Tuesday, September 30, 2008

Bailouts and Bullets

The minute pathetic Pelosi perched on her pulpit to pummel Republicans for the mess, I knew the so-called "partisan" deal was heading to "heck" in a hand basket.

Here's a chilling thought to ponder.

As Speaker of the House, Pelosi ranks second in the line of presidential succession, following the Vice President. So that makes her "two heartbeats away" from the presidency of the USA.

And let's not forget that bigoted buffoon, bombastic Barney Frank, blustering party bashing rhetoric to the cameras -- even cracking jokes to much laughter among the dems standing beside him -- blaming while trying to remain blameless as 12 of his very own committee members voted NAY against the bailout of the century.

Both of them must think the American population is deaf, dumb and blind.

Here's a few bullets:

1977 - the CRA is enacted into law by President Jimmy Carter (Democrat) Thus, Freddie and Fannie came to be. The FDIC was chosen as the regulatory body responsible for ensuring Fannie, Freddie and other banks complied with CRA.

Sidenote: The Federal National Mortgage Association is Fannie Mae // The Federal Home Loan Mortgage Corporation is Freddie Mac

1993 - the CRA is revised by President Bill Clinton (Democrat)

Major changes included:
- Reduced leverage requirements for Fannie and Freddie, allowing them to hold just 2.5% capital to back their investments (versus 10% capital requirements required by banks)
- Required non CRA banks to qualify under CRA regs by forcing them to have a certain percentage of their business in "risky" loans to low- to moderate-income borrowers if they wanted to merge and/or change their business in any way to better compete in global financial markets
- Allowed marketing of such "risky" mortgages by established and new community groups (such as ACORN)

2002 - An interagency review is launched at the request of the Republicans to review effectiveness of the 195 regulatory changes to the CRA that were done in 1993.

2003 - Bush Administration (Republican) recommended that a new Dept of Treasury step in to oversee Fannie/Freddie... Democrats state based on their review it was certainly not necessary and that Republicans were wasting taxpayer dollars investigating a problem that does not exist.

McCain (Republican) also pushed for change of regulations. His statements regarding the impending disaster are well-commented on by some of the media out there so no need to repeat it here.

2005 - Democrats opposed new CRA regs put into effect in July of 2005, which included clearer definitions for what actually counted as a "small" and "intermediate small" bank which were subject to less restrictions than formerly

FACT: Between 1993 and 1998 the number of CRA mortgage loans increased by 39% while other loans increased by only 17%

FACT: By 2007, largely owing to their reduced capital requirements, Fannie and Freddie owned or guaranteed nearly 1/2 of the $12 Trillion US mortgage market.

FACT: As a result of the CRA, the community groups as of 2000 received an estimated $9.5 Billion in services and salaries. They also received multi-year commitments from banks adding up to tens of billions (eg. ACORN to the tune of $760 million, NACA to the tune of $3 Billion, New Jersey Citizen Action-lead Coalition to the tune of $13 Billion, Massachusetts Affordable Housing Alliance to the tune of $220 million, etc.)

FACT: The housing "bubble" was inflated in large part owing to the CRA and the requirements that Act forced on banks in order for them to compete in a global economy.

FACT: The way I see it, reduction in leverage capital requirements through the CRA set banks up to fail if/when home market values started falling owing to the mark to market general accounting principals chosen to value mortgages -- in turn, creating a credit crunch with little to no room for any bank holding large amounts of mortgages (toxic or otherwise) on their books.

FACT: You can't lay the entire blame for the collapse entirely on the doorstep of the financial institutions and/or banks when Government (mostly DEMOCRAT), through short-sighted regulations and poor economic impact studies (if any) were a major influence in their demise.

And don't even get me started on the short-selling market tampering that's been going on, forcing once great USA companies to crash and burn. That was a Bush (REPUBLICAN) mistake by wiping out the up-tick clause.

Personally, I think short-selling should be abolished entirely. It turns the entire market system IMHO into a lottery system for big players only -- small investors like you and I need not apply.

Frankly, every time Government seems to stick their fingers in the cookie jar, it seems a mess is inevitable -- particularly when they tamper with the so-called "free" market system.

Don't get me wrong... I'm most certainly not anti-gov or whatever. In fact, there are some super hard working, honest representatives seriously trying to resolve the "crisis" we all face, through no fault of our own. God Bless them, for they surely have a lot of political posturing and BS to swim through to accomplish anything while at the same time protect all of us here on "Main Street."

I'm a little sick and tired of everyone running around crying "The sky is falling! The sky is falling!"

They say it's about us being able to get more loans. Honest to Betsy, who in their fool mind would want to get a loan at the rediculously high rates being charged today? Why in the world would they think we can't live unless we keep adding more and more debt in our lives?

And further, as a small business owner, I KNOW exactly how hard it is to get a small business loan... way, way, waaaaaaaay before this whole thing erupted on the scene.

My father always used to say, if you can't afford it, don't buy it.

He was a small business owner that grew his business from a back yard garage into a small empire in his area. He knew how to hold the reigns tight, watch his cash flow, avoid heavy debt and hang onto capital... because in those days, there was no such thing as a bank loan being available to help you meet your payroll.

Bottom line is, you should always have more coming in than you have going out. You should have solid products and services because one angry customer will tell ten more and hurt your business exponentially.

Bad news always spreads faster than good news.

Now... that said... they can slap a bandage on the gaping wound and postpone the inevitable... truth is, things are already tight down here on "Main Street" -- they always have been. Thing is, we're innovative and flexible enough to think on our feet and stay afloat during hard times. We prepare for contingencies, and most of us have more than a Plan B... we usually have a Plan C, a Plan D and more. We know how to eat hot dogs and skip the steak when we can't afford it. And it will be small businesses like ours that help rebuild the economy when the time comes -- that is, if you don't tax us into extinction and regulate us out of the country.

To both parties I say:

Don't spread your fear by telling me I won't be able to get a loan -- because you know what? I'm not asking for one, thank you very much. And when I really needed one, you wouldn't give it to me. I either wasn't rich enough, or wasn't poor enough by your standards.

For the record, I'm one of the 1/3 out here who DOESN'T own stock in the markets, DOESN'T have a 401K to lose, is saving CASH for my son's college education (he's only 8 right now) and will have plenty for him when he's ready.

Okay. Stepping down from my soap box now.


A.T. Stowell said...

Great post. The Clintonian revision makes sense of this study:


It fails to connect CRA to the clintonian revisions...

kmyers said...

Thanks. I appreciate your comments, and the link to the study. Agreed -- I also think it missed the clintonian revisions.

T Kemp said...

Uhmm. Where did you get this crap from? The Federal National Mortgage Association, known as Fannie Mae, was created under the Roosevelt "New Deal" administration in 1938.

In 1968, it was rolled out the federal government into a private corporation.

Fannie Mae's "big brother," Freddie Mac (Federal Home Loan Mortgage Corporation) was created in 1970. It was designed to purchase only conventional home loans (the top of the market), but ended up buying junk following rule changes in 1995 that permitted both corporations to get "affordable housing credits" for buying subprime loans . . . .