Washington D.C.: the Real Enemy

I originally posted this on my family blog, Gibblets 'n Gravy. It seems more appropriate here. The original title was A Little Political Rant...Okay, a Big Rant.

[Warning!! Only read if you are very bored. This is very long. In fact too long. I tried to re-edit this piece before reposting it here but got too bored to finish.]

Like many of you, well, some of you, okay only you very dull people with no jobs and nothing to do but nurse your broken careers, I have been following the recent political/financial goings-on in Washington. And having seen enough to test the fortitude of any man's stomach, I feel the need to stand on my "holier than thou" soap box and let loose.

Let me begin by stating that, no surprise to those who know me, I am a conservative; pretty hard-core, right wing conservative. A republican, yes, but only tenuously. Frankly, I'd like to throw out the whole lot of them and start fresh, perhaps with a new conservative party, perhaps the Constitution Party; I don't know...But suffice it to say, I am pretty disgusted with what happened when, for the first time in forever, we had a Republican president with a Republican congress. Apparently Washington D.C. turns everyone into a Democrat. When it came to fiscal issues, apparently the President and the Repubs in congress tried to distance themselves from Clinton by moving to the right of Barney Frank, but to the left of Bill Clinton. Perhaps when they take the oath of office they are injected with some kind of microchip that makes them talk like Ronald Reagan but vote like Tip O'Neal. They must have started doing this when Newt Gingrich was railroaded out of town. Anyway, my point is: I'm a conservative and I only affiliate with the Republican party in hopes that by voting in the primaries I might be able to move the party to the right. If I thought a more constitutional party could get some serious clout more easily than changing the current Repub party, I'd jump in head first.

Well, in case I haven't bored you enough, let me continue. If any of your friends (or you, for that matter) suffer with insomnia, please lead them to my blog. It will not only provide them a cheap alternative to Ambien, but it will also inflate my ego by falsely legitimizing this blog. And so to continue: Suffice it to say that if you think that this financial snafu is the result of George "The Hurricane Maker", "The Levy Breaker", "The Incoherent", "The War Monger", "The Devil Himself" Bush, the rascally Republicans, greedy CEO's and a greedy Wall Street then you must like your Kool-Aid nice and sweet. (Let me point any possible Bush haters to this New York Times article. Congressional Democrats booted this bill, one of several attempts by the President to take on Fannie and Freddie mismanagement.) Take 10 minutes and read the history of Fannie Mae and Freddie Mac and you will quickly see some potential problems that unfortunately, yet inevitably, moved from potential to reality. Fannie Mae & Freddie Mac, government sponsored institutions that are not required to file with the SEC (Securities and Exchange Commision - the Wall Street Police), hold about half...HALF... of the $12 trillion worth of mortgages in the US, that is about $6,000,000,000,000. If you think the current crisis is going to only cost $700 billion, read this and weep: "The July 30, 2008 law enabling expanded regulatory authority over Fannie Mae and Freddie Mac increased the national debt ceiling by US$800 billion, to a total of US$ 10.7 Trillion in anticipation of the potential need for the Treasury to have the flexibility to support the federal home loan banks." Ouch! If everything goes really bad, we, you are potentially on the hook for $10.7 TRILLION. Now, admittedly, most of the mortgages are and will remain in good standing. But I'm sure that you can see that $700 billion is a drop in the bucket.

Essentially Fannie and Freddie exist to buy up bad loans, ie. loans that no respectable bank would want to touch because the loan recipient wouldn't qualify in the free market; too much risk. They (Fannie & Freddie) repackage the questionable loans into mortgage-backed securities (MBS) and sell them on Wall Street. Respectable banks at that point are willing to buy the MBS because they have the "implicit" guarantee of the federal govt, aka you. Well, when the unqualified loanees began defaulting on their loans, they began to flood the market with inventory bringing the loaners (and possibly an entire economy) to a halt. We'll just have to wait and see.

You'll pardon a little history...I hope: Fannie Mae was created in 1938 as part of the New Deal. FDR pushed it with the intent to enable unqualified people to qualify for loans, in hopes that it would create a need to build more homes, thus more jobs, etc. Undoubtedly, like almost all of the New Deal, it did NOT work. In 1965 LBJ "privatized" Fannie mae to take it off the books as his Great Society was a bit on the costly side and it looked better to have Fannie Mae not showing up on an accounting ledger. Don't worry, I'm sure LBJ was not flimflamming anyone. In 1970, as a result of a 1968 law (still LBJ), Freddie Mac was created to put competition in the market for Fannie Mae. If you believe in the free market you should laugh here. Again don't worry, no shenanigans I'm sure.

