fly at night

The ‘‘Emergency Economic Stabilization Act of 2008’’ has been put on the table by Speaker Nancy Pelosi.

The obvious question is would this bill have been so hastily put together, or put together at all, if this were September 29, 2009? A presidential election is in 5 weeks and it appears that our problems have leaked over to Europe with Fortis being nationalized and British mortgage lender Bradford & Bingley apparently next to fall.

I am a bit confused by the politics of this issue. The Democrats hold a majority in both the House and Senate but Speaker Pelosi continues to demand Republican support of the bill. Of course calling Republicans “unpatriotic” for not falling in line with the original version was an interesting way to garner that support.

There has been a lot of finger pointing going on but you have to be living in a cave if you don’t believe that fault rests with the entirety of Washington D.C. – Democrats, Republicans, and Independents! Elected officials and their staff cannot be excluded. Where were the Committee on Banking, Housing, and Urban Affairs and Committee on Financial Services? Of course they were defending Fannie and Freddie right up until they failed. This isn’t about the failure to regulate but about the failure to allow the regulators to do their job.

Why did Washington allow this to happen? DEMS wanted to help their fat-cat friends in the banking industry and to continue their social engineering of the market. REPS wanted to help their fat-cat friends in the banking industry. It is that simple. The industry was a political piggy bank with political contributions flowing in to all sides. Ultimately, if you want to point a finger you had better turn it around so that it points at you. The voter is responsible for putting these folks in office so the voter is responsible for the elected official’s failures.

Housing foreclosures was a sign of the crisis to come. Under the aggressive implementation of the Community Reinvestment Act we saw homes sold to people who could not afford the mortgage. So exotic mortgages were created to get them into their new homes. Sales soared and so did housing prices. When it came time to refinance the mortgage the folks simply didn’t qualify. Foreclosures pushed home values down and trillions in assets were lost.

Congress can push through this bill but it likely won’t fix the problem. There is another mortgage insurance shoe to drop and nobody is talking about it – Reverse Mortgage. Yep, you can still see commercials today on this program. The problem is that most of the existing reverse mortgages are based upon home prices that existed before the current crisis. Let me give you a simple example. You have a house that is worth $200,000. You are over the age of 62. The bank says that under the reverse mortgage they will give you $150,000. 10 years later the cost of that reverse mortgage is $240,000 and your home is worth $150,000. You don’t have to worry about the $90,000 deficit but the government guarantee will fall on the taxpayer. Multiply that $90,000 by 100,000 loans and you have about $9 billion in taxpayer guarantees.

Lets not forget about the default on auto loans, credit cards, and student loans. Will we, the taxpayer, have to bail out these loans too?

How big is the crisis? Trillions in potential problems. Add the projected $40 trillion in unfunded liabilities (retirement, social security, etc) at the federal level and you have a real monetary crisis.

How did the market respond to this deal? The DOW is down about $296 at 8:30 this morning.

You decide if this will work. For my money we have let the fox design the hen house security system.

UPDATE

Playing politics on this issue is, at best, stupid. That didn’t stop the Speaker of the House from proving that she lacks basic leadership qualities

Pelosi had said that the $700 billion price tag of the measure “is a number that is staggering, but tells us only the costs of the Bush Administration’s failed economic policies — policies built on budgetary recklessness, on an anything goes mentality, with no regulation, no supervision, and no discipline in the system.”

So what did Nancy cost us with her unnecessary remarks?

The Dow Jones Industrial Average slid 778 points for its biggest point drop ever as $1.2 trillion in market value was erased from American equities. The MSCI World Index of 23 developed markets slid 6.9 percent, the most in 21 years.