More bad news for socialist bailout proposal
You should read this article at the WashingtonPost.com.
Per that piece:
The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.
This rush to a solution must stop. There are so many people opposing this bill that there is no way this socialist package should be “rammed” through Congress.
Mike Sylvester
Another explanation of the current financial crisis
Several people have asked me to explain the current financial crisis in simpler terms and I am going to attempt to do that.
Our economy is based on debt and consumption. Our companies rely on American consumers to take out loans and use that money to purchase their products. Without loans Americans will spend less money. When Americans spend less money they eat out less, they buy fewer new cars, the less often hire a CPA to do their taxes, they buy smaller houses, they buy less furniture, etc.
If the banks do not keep lending money to other businesses and to American consumers the economy will shrink. When the economy shrinks employers have to lay off employees as their sales drop.
As employees are laid off they in turn spend less money and the economy shrinks further.
This is what the Bush Administration is arguing and their argument is certainly true to a point.
The problem is that our economy is growing due to debt; be it Government debt, business debt, or consumer debt.
The bailout package being considered would basically force the taxpayers to buy sub-prime mortgage debt that on one else wants to buy due to the number of loans in foreclosure. The Bush Administration believes that this will allow American consumers to keep incurring more and more debt since the banks will keep loaning ”easy money” and this in turn will prop up the economyl at least for awhile.
They are right in that their plan would prop up the economy somewhat in the short term; however, what it really does is make our economic problems worse and pushes them down the road for future taxpayers.
I am a fiscal conservative and I am sick of pushing problems onto my kids and grand kids.
We need to stop thinking about today and think about the next few years.
I oppose the 700 billion dollar bailout package.
Mike Sylvester
Who is at fault for the current financial crisis?
The New York Times, Daily Kos, and Congressional Democrats want you to believe that the current financial crisis is the fault of Republicans.
Rush Limbaugh, The Wall Street Journal, and Congressional Republicans want you to believe that the current financial crisis is the fault of Democrats.
Any rational person should realize that neither of the above statements are true. Both Democrats and Republicans are at fault for the current crisis!
Reasonable people can think that one Party is 60% at fault and the other Party is 40% at fault or something along those lines; however, no rational person can think this is the fault of one political party.
Is there ANYONE reading this blog who thinks this was 75% or more the fault on one political party and if so why do you feel this way?
Mike Sylvester
A Quick Thought On The Mother Of All Bailouts
A group of prominent CEOs and their investors raked in all the rewards during the mortgage boom but now that the risk has showed up we’re supposed to take that off their hands? Typical “free market” economics.
If a company can get “too big to fail” then the government might want to consider not letting that company get that big in the first place. Or they could always just let it fail. But they can’t have it both ways…
A Plan To Turn the Bailout Into A Boon For Taxpayers
I’ve tried to read everything I could on our current financial crisis and the proposed $700 billion bailout. I think this legislation is DOA in its current form but I think it’s inevitable that something will pass. So the question becomes how can taxpayers use this bailout to their advantage?
Debt is crushing this country - governmental and personal. We all know how to fix the problem - tighten the belt and work your way out. Unfortunately, government has been incapable of making the tough decisions. We’ve borrowed $500 billion/year during relatively strong economic times. Does anyone think that will continue during an economic crisis? Who in their right mind will be buying up our debt after this? We’re going to have to pay higher and higher interest rates and so I humbly suggest that now is the time to change course on our perpetual financial irresponsibility.
If the government wants to spend $700 Billion of our future earnings then I want something for it - collateral if you will. And no, the mortgage debt the government will be buying is not collateral - it’s worthless. If it weren’t then we wouldn’t have to buy it all up. No I want real quid pro quo. Here are my demands:
Presidential race will be determined in the next few days in my opinion
Republican Presidential hopeful John McCain is staking his campaign on one issue. He is suspending his campaign to return to the Senate and discuss and vote on the 700 billion dollar bailout.
I have been disgusted with Obama, McCain, and Biden for not doing their jobs as Senators and instead running for President and Vice President.
I have a prediction to make for you.
If McCain returns to the Senate and leads the fight to defeat this 700 billion dollar boondoggle he will be the next President of the United States. He can distance himself from the Bush Administration (Since they are desperately pushing this measure) and he can get the full support of American conservatives.
Unfortunately for McCain, I do not think he understands how socialist and bad for American this plan is and I actually think he will join with the Bush Administration and he will support a modified bailout plan that will move American further towards Socialism.
If McCain supports the bailout plan I think Obama will be the next President because McCain will strongly irritate conservatives!
Mike Sylvester
Editorial in the Sunday Journal Gazette
I still get the Sunday newspaper because my wife likes the ads…
That being said I read the editorial and it was another socialist rant about income redistribution.
The first part of the piece is interesting; however, the final three paragraphs are just completely socialist.
It says that in addition to using taxpayer money to bail out the biggest corporations that helped cause the mess, the Government - particularly Congress - should examine ways to use the tax codes to help Americans who need it most.”
There are two appalling but typical statements from the JG in this quote.
First they support bailing out the very corporations who cause this mess. That is irresponsible and does not fix ANY of the core problems. In fact it rewards poor behavior and costs future generations trillions of dollars once interest is factored in.
Second they want to make the US tax code even more complicated and want it to be used to re-distribute wealth even more then it already does.
Third they say “overhauling the Social Security and Medicare payroll tax to exempt lower-income earners and raise the income limit to require higher-salary earners to pay a fairer share would be a good start.”
This would of course end up in even more income re-distribution.
I am sick and tired of socialist ideas. This is America, we are based on capitalism; not socialism.
Mike Sylvester
How the current financial crisis occurred, part 4
The current financial mess was created by several things. This is the fourth post in a series of posts discussing many of the items that caused this crisis.
