My Own Thoughts on "Financial Crisis"

[Erich]

I'm certainly not an expert on economics nor am I a business executive. However, like everyone else, I have an opinion on just about everything that comes down the pike.... and I can do a little bit of research and pull together some facts and figures.

Since the begining of capitalism there have been periods of good times followed by periods of bad. Despite attempts to manipulate and control these with government intervention since the Great Depression, there have still been ups and downs in the economy.... and always will be!! This is the natural result of the law of supply and demand. Not long ago, we had a housing bubble in which investors made huge profits; now the bubble has burst and investors are losing money. That's capitalism. Let those who invested wisely, soar; and those who did not, fall. It's called economis for adults.

This "crisis" has been brought on by homeowners, lenders and bankers who made bad judgments. Let them bear the consequences of their actions. Furthermore, by the account of most analysts, a recession is coming our way, regardless of whether there is a $700 billion bailout. And Americans will weather it, as we have so many times before... what concerns me is congress and their "Feareconomics" is leading us closer and closer to socialism. They want to give everyone "free" healthcare, bail out big companies that fail, and make welfare and SS Disabilty easy to get...

Are we really now heading toward a Great Depression? The answer is: no. Are Americans a little spoiled? Yes. Are these uncertain economic times? Absolutely. Is a bailout the answer? Absolutely not.

It isn't often that public outrage comes so close to an election, but this is an unusual moment in history when the voter can exact a price from our political leaders which has scammed and lied to them, contributing to the current financial mess. Its not just President Bush... it's also the congressional and senate leaders.

Senate Banking Chairman Chris Dodd of Connecticut, seemed to think the mortgage crisis, aided and abetted by Fannie Mae and Freddie Mac, AIG, Bear Stearns, Lehman Brothers and other disasters, occurred on someone else's watch. Mr. Dodd, and ranking Republican Richard Shelby of Alabama, criticized what he said was the ad hoc nature of the government's response to the financial crisis and complained that the Bush administration's proposals lack detail.

Lets look back at history for a moment.... Pressure from the Carter and Clinton administrations forced Fannie and Freddie to grant more high-risk loans to people who otherwise would never qualify. They mostly wanted to promote not only new homeownership numbers, but also more homeownership in the minority community. That was a noble goal, but the cost is a major factor that has lead us to where we are now.

Democrats want to blame the the President for a disaster they mostly helped to create. But, the White House warned that the size of Fannie Mae and Freddie Mac was "a potential problem," as early as April 2001.

As recently as June of this year, President Bush asked Congress to take the necessary measures to address growing foreclosures. "We need to pass legislation to reform Fannie Mae and Freddie Mac," he said. In July, Congress passed reform legislation, but it was too late.

So here we are today after already spending $85 Billion for AIG $200 Billion for Fannie/Freddy Mac $300 Billion for FHA insured loans $29 Billion for Bear Sterns. If we spend an additional $700 Billion more for the latest "financial crisis" that will bring the total cost so far to $1.3 TRILLION dollars. I have no conception of what a trillion dollars means but this is twice what the Government spends on healthcare each year.Or it's double the costs of the Iraq War so far.

I guess we have a right to be scared...

Similar fears have been with us. The savings and loan crisis of the 1980s and 1990s, the dot.com collapse of 2000, and the accounting scandals that afflicted MCI WorldCom, Tyco and Enron were all moments of turbulence. Their were predictions of economic meltdown then- but it did not happen.
An old cliche is relevant here... We have nothing to fear but fear itself. What we need to worry about is interferring government initiatives - otherwise known as socialism.

[Erich]

Politicians aren't stupid... if you lable one program or senate bill one thing ["BAILOUT"] and it doesn't work... then you make changes and call it something else... now it is a "Rescue" or "Stabilization Act" The bill submitted to the House from Secretary Paulson was 3 pages. By the time the House got their hands on it and included all their "add ons" it was 105 pages... that one didn't pass.

So the senate got hold of it and passed a 435 page bill. How many of the senators do you believe read all 435 pages before voting?? Now this 435 page bill goes back to the house with an addtional 150 BILLION "add ons". So now we have $850 BILLION included in the Bailout bill which now has all kinds of other goodies unrelated to the original purpose of the bill..


Here are highlights of the "Emergency Economic Stablization Act" of 2008:


This are the basics on the "Bailout" portion of what the senate approved....

