to the bailout, it was not enough to distill a sense that this was the correct path. Time will tell if I and others that have opposed this method for addressing the crisis were correct to council the avoidance of haste. It may turn out that in the end, the inability of Congress to pass this bill will amount to the complete meltdown of the economy. If that happens, I will be the first to admit I was wrong. It wouldn't be the first time. But it remains uncertain to me if those that have thrown axes at me for criticizing those who would rush to address a problem created by Washington politics by infusing more politics into the problem will do the same if it turns out that either the delay caused a better bill to be devised or that no bill was necessary to stabilize the markets at all.
UPDATE: Reuters has a decent report on Conservative objections, including those from Rush Limbaugh, against the bailout of the U.S. financial markets by the taxpayers. Other than the fact that it minimizes Democrat objections to the bill, it's a pretty fair report.
You don't need to throw the baby out with the bath water.
FANNIE & FREDDIE worked just fine before the 1999 Gramm/Leach Act - which "put the Foxes in charge of the Hen House."
Culprit's are/were Clinton, Congress (most of) & Wall Street.
Just incompetent idiot's ... or Treason?
Let a jury decide.
The Community Reinvestment Act was responsible for a lobbying effort that reward far-left extremists for finding new and interesting ways to loan money to people who had no ability to pay it back. I worked for sub-prime lender Ameriquest back in the mid-1990s and can tell you some wild stories about the hard cases we loaned to, all as a result of the CRA.
Great article here: http://www.lewrockwell.com/dilorenzo/dilorenzo125.html
ACORN is partially responsible for forcing the largest lenders to dish out loans to people based upon race not merit or credit. However, this debacle can't be contributed all to the ideas of 'unequal housing opportunity' lending. No doubt they contributed a fractional percentage of A-paper loans, this had to do with lowering standards. Otherwise Wells Fargo & US Bank would be going under--but of course, they didn't issue a great deal of risky mortgages. No Neg Am, Few stated, no No Doc (NINJA) loans. NINJA: No Income, No Job or Assets needed to qualify for a loan.
The bill was bad because it insured Wall Street Profits and not helping anyone suffering from a loss of income or facing loss of their homes. It was to make sure a fat cat gambler get's a push at the black jack table.
Who made Countrywide, WAMU, New Century, etc. allow customers to have no income or to lie their income to qualify for a loan? Moreover, issued an adjustable rate or a negative amortization loans that either ballooned the interest rate or the size of the mortgage. The subprime logic was that the lender was giving a poor credit a 'bargain' for a few years and then the ARM would fluctuate based upon market rates. However, theses rates could only go up by the design of the loan and destined to fail.
What happened was in 2002-2003, lenders shelled out tons of loans due to historically low interest rates. Even Folks with terrible credit qualified for a lower rate because in 1999, rates hovering 9% for an A-paper loan, dropped to just under 5% to the same customers based upon credit & equity. From this a refinance boom was born.
After virtually everyone that wanted a lower rate got one, and in Aug 2003, A-paper rates temporarily rose 1.75% in 45 days, there was an abrupt stoppage of lending flows.
Because companies look at last years profits and volume to determine next year goals, these aggressive (read that delusional) planners made assumptions that they could increase revenues & the number of loans issued in 2004 by a fixed percentage--even if the level of lending was completely unfounded and only due to a 50 year anomaly!!! After going several months, and learning that 2003 numbers could not be attained, these lenders lowered their standards of lending. This way, more people qualified for a loan based upon their credit score & mortgage payment history and not the ability to pay or stability of their interest rate.
Lowering standards means that lenders, more importantly investors, would accept substantially more risk. This risk borderlined armageddon risks as there was nothing but the promise of completely inflated property values to safeguard the investor in the event of a foreclosure. Property values, up 50% or more in just 30 months, gave the false impression that if a property was in distress, the investor/lender could still move it for more than what was owed against the property.
The collapse came when the loans that were issued at nearly 100% of the home value defaulted. Defaults happen in any economy, however, the lender typically doesn't get more than 75% to 80% of a home's value on auction, therefore, 20-25% losses were taken.
Fannie & Freddie failed (along with AIG) because these organizations were lending money up to 103% of a home value to any borrower that met minimal criteria....and then insured 20% of that mortgage. AIG and other insurers began paying out so many claims that it ended up failing.
The end result is that we are only about 25 to 30% of the way to the bottom of this debacle. 1/3 of ARM loans are still due in 2010 to 1st quarter 2011, and this is why the Congress is in panic now. We have a LONG WAY to go yet before this bottoms out.
Killing this bill was a credit to Republican legislators and essentially, is a question that we should not even be asked to pay.
Ultimately, Wall Street is going to have to bail this out. Here's a little perspective:
-Currently we have $1,000,000,000,000.00 in paper money in circulation
-Congress is asking for 85% of that.
-Everybody take 85% of your paper money and mail it to Hank Paulson
Couple that & we still owe China & other foreign interests $9,000,000,000,000.00