Let the pain begin
Our Issue No. 111 is getting to look more prescient each passing day. Average Americans are in for a rough economic ride, with or without the $700 billion bailout Congress is considering. The bailout, I think, will merely postpone the inevitable. I think it should be stopped. Let the pain begin, and let some of these speculators and swindlers lose some of their money too. It will be hard on the rest of us, but the bailout will merely reward the speculators and swindlers, then save the crisis for us to face at a future date.
Here’s a column by Ron Paul that says it better than I can.
Backwoods Home Magazine is not a financial advice magazine, but it didn’t take a genius to see this economic collapse coming as we did with our Issue No. 111. Our job is to help people prepare themselves to get through tough times like we’re about to experience. I hope you’ve all been reading our advice, and I hope you all have acted on the suggestions in our Issue No. 111 and our Emergency Preparedness and Survival Guide.
September 25th, 2008 at 6:51 am
Hi Dave, I take it you haven’t read Sec. 8 of the bill. There is a lot more riding on this bill than $700 billion. I really feel helpless for the few friends and acquaintances I have in the US. Please fight for your country.
September 25th, 2008 at 1:21 pm
I’ve read it, and I agree — It’s scary stuff. Section 8 reads:
“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
I don’t know if Section 8 is still in the bill, as there has been strong opposition from congressmen like Ron Paul. Everything is so rush-rush with Bush telling us last night on TV that we must act now or suffer dire consequences. I think that is political-speak for, “Don’t look now but the government is making another huge grab for power and we’re going to screw the American taxpayer big time.”
America has some dark days ahead of it.
September 25th, 2008 at 3:54 pm
The credit recovery bill now being debated has come under fire for many reasons, all powered by political rhetoric and very little substance.
Whenever I encounter a complex transaction intersticed with others I isolate the transaction so it stands by itself where it can be viewed from all sides.
We are all familiar with what a security is, we associate it with a share of stock in a corporation.
Securities, as we all know, are traded on the open market.
The value of securities goes up and down. Some become worthless. When they do it is not jarring because the ownership is usually spread far and wide.
If, however, a large block of such shares are held by one entity then that entity is in deep trouble. Again, this is not jarring because it is just one entity.
So how did home mortgages become securities? In the old days if we borrowed money from the bank to buy a home we paid the bank each month until the note was satisfied.
At some point the bank began the practice of selling home mortgages to others. Reason: they didn’t want to hold long term receivables, preferring automobile loans, lines of credit. With the onset of this practice the bank became not a lender but a broker.
Others jumped into this marvelous new way to make money. Instead of relying on interest on loans they opted for broker fees.
So who did banks sell their mortgage to? Mostly to Fannie Mae and Freddie Mac, also a broker. Fannie and Freddie, in turn, sold shares of stock to pension funds, hedge funds, investment banks, and banks. They were purchased by these entities because they were not only backed by real estate but by the federal government, albeit indirectly.
As it turns out Fannie and Freddie became the large block referred to above. And they are in deep trouble. As are their shareholders, amazingly enough, pension funds, hedge funds, investment banks, banks, all holders of shares in Fannie and Freddie for the reasons mortgage backed securities were favored.
So what to do now? Well, we can let the shareholders of Fannie and Freddie take a bath, that’s the way it works in the investment world, right?
If we take this option, which is one most favored by the loudmouths who oppose the Administrations proposed credit reform measures, money to lend would dry up overnight. In an economy almost wholly dependent on credit to function the consequences would not be hard to predict.
For example, big companies routinely borrow enormous amounts of money for daily operating activities. Sears might have $1 billion on hand at the close of business on any given day. They routinely loan that money to others who are not closed for the night. Sears, however, expects to get that money back the next morning. If this treadmill stops then companies stop.
But suppose Fannie and Freddie don’t fail, rather they do a workout, just like any company with accounts receivable that are non-performing. Well, they probably could do this but while the workout is underway credit dries up. Money that normally comes from collecting on receivables is not being loaned in the open market.
So the Administration has proposed to, in essence, buy the receivables. Its done all the time for troubled companies, by what are called factors.
Congress is balking. Blowhards are screaming that taxpayers shouldn’t be involved. Politicians are scoring their political points.
Okay, here is another solution. Abolish, either permanently or temporarily, the capital gains tax. This would send pension funds, hedge funds, investment banks, individuals rushing to buy the receivables, in essence, the properties securing Fannie and Freddie mortgages.
Congress is balking at that solution as well, not wanting to give up tax revenues. Forget that most economists have long decried taxing capital gains as a tax on phantom income.
Well, then how about this? Create a new quasi-governmental corporation called the Unlimited Credit Corporation.
Oh wait, that’s what Fannie and Freddie are.
So that all brings us back to square one, the simplest, quickest, best solution, the Administration plan.
Which is what will happen but first the blowhards and politicians have to score their political points.
They have to.
September 26th, 2008 at 1:20 pm
I have to agree, I do believe that theyt made this mess playing with house money, let them reap what they have sown. It is a capitalist market and it will straighten itself out. But as usual the haves will have more and the have nots will have less. But the have less group will hopefully wisen up and keep their savings and retirements out of the speculaters hands and invest in something with less risk then wall st. Of course I can say this having no money in Wall St. (or anywhere else)
September 29th, 2008 at 9:55 pm
I want to thank Greg for making it all perfectly clear about the financial meltdown Wall St. is experiencing (WOW! I think I can sleep now). You’re a Washington lobbyist aren’t you? If not,there’s a future for you.You sound like the same crowd that said that if I didn’t support the illegal invasion of Iraq and Afghanistan then I was as bad as the enemy. No middle ground it was agree with the immoral,corrupt decisions of this administration (small a notice) or be ostracized for having a brain and EYES!! So I’m a loudmouth because I disagree with this bailout fiasco and because I lack the faith and confidence in my govt’s ability to find thier own ass with both hands and a flashlight. Well you go right ahead with your opinions and judgments but lets see where this situation is 6 mths from now when your hero Bush is springing back and forth from that Swiss chalet collecting his speaking fees and laughing at your dumb ass. You don’t get it do you well here’s my enlightening little piece. Did you notice not one media source has mentioned the Chinese. Interesting don’t you think when all we’ve heard for the last 10 or so years that the Chinese have bought our debt and have heavily invested in our money market industry and all sorts of places that given the present situation(and I guess I couldn’t blame them) they want thier money back NOW!! That’s why its critical because the biggest lender in this country’s sorry ass financial policies has been the CHINESE!!! So as a broke and I’m sure to you a loudmouth idiot I don’t give a fat rats ass about Wall ST. or Bush or banks or anyone else who didn’t heed the warning or at least once opened a history book and seen that absolute corruption corrupts absolute. You pay for it dikhed