-ASSET PURCHASES: The Treasury Department could purchase up to $700 billion in troubled mortgages and other assets through a "Troubled Asset Relief Program" or "TARP." The $700 billion would be available in phases. The first $250 billion will be immediately available to the Treasury secretary. The next $100 billion will be available if the president issues a certification of need. The final $ 350 billion would come if the president sends a written report to Congress seeking it; Congress could disapprove these additional funds. Treasury's authority to purchase troubled assets would initially expire on Dec. 31, 2009, but could be extended.

-EXECUTIVE COMPENSATION LIMITS: If the Treasury purchases at least $300 million in mortgage-based assets from a financial institution, that company would lose the ability to take a tax deduction on the amount of salaries that exceed $500,000 for its top five individuals. It also includes a 20% excise tax on golden parachutes payments triggered by events other than retirement.

-WARRANTS, EQUITY STAKES: The bill requires the Treasury receive "non-voting warrants" from financial institutions participating in the program.This would be regardless of whether the government is purchasing troubled assets directly or through an auction process, a Treasury official said. That would give taxpayers an ownership stake and profit-making opportunities in participating companies. Foreign banks with a "sufficient U.S. presence" taking part in the program would also have to give up warrants to the U.S. government, Treasury said.

-MARK-TO-MARKET ACCOUNTING. The bill restates the Securities and Exchange Commission's authority to suspend the application of the Financial Accounting Standards Board "Statement Number 157" - or mark-to-market accounting - if the SEC determines "that it is in the public interest and protects investors." A study on the same topic is also required.

-TOXIC ASSET INSURANCE: The Treasury secretary is required to create a program "to guarantee troubled assets of financial institutions" purchased by the U.S. government. The Treasury is required to establish "risk-based premiums for such guarantees sufficient to cover anticipated claims." Financial firms can choose to unload their troubled assets via U.S. government acquisition or by participating in the industry-funded insurance program, Treasury officials said. Companies that participate in that insurance program would have to pay premiums to insure those assets.

-INTEREST ON RESERVES: Provides the Federal Reserve with the ability to pay interest on the regulatory reserves it requires financial firms to hold for capital adequacy reasons in 2008, rather than in three years' time, as it is currently scheduled to do.

-FORECLOSURE RELIEF: For the mortgages acquired by the TARP, the Treasury secretary is to implement a plan to "mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs." Hope For Homeowners was an anti-foreclosure program in the housing bill passed earlier this year. It requires the Federal Reserve, FDIC and Federal Housing Finance Agency to develop plans to minimize foreclosures.

-TAX BREAKS:A tax benefit is included to help, primarily, community banks that held Fannie Mae and Freddie Mac preferred stock. It allows them to treat their losses in preferred stock in Fannie and Freddie as ordinary tax losses, rather than capital losses. For individuals, the bill extends through 2012 a provision to minimize the tax hit on homeowners facing foreclosure. This item, passed as part of housing legislation this year, makes tax-free amounts that a bank forgives a homeowner as part of foreclosure or work-out proceedings. Those amounts would otherwise be taxed as income to the homeowner.

-OVERSIGHT: Creates a "Financial Stability Oversight Board" to oversee the program, which includes the chairmen of the Federal Reserve Board, the Securities and Exchange Commission; the Federal Home Finance Agency director and the Housing and Urban Development secretary. Also requires the U.S. comptroller general to report to Congress every 60 days about the program. An independent inspector general will oversee the Treasury Department's decisions, which will be subject to judicial review. It also will require posting of transactions online for public view...
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A trillion is a mind-boggling number, well beyond the capability of most of us to imagine. The United States now has a national deficit that surpassed $9 trillion at the end of 2007 and will likely be $10 trillion by the end of 2008. Over a third of this deficit was added since 2001. In other words, our politicians have spent more than 3 trillion dollars over the amount of taxes that it has collected in the past 6 years. This debt is being placed on the shoulders of our children.

So one more time .. just how much is a trillion? Sure, there are plenty of zeros, twelve, to be exact – but that doesn't begin to explain things. So let's take another stab at it.

Have you ever asked for something from someone and had them reply "Just give me 5 minutes." Fine --- but what if he says "Just give me 1,000 minutes ... or a million? Or a billion?" Here's the breakdown:

1000 minutes would equal just less than 17 hours. You'll get what you asked for before the day is out.

100,000 minutes would be almost 70 days. Check back with your friend later.

One million minutes? Look for whatever you need in just less than 2 years.

One billion minutes? That's going to take a while. Try 1,900 years.

One trillion minutes? Well, today is 2008. Your wishes will be fulfilled in the year 1,903,377, unless your friend steps things up a bit. That's 1,901,369 years from now.