Wow……I didn’t even need that first cup of coffee to be jarred awake this morning. I picked up my “Washington Post” and was greeted with two bold print headlines.
Bailout Lacks Oversight Despite Billions Pledged
Treasury Redefines Its Rescue Plan
This is not the way anyone should start their day. I was concerned in the days that followed the September 15th meltdown that the leaders in the House and Senate would overreact and by doing so, would create a bigger problem than the one we faced.
I had no idea how badly they would muddy the waters. They did pass a $700 billion rescue package. Now, I was not one of those that completely understood what the package entailed. I had a general idea what the problem involved and thought that smarter folks than me were working on it.
Treasury Secretary Henry Paulson
For those of you that have avoided all news media for fear of over exposure to the recent never ending campaign, there was some other stuff going on. In baseball, the Mets folded again and the Phillies went on to capture the World Series. In football, the Patriots did not continue their path to destiny, Tom Brady was lost for the season and those upstart Titans in Tennessee began the season with a string of victories.
Oh, the economy went in the tank. Most of the major investment houses went belly up or claimed the end of the world was at hand. The stock market began to resemble the path of a super ball bouncing down a sidewalk. Foreclosures began occurring with more regularity than anyone was willing to admit. Money markets dried up. The auto industry began to collapse and gasoline was close to $4 per gallon.
What the hell happened ?
I suppose it depends on your age. People in my generation were not shocked. We had witnessed the past decades American spending and saving patterns. We had seen the rapid increase in credit granting and the subsequent over spending by the American public. Apparently, the people in charge of keeping our ducks in a row were not using historical data. I have a good idea who was advising Greenspan, Bernake, Paulson and the other care takers of our economy.
The Brains behind the Bailout Plan
A simple overview of the path to destruction is in order. We had a depression. People that grew up in that depression had children. They wanted to be sure that their children never suffered. These depression born children grew up and had children. These were the Baby Boomers. They heard about the depression but they watched “Leave it to Beaver” and other t.v. shows and became the first guinea pigs for Madison Avenue. The stock market grew and grew and grew. They never really suffered as they grew up. They had children. The depression was ancient history. Saving was somehow moved from banks and was replaced by investments. They wanted to make sure that their children had a better life than they perceived theirs had been.
It gets uglier.
America became the place where you could have it all….for pennies a week…just sign here. Things became desired and available. Stuff. Stuff. More Stuff. Buy now, pay later.
The string that connected depression era folks with the populace of the new century began with a model-T that was bought with cash to a used car that was financed to a brand new super charged vehicle purchased with a 7 year loan. You see, as more money was owed, lenders had to come up with creative ways to indenture the American servants.
Then the unthinkable happened.
The bill came due !!!!!!!
And you think …
Mr. Bill had it bad.
So the powers in Washington decided to fix it. We got just what we should have expected. They passed a bill that did not define the problem, define the solution or guarantee the outcome. They passed a bill that did nothing more than create more problems.
There is no money flowing today. There are empty houses. They do not produce cash flow for investors.
The investors took their money and bought little packages that included mortgages. There are many sides to the story. The bottom line is that if they have money tied up in empty property………they do not have money to invest in new mortgages.
I must be too damn dumb to get it. If folks got into loans that they can not afford because the loan reset……..maybe we should use some of that $700 billion to refinance their mortgage at a reasonable rate (argue till the cows return but I figure no less than 5%). The investor would recoup the money tied up in the loan and the homeowner would stay in the home. If folks are in homes that they can not afford because of a change in their income…………then treat them the same way they would have been treated before the “housing crisis” gave them cover. If homes are empty, deal with it the way we have always dealt with it……..let them become crack houses until some industrious person steps in and says let me rehab it and live there. (Tongue in cheek regarding the crack house, but you get my point).
What ever is done, we must understand that the forest is the trees.
We also have to come to grips with the fact……..it is our money they are spending. The current thought process that we should bolster credit cards, auto loans and other credit to jump start our economy is in my humble opinion the damn dumbest thing I have heard in many years.
Over spending created the crisis. Lack of responsibility created the crisis. Spending on credit created the crisis. Buy now…pay later created the crisis. We can not spend our way back to financial health.
Increasing the availability of credit in our current condition is as valid as handing an alcoholic suffering from cirrhosis a new bottle of Jack Daniels whiskey.
The government might be better focused if they used some of the bailout money to increase the rate on 20 year savings bonds to 7%. They might better serve the public if they actually had a plan that included fiscal responsibility.
Today’s Washington Post indicates they are taking a different direction. I would encourage all of you to contact your representative in Washington and tell them that the first step in accountability will be us, their constituents, holding their feet to the fire.