For we wrestle not against flesh and blood, but against principalities, against powers, against the rulers of the darkness of this world, against spiritual wickedness in high places. ---Ephesians 6:12

"The age of casual Catholicism is over; the age of heroic Catholicism has begun. We can no longer be Catholics by accident, but instead must be Catholics by CONVICTION." ---Fr. Terrence Henry TOR, Franciscan University of Steubenville

Monday, September 22, 2008

This Costly Mortgage Mess

There are many questions being asked about the mortgage crisis and the $700 billion taxpayer bailout of mortgage debt from private firms. And there are not many answers being given. But there are a few things we know for sure. First, if history has taught us anything, we know that a successful bailout is always more than the initial estimate. It was so in the the S&L crisis and it will be for this one, too. Expect it to be well over a trillion dollars. I believe many people sense this, and that's why only 28% approve a federal bailout.

Second, the liberals are not THAT upset about this. Many of them see it as something to blame on Republicans, which could lead to a sweeping Democrat victory this November. After all, the Republicans have been in power for most of the last 8 years. Never mind that Democrat President Bill Clinton signed into law the repealing of the Glass-Steagall Act in 1999, which had been in force since the Great Depression, and thus making it possible for banks to own investment firms capable of dragging banks down with them. Never mind it passed the Senate 98-0 with Harry Reid and Joe Biden both voting in favor of the repeal. These socialists and their MSM allies, may of whom adore Castro, see this as an opportunity to completely regain power and kill capitalism once and for all.

Third, capitalism will never completely die. And it may not even be down for the count here, even if the bailout fails. It will merely lie on the ground for a bit, pick itself up and shake the dust off. Things might not be so prosperous for a time, but capitalism will prevail. It's only natural. Communism was proven a failure in the 1980's. And now the only thing the liberals have left to offer are socialist economies in Democratic states.

Whether or not the bailout is a good idea is something I have trouble seeing, what with so may good and bad things that may result. It may be the only way out of a much larger and deeper pit, or we might be selling out our nation's very soul. Here are a couple of links to play with: click HERE for pro and HERE for con.

Personally I don't agree with a whole lot of regulations slowing down economic growth. But I do believe in oversight. And there was none here. Or if there was any, whatever was viewed was ignored. It appears as though both the borrowers and lenders were crossing their fingers on interest rates and gambling with their (and our) financial futures.

Obviously we cannot have a total meltdown of endless consumer foreclosures and bank failures. But letting stupid consumers or lenders totally off the hook is completely unacceptable. Make the consumers who signed the dotted line pay dearly by stretching out their payments over a much longer period, like 40 to 45 years so they can keep their low monthly payments and their precious homes. And put the predatory lenders in jail. Let them pay through the nose to the government who generously bailed them out. Without this there is no credibility in government, and there will likely be a huge tax-payer revolt. Enough said.


Paul said...

This really is a complex conundrum, Matt, especially painful to this free-market, small-government guy who's seen the value of his IRA (on which he exists) drop around 20% YTD.

The historic blame for this mess probably goes back to the Clinton adminstration, where lenders were threatened with criminal prosecution for "red-lining," (a term for a racist practice, inappropriately applied to mortgage lenders who required minimum financial standards of loan applicants.) As a result, lenders started lightening up their credit screens and making more questionable loans. Then Fannie Mae started buying these questionable loans under Congressional pressure ("to make the housing market more broadly available to everyday citizens") with little fanfare (since all Fannie Mae assets were implicitly guaranteed by the federal government.)

According to Rush Limbaugh today (quoting from an IBD editorial), the Bush administration sponsored 12 different bills over the years to rein in this rampant expansion by Fannie Mae, but they were all blocked or stalled by Democrats, like Chris Dodd, who were big beneficiaries of political contributions by--you guessed it--Fannie Mae.

But that's the past. It may explain why we're here now, but doesn't help explain what we do now.

I'm as depressed as most investors (especially retirees) today, but I'm appalled at the cavalier approach of the government to expanding our federal budget expenditures by 1/3 (3 trillion to 4 trillion dollars) overnight, while the Democrats argue for expanding that expense even further, to bail out dead-beat or stupid borrowers.

I won't pay much for this irresponsible profligacy, but you, my kids and my grandkids sure will. God help us all!