If you need another good reason to return Elizabeth Dole to the Senate.
From The Politico:
Here's the quick list of the senators who voted NO on bailout/economic rescue.
Allard (R)
Barasso (R)
Brownback (R)
Bunning (R)
Cantwell (D)
Cochran (R)
Crapo (R)
DeMint (R)
Dole (R)
Dorgan (D)
Enzi (R)
Feingold (D)
Inhofe (R)
Johnson (D)
Landrieu (D)
Nelson (FL) (D)
Roberts (R)
Sanders (I)
Sessions (R)
Shelby (R)
Stabenow (D)
Tester (D)
Vitter (R)
Wicker (R)
Wyden (D)
James Calhoun offers some badly needed perspective:
Last week Goldman Sachs raised $10 billion in new capital in one day. They sold $5 billion in preferred stock and warrants to Berkshire Hathaway and also completed a secondary offering of common stock that raised another $5 billion. Friday, JP Morgan raised $10 billion in a secondary offering to help pay for the Washington Mutual takeunder. Both of these offerings were oversubscribed, meaning that the companies could have raised more capital if they wanted. There is not a shortage of capital for well run financial companies. There is, however, a shortage of capital for companies that have acted irresponsibly with investor capital in the recent past. For some reason, our political leaders believe this is a failure of the market, but isn’t this what should be expected from rational investors? ...
The biggest bank failure in the history of the United States happened last Thursday night and by Friday morning, it was business as usual. The only difference was the name on the door and the losses suffered by those unfortunate enough to invest in Washington Mutual bonds or stock. The taxpayers didn’t lose anything and depositors didn’t lose anything, only investors. That is how capitalism works in case everyone has forgotten.
In a free market situations like this are dealt with by badly run businesses going under and their assets being taken over by better run businesses. Bad debt is written off, investors take a hit (investors reap the largest rewards of success but they assume the risk and sometimes lose their money if you can't deal with that don't invest) and the economy begins to grow again.
This 700 billion (which will quickly swell to at least a trillion) dollar bailout was a gigantic ream job which the left (Treasury Secretary Paulson is a liberal Democrat) was attempting to foist on the American taxpayers. The propose of the bailout was to generate a huge pile of cash which congressional liberals could divert to their buddies (like B. Hussein Obama's associates at ACORN) knowing that a substantial cut would be returned to them as campaign contributions and that these entities would have lucrative jobs waiting for Democrats retiring from "public service".
Equally important, to the left, was the fact that the bailout would have moved the federal government into the nation's financial markets in a way which has never been done before. This move would have represented a government takeover of a significant part of the American economy almost on a par with Hillary Clinton's attempt to bring about socialized medicine in the 90's.
The failure of this "deal" is a good thing. Harvard economist Jeffrey Miron puts it this way:
This bailout was a terrible idea. Here's why.
The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.
Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.
This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.
Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.
The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.
The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.
[. . .]
Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.
So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.
The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.
It is time NOW just weeks before a presidential election for the American public to take a long hard look at exactly who caused this mess and exactly what needs to be done to fix it.
As Mr. Miron said the answer to bad government is not more government.
Here is another video of a congressional hearing in which Republican after Republican warns of a serious problem and Democrat after Democrat denies that anything is wrong and implies that the only reason to question the status quo is racism.
Want to know who to blame for this whole mess? You need look no further than the Democrat party.
Now they want us to give them the White House.
Here is a great video which summarizes the current crisis. Watch the whole thing. Like it says everything in it is a fact which you can verify for yourself.
H/T: Lima Lima Mike Foxtrot
The Atlantic explains that it wasn't McCain who torpedoed the White House conference on the bailout deal:
Though Sen. Chris Dodd implied that Sen. McCain sandbagged the rest of the negotiators by bringing up alternative proposals, McCain himself did not bring up those proposals, according to four independent sources briefed by four different principals inside the meeting, including two Republicans and two Democrats.
"McCain has not attacked the Paulson deal," said a third Republican who was briefed by McCain direclty. "Unlike the [Democrats] in the [White House] meeting, he didn't raise his voice or cause a ruckus. He is urging all sides to come together."
Republicans like John Boehner brought up the concerns of House GOPers and McCain acknowledged hearing about their concerns. And McCain, and staffers, did seek to gauge the level of support of the GOP working group's white paper. The Democrats were left with the impression that McCain endorsed the GOP efforts, but they concede that he did not raise them directly.
The fact is that Boehner doesn't have 100 votes from his conference -- 100 votes that Nancy Pelosi really wants. And that's not McCain's fault.
But Boehner and the White House -- and McCain -- if they want to get something passed -- do have the responsibility to persuade these Republicans to support the bailout .
After all, if not to get these recalcitrant Republicans on board, why did McCain go to Washington in the first place?
In the first place McCain didn't go to Washington to force the House Republicans to accept a bad deal. He went to Washington because he is a United States Senator from the state of Arizona. He has a sworn duty to be the voice of the people of Arizona in the Senate. He is 50% of Arizona's Senate representation. And love John McCain or hate him he is a man who will do his duty or die trying.
