Thursday, February 12, 2009


Remember in November when politicians were scrambling with a gun to their head to pass BAILOUT #1 (now sometimes referred to as TARP) that the original problem was the collapse of the housing sector in the U.S.? It is a little hard to remember at this point, because no one is talking any more about what needs to be cured as the genesis of this financial cancer, they are just giving a pill for every symptom while the disease spreads because no one is addressing the underlying problems that would indeed if addressed, cure the cancer in our financial sector. American "standard" medicine is a failure because it spends more time and money than any other country "ruling out" all the diagnoses that you don't have before it even comes close to diagnosing what you do have. It's wasteful of resources, inefficient & expensive for society and most importantly, time-consuming, painful & costly for patients. No common sense is used any more in just cutting to the chase of the problem either in medicine or bailouts these days and both are running up a tab on American taxpayer's backs that will likely never be paid off. Politicians are selling the future generations of Americans mostly off to foreigners (whichever countries national treasuries and individual investors or corporate investors will still have them) via Treasury securities. All politicians and heads of Wall Street are thinking about now is, "Get the band-aid, get the band-aid, get the band-aid and put it on ME!" They want an instantaneous solution to a cancer that has been growing since the Clinton administration with the relaxation of Federal Housing policies. These policies were fed by G.W. Bush's dream and corresponding relaxation of policies so that every American could own a home. The cancer grew.

Obviously given this diseased state of the U.S. economy, you cannot cure the cancer without attacking it at its origin and cutting that off first. By doing that you will have the exponential uptick in the economy just as we have lived through the erosion these last several months as it fell out in many ways.
We've been hearing a lot of talk and analysis over the past several weeks both from President Obama and the Democrats as well as their Republican counterparts. Essentially the differences in the two perspective simply boil down to this: the Republicans want to continue the Bu-sh-it policies of cutting taxes as a way to stimulate the economy & the American financial sector while the Democrats want to finance government projects, jobs and programs to stimulate the economy. Neither will achieve any of the goals of truly making the economy & financial sector fundamentally any different NOR DO THEY AT ALL ADDRESS THE ORIGINAL PROBLEM FOR WHICH WE WERE CALLED UPON TO FORK OVER CURRENT AND FUTURE GENERATIONS OF MONEY.

I assure you that forking over a trillion more dollars to the Baby Boomers in charge who mismanaged and ruined our economy and finances in the first place is by no means worthy period. They failed in the first place as they disregarded the balance sheets and shareholders of the very institutions they were charged with a fiduciary duty to run. They failed in the second chance with the first bailout by misusing American taxpayer funds for their own personal gain. Now, Americans at the hands of our Congressmen and Senators and President Obama and his staff are about to sell out countless future American generations underneath the Baby Boomers financially by endebting them endlessly for yet another foreseeable unsuccessful set of partisan programs that benefit the same captain of industry who RAPED AND PILLAGED AMERICAN SOCIETY IN THE FIRST PLACE UNDER THE BUSH REGIME? Grow up! Even with the best of intentions on their side, this BAILOUT #2 is ill conceived, rushed, and misdirected piece of legislation that should die now!