The mindset of Americans has changed in the last thirty years. People used to plan on paying off their homes in a reasonable amount of time and they made reasonable down payments. Thirty years ago few Americans would have even considered an interest only loan.
The American mindset has changed so much that Americans are incurring huge mortgage debts that they would not have even considered thirty year ago.
The mindset of Americans has changed for many reasons including:
1. The Government is doing everything it can to convince Americans to purchase homes and spend their money on all kinds of items in order to grow the economy.
2. Realtors, Mortgage Brokers, Banks, and lending institutions have done everything they can to convince the public that home ownership is the key to wealth and that the real estate market will always go up.
3. The Government has made mortgage interest tax deductible if you itemize your deductions. This has allowed people to incur even more debt due to the tax savings.
4. Our culture has changed. Many Americans are interested in keeping up with their neighbors, friends, relatives etc.
5. We have become a “charge it” culture rather then a “lay-away” culture.
6. Interest only loans have grown in popularity along with loans with little or no down payment. There are many financing options available today that were illegal 30 years ago.
In short Americans have decided to purchase more expensive houses then they can afford and they have done it mainly through mortgage debt. This has been encouraged by the Government. Lenders have lowered their lending standards (Much of this was forced by the Government).
Even worse many Americans have continually been taking the equity out of their house. Please go back and read my post from March 3rd about this topic. Pay particular attention to my statement where I predicted: “In the last few days I have modified my predictions about a recession. I used to be convinced that a massive recession was coming; however, I was not sure if it would hit us in a few months or in a few years. I now feel that it will hit us within the next five years. I feel this recession will be nearly as large as the “Great Depression.”
Since so many Americans have taken the equity out of their homes that has allowed even more home owners to default on their mortgages and has increased consumer debt significantly.
Thirty years ago you would not have seen very many people with 2, 3, 4, or even 5 mortgages on their house. It just was not done.
Many Americans have willingly incurred more debt then they can afford to pay.
Mike Sylvester
CFAB Grant Applications Due Sept 30
If you’re interested in obtaining a grant from the Cable Fund Advisory Board then be sure to submit your application by the end of the month. Grants are awarded to non-profit organizations that produce programming for the local public access television channels. Typically these grants have been used to buy equipment and software but the grant criteria is detailed on the application.
The grant submissions will be discussed at the next CFAB meeting on Thursday October 16 @ 5:30pm in the Omni Room on the 2nd floor of the City-County building.
Drop me an e-mail if you have questions…
My proposed solution to the current financial “crisis”
The idiots in Washington DC want the Federal Government to step in and spend at least 700 billion taxpayer dollars to purchase “toxic” debt held by banks who allowed people to purchase more house then they can afford. This is a stupid and irresponsible solution. I have researched this a lot and I feel the problem can be mitigated by a simple approach. I do not think my solution would solve everything; however, I think it would resolve much of the mess and better yet would setup a process to fix the problems that created this mess in the first place.
Step 1 is to change the mark to market accounting rules for sub-prime loans. These sub-prime loans are loans that were made to borrowers who should never have been allowed to borrow large amounts of money in the first place. Mark to market accounting requires banks to value their loans once per quarter and to adjust them on their balance sheets to the amount they would sell for on the open market. This works well for stocks and mutual funds that are sold daily on the stock market; it works poorly for sub-prime loans since no one is buying them right now. In fact Merrill Lynch just sold their sub-prime loans for 22 cents on the dollar. Since the market is so “toxic” right now these loans are being marked down to approximately 20 cents on the dollar and they are likely worth at LEAST 40 or 50 cents on the dollar. If I were King I would have one of the Federal Regulators set a value on all sub-prime portfolios in the United States once per quarter until step 3 below was implemented. Once step 3 was implemented we could use the actual numbers from the sub-prime loans sold off by Fannie Mae and Freddie Mac to set a more accurate value. This would mean banks would not have to take massive and unrealistic losses due to an illiquid market.
Step 2 would be to change the rules that the Federal Government uses through Fannie Mae, Freddie Mac, and the FHA for home loans. These organization currently allow people to get loans with a down payment of only 3.5% and often times they will help you get your down payment. This is absurd. The down payment assistance program should be abolished. On top of that on Jan 1st of 2009 the minimum down payment should increase to 4%. Each year thereafter it should increase by 1% per year up to at least 10%; preferably 20%. This would mean that far fewer loans would fail in the future and it would be implemented gradually so as not to unduly affect the housing market.
Step 3. I would pass a law that would make Fannie Mae and Freddie Mac temporary organizations. They are a large part of the problem. I would like to see them phased out over the next fifteen years. Over each of the next ten fifteen years I would require them to sell 5% - 15% of the mortgages they hold. At the end of fifteeen years they would be dissolved. Their mortgages would be sold in a public auction to the highest bidder.
Step 4. I listened to the head of the SEC plead with the Senate Banking Committee for someone to step in and oversee and regulate Credit Default Swaps. This is a 58 trillion dollar market that is currently not regulated and ties into this whole mess. I would listen to the SEC Chair and I would step in and oversee and regulate this market starting tomorrow.
Step 5. I would investigate the regulations in place and see where they failed through a series of investigations done by professionals; not Congress. We need to abolish ineffective regulation and we need to put more effective regulation in place. I think we have too much regulation and we need to make it smaller and more effective.
Step 6. I would increase the reserve ratios required my many institutions. They have been lowered to far in my opinion. Too many banks have leveraged their debt too far; increasing the reserve requirements will prevent them from leveraging things as much.
That is it. It would not cost any tax payer dollars. It would address the core problems as well as the current problems.
What do you think?
Mike Sylvester