In the second place there was no "deal" for McCain to blow up. The supposed deal is a giant ream job that the Secretary of the Treasury and congressional Democrats are trying to get the nation to bend over and grab their ankles for and the House Republicans aren't having any of it - and thank God for them.
The Republican counter proposals may not be perfect but they are market based, they do not leave the taxpayers in the position of having to cover a blank check for up to a trillion dollars and they provide for the economic stimulation of serious tax cuts which will grow the economy to the point where the cost of the bailout will not be onerous.
In the third place the truth of what happened in the meeting, according to insiders, is that the Democrats all deferred to B. Hussein Obama -otherwise known as the little messiah, allowing him to be their spokesman. The reports are that he went into the meeting very much ignorant of anything but the bare outline of the Republican position and proceeded to attack the Republican proposals in a belligerent and ill-mannered (and ill-informed) way.
It is at this point that the meeting is said to have fallen apart in shouting and argument.
This is how Barack Obama brings people together.
This is how Barack Obama leads.
This is the "change" we can expect from Barack Obama.
This is what we can "hope" for from Barack Obama.
The little messiah is an ignorant and simple minded man who simply cannot function anywhere outside of the sewer of Chicago street politics without a teleprompter feeding him words written by David Axelrod or some other puppetmaster.
This is not a "man" who needs to be allowed any closer to the White House than the guided tour.
Here is an excellent breakdown of the current financial crisis:
HOW did America wind up in its worst financial crisis in decades? Sen. Barack Obama explained it this way last week: "When sub-prime-mortgage lending took a reckless and unsustainable turn, a patchwork of regulators systematically and deliberately eliminated the regulations protecting the American people."
That's exactly backward. Mortgage lending took that "reckless and unsustainable turn" because of regulation - regulation driven by liberals and progressives, not free-market "deregulators."
Pushed hard by politicians and community activists [you mean community organizers - like Barack Obama? - LC], the regulators systematically and deliberately altered financially sound lending practices.
The mortgage market was humming along just fine when, in the late 1980s, progressives decided that it needed to be "fixed." Their complaint: Some ethnic groups got approved for mortgages at lower rates than others.
In reality, mortgage lenders were simply being prudent - taking care to provide mortgages to those who could best afford to make the payments.
The shift began in 1989, when Congress amended the Home Mortgage Disclosure Act to force banks to collect racial data on mortgage applicants. By 1991, critics were using that data to paint lenders as racist by showing that minority applicants were approved at far lower rates. Banks were "Shamed By Publicity," as one 1993 New York Times headline put it.
In fact, they found a racial disparity only by ignoring relevant data on applicants' ability to make mortgage payments - such as their assets and credit history.
But the political pressure was intense - with few in politics or media eager to speak the truth. And then, in 1992, came a study from four researchers at the Boston Fed, which seemed to bear out the critics' contentions.
Notice how yet another disaster for the United States traces back to a Democrat presidential administration (Bill Clinton) backed by a Democrat controlled congress. Do we really want to entrust the solving of this problem to that lethal combination? Think about that this November.
That study was, in fact, based on quite flawed data - but the authors' political, media and academic protectors stifled most serious criticism, smearing the reputation of one whistleblower and allowing the Boston authors to avoid answering serious academic challenges (mine included) to their work. Other studies with different conclusions were ignored.
The very next year, the Boston Fed announced new requirements for banks - rules that have now turned out to be monumentally catastrophic: Adopt "relaxed lending standards" or risk being labeled as racists, and face serious penalties under the federal Community Reinvestment Act.
Gone (as "arbitrary" and "outdated") were traditional lending requirements such as requiring a down payment or limiting mortgage payments to 28 percent of income. (Of course, the loosened lending standards weren't limited to poor and minority applicants - that would be discriminatory.)
The new standards performed as intended: Home- ownership rates, stagnant for 25 years, began a rapid 10-year ascent in 1995, with many new homeowners being lower-income and/or minority families.
The large rise in demand for houses, however, fed a run-up in prices starting in 1997 - the infamous housing bubble. And rising prices hid the great vulnerability of these loans to defaults and foreclosures, because refinancing or selling at a profit was the easy alternative.
The government regulations distorted the free market and started pushing money into the housing market. Buying a house was given the appearance of being a better investment than it was.
Soon, these loans began to be sold in the secondary market. Fannie Mae and Freddie Mac were enthusiastic proponents of relaxed lending standards and purchased large swaths of these loans.
Time after time, Fannie and Freddie trumped criticism by pointing to how they were helping broaden homeownership. Because of the subject's racial overtones, they beat back calls for reform even after financial irregularities were found.
Executives at Fannie and Freddie (who are now Barack Obama's economic advisers) used the only-on-paper increase in the value of their assets to trigger performance based bonuses. This is very much like what the top management at Enron did.
Rating agencies such as Standard & Poor's had no experience with such loans - and imprudently used the misleading bubble-induced performance to incorrectly judge the likely performance of financial instruments based on such loans.
In 2002, the "reformers" declared victory. In a Fannie report, four academic supporters of relaxed standards crowed how these changes were "fundamentally altering the terms upon which mortgage credit had been offered in the United States from the 1960s through the 1980s . . . These changes in lending herald what we refer to as mortgage innovation."
