The Financial Meltdown

Boy, this one's got me buffaloed and I am trying to figure out what happened and what is going to happen. There is a lot of information floating around, but you have to take most of it with a grain of salt. Reporters are famous for getting the facts completely wrong. And, there are people out there with their own agendas who are promoting misinformation or trying to avoid blame.

I am going to just jot down my thoughts quickly and come back and review them in a month or so to see if I am on track.

I have seen some ups and downs before, but this one could cause a paradigm shift in our society. It may be my age and finely developed attitude of cynicism, but our standard of living may have just dropped a notch or two. If you don't believe me, just go out and try to get a loan for something.

The symptom of whatever the root problem is seems to be a liquidity crisis. People are withdrawing funds, liquidating money market accounts, and financial institutions are having to come up with the cash. The markets have been like a roller coaster ride, but I've seen worse. It reminds me a little of 9/11. After that event, the markets were in free fall for a few days. At that time, I stayed in the market. This time I got out - a while back near the top.

And what is this "bail out" crap?! Back in (I think it was) October 1987, there was "Black Monday" when the stock market dropped 20% in one day! But the government did not step in and bail everyone out. In case you are unaware, you and I and all other Americans just spent a trillion bucks to pay the bill on the current mess - and we were forced to put ourselves in debt to do this. This is America, not Russia! We don't do that kind of thing in a capitalist society.

So what happened? Here are my thoughts, although they are probably too narrowly focused:

When Bill Clinton became President, the socialists were pretty much in control for a while. The pent up tendencies of these misguided, overzealous folks went into high gear and they used their newly found power in very stupid and destructive ways.

Over millenia of human existence, practical principals of living have been developed that work hand in hand with so-called natural law, interacting with our inborn human desires, to produce a good and orderly society. This a Godly thing, aka capitalism. But the liberals, when they had the power, arrogantly swept this aside and instituted their own rules. This is an un-Godly thing, aka socialism.

They opened the floodgates for home mortgages so that everybody could own a home, whether they could pay for it or not. Lenders - Fannie Mae, Freddie Mac, et al - were rewarded to violate commonsense underwriting principles; they were punished for trying to maintain their integrity. To facilitate the horror show, the Congress pledged the backing of the United States to guarantee these loans. It was a mutually rewarding enterprise: the lenders made big money by making bad loans as fast as possible; key members of Congress (Chris Dodd, Barney Frank, et al) were given fat contributions to help them stay in power. They put our necks on the line, but it was a sacrifice they were willing to make.

This system really went into high gear starting in about 2003 when Fed Chairman Alan Greenspan took interest rates to historic lows. Minimal underwriting standards plus adjustable rate mortgages took the housing industry to new highs. People could buy big homes with big mortgages because of the low rates. At that time, I saw the danger and realized that when the interest rate started to rise, as it surely would at some point, things would fall apart and there would be massive foreclosures.

Well, it happened pretty much as I had foreseen. And I was ready to do my part as a patriotic American to throw a little liquidity into the game and buy some real estate at a bargain price. But then, the bail out. Apparently, the unholy alliance of lenders and Congress got so greedy that they did real damage to the country. The government guarantee of the bad loans was called; Fannie and Freddie were nationalized like we were in Russia or some banana republic. Congress succeeded where bin Laden failed.

So, let's recap -

1. Fat cat lenders make tens of millions (Franklin Raines, Jamie Gorelick)
2. Liberal social activists' agenda implemented (and failed as always)
3. Democrat congressmen rich and powerful (and now blaming it all on George Bush)
4. Housing prices artificially propped up (diminishing the little guy's ability to profit)
5. I, and my fellow Americans, are left holding the bag for $1 trillion (our dollar devalued, our standard of living lowered)

What is wrong with this picture?