We were told last Thursday that the financial market were days away from collapse. That Congress must immediately pass a $700 Billion buy out plan or we'd all be doomed. That was over a week ago. There has been no such plan passed and there wont be. The financial markets are no doubt headed much lower in the short term, but we'll get over it.
You have to ask yourself: "Why was there such immediate bi-partisan support and such urgency in trying to push this deal through?" The powers that be would have you believe that it's all too complicated for the average citizen to understand. But as the information seeps out, it's becoming evident that it really isn't that complicated.
Here's the story so far:
Back in the 90's liberal members of the Congressional banking committees and the administration decided that it was not fair to demand things like ID, proof of citizenship, or even proof of income from borrowers in "disadvantaged" neighborhoods. They didn't just encourage banks to lend to people who couldn't afford it, they threatened them with lawsuits and being labeled bigots if they didn't make more money available to the poor. To alleviate the risk, Freddie Mac and Fannie Mae (government created private entities) were permitted to buy up these risky loans, combine them in kind of a mutual fund an sell shares. These are the now infamous "mortgage backed securities" that many banks are holding and are unable to sell. The new system encouraged even more liberal lending. Brokers and lenders could initiate deals, make a quick buck and sell them to Freddie and Fannie. The new name of the game was volume. Originate and sell as many mortgages as you can. Odds are most of them will be okay, and since the bad ones will be bundled with lots of good ones, the theory was, everything will be hunky dory. Mortgages were no longer long term investments, they were day trading fodder.
When the house of cards came crashing down and the social engineering experiment failed, Fannie and Freddie were bought out by the feds, but there was still that pesky "mortgage backed securities" problem to deal with. If only the federal government could get hold of those too, they'd have both the mortgages and the securities tied to them on their books. It would be years before anyone discovered how little they were actually worth and by that time, all the current players would be long gone. "I know, let's tell them the world will come to an end if we aren't allowed to buy them." they thought. The plan was put into motion.
But Congress couldn't just rubber stamp the deal. There's an election in 40 days. They have to put on a show for their constituents. "Let's debate it for a couple of days, move a few commas and announce a bi-partisan rescue package." That's when the wheels came off. It turns out, the general public wasn't nearly as frightened of the collapse of the banks in question as the administration and Congress was. To make matters worse, some Republican lawmakers came out of the capitalist closets they've been hiding in for the last couple of decades and said not just no but HELL NO! While pundits like ORielly declared, "There's no alternative. What do we do, just let them go down?" Others answered "Yes, that's exactly what we should do."
This play isn't over. Maybe the bad guys will win this one, but I'm becoming more hopeful that they wont. Lying, cheating and stealing is not capitalism, it's just lying, cheating and stealing. It should be brought to light and dealt with. There will be players left standing and they're going to get a lot of great assets for a song and a dance. There is no need to panic. We just need to take out the garbage. The government is trying to dump it on you. A free, fair and transparent market, if left to it's own devices, will drop it squarely where it belongs.