Lucky us.
Now that the popped bubble has left us swimming in foreclosures, the supporters of loosened credit standards seem shy about taking credit for their "mortgage innovations." Instead, they blame subprime lenders for becoming "predatory" - when they were simply taking the Boston Fed rules to their logical conclusion while broadening the mortgage market.
Amazing isn't it how quickly the "enlightened and progressive lenders who were making it possible for minority and other economically disadvantaged Americans (and illegal aliens) to realize the American Dream of home ownership" turned into "greedy robber barons". Nothing changed except the fact that enough time passed to make manifest the foolishness of basing economic (or any other, for that matter) policy on political correctness rather than sound real world principles (and political correctness will always differ from sound real world principles).
Investors holding mortgage-based assets now want out. Perhaps they deserve a $700 billion refund - since they were sold a bill of goods by "progressive" politicians, academics and government officials who, in the hope of remaking society, insisted that loans based on relaxed underwriting standards were sound.
No they do not deserve a "refund". Anyone who makes an investment has the responsibility to do his due diligence. In this case the fact that home ownership was being driven by politically correct regulations which were forcing lenders to grant mortgages to people who did not have either the income or credit history to indicate that they could or would be able to repay them was not a secret. People who made these investments were doing so in he belief that they could ride the housing market boom to profit and jump off before the collapse. If they timed it wrong then that's on them not on the taxpayers. I do feel sorry for the poor people who were told that they could have a mortgage that they could in no way repay but the lenders were not being "predatory" they were being "law abiding". The government told the lenders that they had to loan money to people who couldn't pay it back.This article just doesn't add up to me. With the exception of an 8 year presidency, those horrible liberals were not in charge of the government. Republicans held the presidency, the House and the Senate.Obviously this person doesn't know his history. Both the Bush administration and John McCain tried to tighten regulation on the lending industry. In 2006 McCain even stood on the Senate floor and gave a speech in support of a bill which he was cosponsoring in which he predicted exactly what is currently happening.
OpenMarket.org has a response to the laughable assertion that Fannie Mae and Freddie Mac are purely private companies. The post entitled Are Reporters Financially Illiterate? Fannie and Freddie Are Called “Government-Sponsored Enterprises” for a Reason, by Hans Bader kindly links to my post on the subject from this morning:
Right now, the federal government, at a huge cost to taxpayers of perhaps $100 billion, is bailing out the two government-backed mortgage giants, Fannie Mae and Freddie Mac — the so-called GSEs. “GSE” stands for Government-Sponsored Enterprise. But some reporters are financially-illiterate, because if you point out the obvious — that the GSEs are going to cost taxpayers billions — reporters will condescendingly “correct” what you said, by insisting that they are completely “private sector” entities (false) that have yet to cost taxpayers a dime (false). (Back in July, the predicted cost to taxpayers of a bailout was already over $25 billion, according to the Congressional Budget Office. The cost could be up to $300 billion. Moreover, the GSEs already “receive an estimated $10 billion a year in hidden taxpayer subsidies”).
[. . .]
As John Berlau earlier noted, “Fannie and Freddie . . . were never really private in the first place. Fannie was created as the government agency the Federal National Mortgage Association in 1938 and spun off as a government-sponsored enterprise (GSE) in 1968. Freddie was created as a sister GSE two years later. But even though they had private shareholders, they always retained government privileges. The President still appointed some of their board members, they were exempt from state and local taxes, and, importantly, they each had lines of credit with the Treasury. Though these lines were ‘only’ $2 billion, CEI President Fred Smith presciently warned at a Congressional hearing back in 2000 that ‘as long as the pipeline is there, it is like it is very expandable. … It could be $200 billion tomorrow.’ (The transcript is here. Fred’s statement, in response to questioning by Rep. Carolyn Maloney, appears on page 193.) Fred also testified about the inherent dangers of the privatization of profit and socialization of loss in the Fannie-Freddie model. He described the GSEs as ‘strange organizations, neither private sector fish nor political sector fowl’ and said that ‘as a result, no one is quite sure how these entities should be evaluated or held accountable.’”
[. . .]
Many reporters are so ideologically invested in depicting the mortgage crisis as the result of a lack of government involvement that they simply cannot accept the reality that Government-Sponsored Enterprises were at the root of the problem. Government meddling, along with federal regulatory pressure on lenders to promote “affordable housing” and “diversity,” helped erode traditional lending standards, resulting in more risky mortgage loans to irresponsible people with bad credit (as some longtime supporters of federal meddling now admit).
It cannot be said too often or too loudly that this problem is one of government's own creation. It is not any kind of failure of the regulatory process and it is not proof that more government involvement in the mortgage market is necessary or desirable.
What it actually represents is proof positive that whenever the dead hand of government sees to interfere with the efficient operation of the free market that the distortions which are introduced into the market will, without fail, create unwanted, unpleasant and unforeseen (at least by the government do-gooders) consequences.
Creating a business which has government backing to cover losses while allowing private investors and company officers to pocket any profits has all the wisdom of giving teenage boys whiskey and car keys.
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