This whole financial crisis really chafes my biscuit.
So what caused the problem? What exactly IS the problem anyway? What roles did Obama, McCain, and Hillary play in creating the mess find ourselves in today? Keep reading to find out...
The very, very short answer to what caused this problem is GREED.
There are a lot of highly educated, supposedly intelligent people who have done nothing but line their own pockets while putting the economy of the United States in the toilet. Several come to mind, like Bill Clinton's friend, the disgraced chief of Fannie Mae, Franklin Raines, who I read lined his pockets with more than $100 million while heading Fannie Mae. The Clinton administration wanted to make it easier for people to own homes, not a bad idea, but instead of doing it in a responsible manner they created a self-profiting mess: like an alcoholic bartender so to speak.
To simplify the problem into a few sentences, there were a lot of mortgages being approved over the last several years that should not have been approved. This made demand for houses increase which drove prices up. The supposedly intelligent people in the banking and investment community kept making these bad loans and the mortgage giants Freddie Mac and Fannie Mae would keep buying them up with no thought given to the long-term consequences, only to short term profits.
Now if you were to stop on any main street in the country and talk to a few "regular" people before the current crisis hit, they'd probably tell you that houses were over priced and that banks would loan you way more money than you could ever possibly pay back. They'd tell you that at some point it's got to stop. Well, they're pretty smart. Too bad the executives making millions each year can't think that clearly.
Once the bow breaks and the baby falls everybody points their fingers to someone else asking "who put the baby on such a small limb anyway". When the interest rates fluctuated upwards and thousands of people with adjustable rate mortgages (ARM) started missing payments because their mortgage payments had gone up, the cash flow into the financial institutions slowed down. Foreclosures went up. The homes can't be sold for the amount of the loans. The banks are holding worthless mortgages. Multiply it by the hundreds of thousands of mortgages and we have huge financial institutions going belly up. The situation is compounded even more by stock market speculators playing both the up and down swings of the stock prices of these institutions.
In the testimony being given before Senate Banking Committee, The Treasury Secretary Henry M. Paulson Jr. said that the lenders are at fault for making bad loans and that consumers are at fault for taking out loans that they could never repay. WHAT! I guess Mr. Paulson does not live in the real world. I've been on consumer side of mortgages and the last one was only a few years ago. The bank loan officers would give you anything. Yes, you had to provide all the normal paperwork, but they would appraise the home for way more than it would sell for, and offer 100% financing and other programs that pretty much guaranteed you could buy a house you could not afford. They were pushing loans like drug dealers push crack.
Lets back up a few years...
In 2005, Federal Reserve Chairman Alan Greenspan told Congress "Houston we have a problem", except in this case it was "Washington we have a problem". He made it clear that the issues with Fannie Mae and Freddie Mac were severe and threatened to cause system wide damage to the whole financial infrastructure. He made it clear that URGENT ACTION was needed NOW. This was in 2005.
The Senate Banking Committee took his warning seriously and a bill was created (s.190) to reform the mortgage market. This bill imposed regulatory control and would have ended the risky investments being made by Freddie Mac and Fanny Mae.
I can guarantee you that the banks making those 100% financing mortgages and making mortgages that they knew would go into foreclosure if the interest rates were to go up, would not have made those loans if they knew they would have to service them vs. selling them to other financial institutions for a quick profit.
John McCain Tried...
The reform bill (s.190) was sponsored by Senator Chuck Hagel (R-NE) and cosponsored by Senators John McCain (R-AZ), Elizabeth Dole (R-NC), and John Sununu (R-NH).
Democrats Killed It...
The bill was defeated on a party-line vote in the committee by the Democrats and the Republicans could not get enough support to get it to the Senate floor for a vote. That was when you could hear the sound of the nails being driven into the coffin.
If this bill had passed and been enacted into law, we would not be in the current financial crisis.
But what about Obama and Hillary?
They have been supporters of protecting Fannie Mae and Freddie Mac. Why? It pays well...
Obama has received more than $125,000 in campaign contributions from employees and PAC (Political Action Committees) from Fannie and Freddie.
Senator Christopher J. Dodd (D-CT) who chairs the Senate Banking Committee has received more than $165,000.
Senator Hillary Clinton (D-NY) has received more than $75,000.
So, John McCain tried to keep us out of this mess. Of course the Democrats will say otherwise, that it's not their fault, but that's normal.
Until next time,
Recoil
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Posted by Fred (aka Recoil) on September 24, 2008
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