In 1995 (can you say Clinton), Freddie Mac began receiving affordable housing credit for buying subprime securities. This is where our trouble directly begins. Essentially the affordable housing requirements set by HUD (the Dept. of wHoring and Urban De-flowering, I mean Housing and Urban Development) force lending institutions to make a certain amount of bad loans for the good of the community. Again, laughter appropriate here. You see, if Bank "X" must give 10% of it's loans to certain economic groups, or certain ethnic groups, regardless of income qualifications, than under-qualified loanees would be able to buy a house, and homeownership is a good thing. Right?! Well, despite the senselessness of such loans, in order to avoid any perception in congress of wrongdoing, the banks made bad loans. (Keep in mind that Fannie and Freddie make up about half of US mortgages, most of which are questionable from the word go which means they took on an disproportionate amount of risky loans.) Well the percentage of loans that are made to these groups kept going up, due to tax incentives and the ever watchful HUD and CBC (Congressional Black Caucus). Essentially it became a protection racket. The Barney Frank's and the Charlie Rangel's in congress would increase the requirements and the lending institutions would comply. What else were they going to do. If you questioned the system you were labeled a racist or uncaring where the needy are concerned. To prove my point, recently on one of these political talking heads shows a Republican pointed this HUD, CBC stuff and an Obama supporter responded with, "So your blaming this current financial mess on poor people?" Well that was the first and last time I heard the truth about this topic. Political correctness rears its head and silences truth. Gosh we're sensitive and tolerant.

Meanwhile, I wonder why Chris Dodd, D-CT was getting "VIP" loans from Country Wide Home Loans. Oh yeah, he's the Chairman of the Senate Banking, Housing, and Urban Affairs Committee. Oh, and he's received more $$ from Fannie and Freddie in contributions than any other guy in Washington (Barack Obama 2nd, John Kerry 3rd). Hmm. Don't worry. I'm sure Dodd is just looking out for you! That Chris Dodd, always working hard for you! What a guy! Don't get too excited, you Republicans, your the next three on the list headed by my state's very own Robert Bennett. In fact if you'll notice, ALL the people working on this "bail out" are in the top 26 money-takers: Chris Dodd-D, Barney Frank-D, Nancy Pelosi-D, Harry Reid-D, John Boehner-R, Robert Bennett-R, Roy Blunt-R, Chris Bond-R. Frankly, when it's all added up the Dems got about 30% more than the Repubs. So the Repubs were engaging in "financial relations" just a little less than the Dems, who were basically running a financial cat house. Very comforting.

So back to 1995: from this point on, sub-prime loans became accepted as meeting "Affordable Housing" requirements. Oooh! Ooh! Can I have one?! Please?! Over time this became a great way to not only get a first house (as opposed to the age old way of getting money from Mom & Dad), but also a great way to speculate in a housing market that was returning well over what people were forking out in sub-prime and interest-only loans. (Thanks, in part, to a complicit Federal Reserve who was constantly manipulating interest rates so as to induce more borrowing). This created incentives to buy homes, which in turn created an incentive to build more homes, which created an incentive to loan more $ for houses, which created reasons to build more houses, which created...Hey, wait a second. Something's going on here. Does anyone see a potential problem here?

So here we are, staring like deer in the headlights of an...aircraft carrier (97,000 tons of floating steel. And as anyone who has ever dropped steel in water knows, it definitely does not float. No matter how small a piece of steel, it will not float. So, then, how does 97,000 tons of steel float???????? Magic.)

But I digress...

So what is the point of all this? Simply that you really need to get a life! You just waisted who knows how much time reading this pitifully boring drivel from and unemployed musician. My plan? to default on any and all loans and apply for a bail out. Unfortunately this probably won't work because I didn't take on enough bad loans. If I had only been smart enough to take out mortgages in the billions of dollars then I'd be sitting pretty. All you tax paying saps would be on the hook for my bad debts.

Now to the real point:

Basically, we are probably in for some difficult times. Only this time when we tie all our goods to the tops of our cars and head West looking for work we'll watch DVD's on our overhead DVD players. That will at least take the sting out of near starvation. At the very least it will keep the children occupied while Mommy and Daddy try and find a barn to sleep in for the night.

If I sound a little peeved and cynical you're right. The idea that the very fools and scalawags who created this mess are actually posturing themselves as capable of fixing this is beyond laughable. Every time I see Barney Frank or Chris Dodd speak about this, or criticize Bush or anyone else, while the so called journalists just soak it up, and spew it right back out with no attempt to point out the hypocrisy of these very people, well..........

Let me leave you with this from the aforementioned 2003 New York Times article regarding Bush's proposal to move regulatory oversight for Fannie and Freddie from the Office of Federal Housing Enterprise Oversight (created in 1992 as part of HUD) to a new agency under the Treasury Dept., which is headed by Presidential appointment:

"These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Rep. Barney Frank D-MA, the ranking Democrat on the Financial Services committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

Rep. Melvin L. Watt, D-NC, agreed.

"I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing." Mr. Watt said.

Well whoopee-do to you Mr. Frank and Mr. Watt! You guys really helped the little guy this time. No doubt the coming meltdown will only hurt the rich and not at all weaken "the bargaining power of poorer families and their ability to get affordable housing." Barney and Melvin hard at work for the little guy! Always working hard, those guys! I think the article has a typo, I think Barney Frank is not the ranking Democrat, but the rank Democrat on the Financial Services Committee.

It's a good thing my TV weighs 97,000 tons, otherwise the next time I saw one of these carnival ride workers passing blame and telling us how they're going to clean up their stinky mess I'd be tempted to rip it off the wall and throw it in my bathtub where it would no doubt float because it's got steel AND plastic in it, and I know for a fact that plastic floats!