What needs to happen now is what needed to happen before, those who wrote bad mortgages and profited from them, need to write the interest rates down to current levels and the homeowners and investors who bought the homes at artificially inflated prices need to suck up their personal losses, not socialize these losses on society while they keep all the profits when they make winning financial bets. It's very simple. This is a private problem that needs a private solution between the two parties involved. The FBI should investigate and prosecute all those involved in the LIAR LOANS who took enormous fees on the front side of those mortgages just for origination and seize their personal assets to pay for the costs. This is theivery pure and simple. So is using taxpayer money by Wall Street executives for boondoggles as they are called in finance. Pay for your own offsite golfing. Pay for your own AIG spa treatments. Pay for your own transportation to work just like the rest of America does-we'll see how many executives commute from Chicago to NYC on private jets at that point. Pay for your own meals, don't charge the firm for the after-tax cost & the American people for the tax deduction. Pay for your own escorts. Wall Street attitude of entitlement has grown well beyond cancer and the propsed new legislation for bailout #2 doesn't address it. Fair tax and other regulation of the financial services sector and enforcement will go along way. Let the institutions fail-no one is lending anyway. Get a huge clawback clause and seize the assets of all the employees involved not just the top 5 executives and give the money back to the American taxpayer to who it belongs. Why is it that we have such a hard time in America calling a crime a crime and seeing right from wrong when using other people's money? Cure the cancer and stop the bailout package. We need to rebuild an economy based on fundamentals, not try to sustain or reach again to the height of the illusions of where our economy was before. So any package that tries to restore America to what it was before the crisis is going to fail. We need to treat the cause, and the symptoms will then dissipate. If we go forward with bailout #2 amd treat only the symptoms, you might see some illusory improvement in some areas where the economy is hurting, but the fundamental erosion will still continue to proceed underneath the illusion. Let's start practicing medicine and finances in America that make sense.

Submitted by ASO member: Kimberly Wilcox


Anonymous said...

There's no doubt that inappropriate use of the bailouts should be delt with criminally and future bailout money should be appropriated and assigned specifically to targets prior to the checks being cashed.

So I guess the tough question is: Should Americas economy be allowed to run it's course without federal Gov't intervention. It could be argued that failure for Gov't to act/legislate on behalf of banks and the market last century opened the door for the Great Depression.

Anonymous said...

Kimberly -

I agree with your approach to diagnosis as it would save tremendous monies compaired to the current "shotgun" methodology.

Where I have a difficult time is with the "Demonizing" of Wall Street. The press and democrats first did this to Republicans as Bush was an easy target. In the greater scheme they will continue to tear apart corporate America and do not believe that they will stop with Wall Street.

Everyone is eager to point the finger and blame someone. Companies do need to reign in the perks if they are going to use gov't monies, I hope they have learned their lesson.

Many years ago many of the banks were privatly owned and could do what ever they wished without scrutany. For the talented who are worth $2 Mil. a year income, they will leave public companies and work for private shops. Talent has already begun to migrate. As for bonuses, what is wrong with paying someone a percentage of the profits they create? That is Capitialism at its best. Just keep the margins reasonable.

My assesment is that greed has been the cancer behind most of our problems. Leverage being the root for both consumers and banks, which is nothing more than an attempt to borrow monies to generate greater returns on monies they do not posess.

But do not forget the consumer in this equation. Why was the Lair Loan created? Because the buyer was not financially fit to meet lending standards in a high price market. Just imagine if that specific product did not exist, maybe prices would not have gone up as much as they did. And further they may not have fallen as much as they did. Some might even suggest that natural market forces would have kept prices shy of inflated.

I was a lender in that period and fortunatly did not have a Liar Loan product. I did see a lot of people who were stretching for loans that they did not have the financial means to support. If we denied them they would go to another bank where there were looser standards. Competition drew even the most stringent to relax their constraints.

Remember that much of this began just about the time everyone was killed in the dotcom bubble. I have heard people say that realestate is the best never loses money! Where else can you own something for 20% or less of the total value (plus a little monthly payment). Another example of leverage!

Everyone deserves to own a home: The governement created legislation called the "Preditory Lending Laws" where they forced banks to tighten speads on high risk loans to low income borowers. What this means is in essence charge a lower rate than normal given the risk of the borrower. In banking where there is higher risk it comes at a cost. What we are seeing now is the banks covering the cost of higher risk with less fee to offset that risk. Banks have gone from minimal risk spreads to no risk at all (even to the greatest of credit).

As for government control of the banks: How can one legislate what they do not understand? Lobbiest would have a field day pushing and pulling the system.

Hold the banks and consumers liable. How will we ever learn if we are continuely bailed out? To error is human, but not to learn is criminal!

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