No, I’m not going to advise you to vote for a specific person. Not going to happen here. But I’ve got to say something about the current events that are occurring rapidly around us.
First and foremost, Capitalism has not failed. The hybridized system that we have lived in for quite some time is crumbling, but it hasn’t been pure capitalism in a long time. What has failed? Congress has failed, the FED has failed in a huge way, and “We the People” have failed as well.
During the 90’s Congress moved to have banks loosen lending standards. The FED went along with them. And the banks followed suit. Why.
Initially during the early 90’s there was a push for home ownership and loosened lending practices to avoid discrimination in the lending markets. A 1992 Federal Reserve study from the Boston FED demonstrated discrimitory practices in lending. Lenders were pushed to loosen documentation requirements, savings requirements, etc. That study was used by Congress over and over again.
Unfortunately, the study was wrong, and several years later the results were corrected. Those results were never referred to by Congress….ever. The revised study did not demonstrate discrimination in lending, and it was ignored. The first study was “sexy” and sounded better for arguments in Congress. Hey, it happens.
Over the 90’s we stepped back regulation of our banking system. The Attorney General at the time even went so far as to threaten the banking industry regarding their lending practices. Loosen or become a target of investigation.
So, lending became looser. Have you heard of “No Doc Loans?” No documentation home loans. Yeah, a friend of mine even got one to get their new house only a year ago. We were still doing those things a year ago. And we all knew the mortgage system was breaking then. Only months after he got his loan the practice stopped.
Who is responsible?
We all are. Adjustable rate mortgages, no interest loans, second mortgages, home equity lines…… we signed up for them, didn’t we? Yup. Were documents provided to us? Yup. Did we sign them? Uh, yup. Did we read them????
Come on, did you really think your home value would do nothing but go up? No improvements, move in, and in 24 months sell for $100K on top….. Does that sound like the way a real market works? No. We all know better than that. But many of us participated.
In the end, Congress, the Federal Reserve, the Banks, and We the People are all parties to the economic disaster we’re facing. And nobody can say that we had nothing to guide us. History, specifically the creation of the last Great Depression was right there for anyone to read about.
Personally my first worry came in 1997. Not too many months after Greenspan’s “Irrational Exhubarance” statement. He knew a large bubble was forming. And instead of popping it he ended up encouraging it. Once the bubble in the stock markets started deflating we moved to a new one. Housing. And boy did the Fed and Congress encourage that bubble.
What to do now?
I’m totally against bail outs. Can’t stand the idea. Companies that screw up need to fail. That frees up capital to useful companies. You stop spending on bad, and you spend on good.
With that said, the current bailout NEEDS to happen. Credit markets are on the verge of seizing up. Our watershed 1929 Crash happened last week. Wednesday night. The credit markets froze. Lending between large institutions stopped. If we don’t want a total collapse, but instead want to manage the fall (it will still be a whopper), the bailout must go through.
Go figure, it’s not going through. Congress, the folks who helped start this bubble economy back in the 90’s, is now bickering, and will continue to. On the surface, I agree. Bailouts shouldn’t happen. But with my limited information here in an Airstream I know it has to. These jokers have giant research groups at their disposal. They know what they’re risking.
So, where’s the politics come in? Simple, Congress has failed us. They’ve been failing us for a while now. Democrat, Republican, Conservative, Liberal, Independent, Green, Libertarian……everyone who’s in there has a lot of responsibility in this.
Hey, they don’t run the economy, do they? Nope, but look at what they’ve forced. Changed lending practices, oversight of Fannie and Freddie, oversight of the FED. They were there the whole way gang, and they created and changed laws that led to this.
Every member of Congress currently needs to GO! Seriously, they’re all responsible. They’re all career politicians. Their interest is in re-election. The people’s business is a lower priority than their re-election. You really want to do something. Move them all out.
Oh, we need experienced politicians, do we? Sure…..experienced politicians brought us this. I can see why that would be necessary. Every problem they try to address usually leads to 2 or 3 new larger problems. Always generating a need for their services, eh? Cool job. Like a computer tech that fixes one thing and breaks two guaranteeing a return visit. Eventually you’d fire that guy, wouldn’t you?
So, my best advice? My plan? I will not vote for one single incumbent in the upcoming election. I will seek out those who are not career politicians. I know, it will be hard. But where I can, I will find “real people” and vote for them. Heck, the approval rating for the current Congress is dismal, right? So we know we’re not happy. Vote them out! All of them!
Where are we right now? Here’s a short list:
- Freddie Mac & Fannie Mae have failed. They’ve always been backed, supported, and regulated by the government.
- Bear Stearns failed.
- Lehman failed.
- AIG failed.
- Washington Mutual just failed.
- Many more are on the way…….
Keep reading, pay attention, and watch who works on this versus who continues being a road block. You get to vote soon. Keep it all in mind.
By the way, I think it’s time that my regular readers become regular readers of one of my favorite financial columnists. Bill Fleckenstein’s article list can be found here. Go ahead and read the most recent and then work your way backwards. This guy has pegged this situation since the late 90’s. I’ve followed him that long, and I’ve been happy I paid attention to him. Most people don’t hear about him. During the bubble CNBC had him on regularly to pick on him for being a bear. CNBC was the biggest bubble cheerleader of them all, maybe they’ll go off the air some day! Wonder if they pick on his ideas any longer?
Stay informed everyone. And that means READ. If you depend on the evening news you’ll continue missing out on all the action. Information is always a valuable tool.
Oh, and I won’t say any more on politics here. Economics, yes, I’ll still comment there. But now you know where I am politically. Disgusted with both parties, and with the current pool of “leaders” we have. It’s time for a complete change.
Now on to the Mylanta for the morning……. 🙂
Amen, Rich… most people don’t know this is an OMNI-PARTISAN issue. Everyone is to blame.
We’ve lived through this before… and we”ll continue to survive… Just a matter of common sense and restraint.
Have a great weekend!
We most certainly will survive it. Wish I had a little more storage for food here. Just in case the markets do seize temporarily. Beyond that, I think I’m in a good position living out of the Airstream. Cheap rent, cheap energy costs, simple living! Oh, and wonderful neighbors!
There’s something to be said for a small aluminum can, don’t ya think Lois? 🙂
I posted Ron Paul’s thoughts on the bailout on my blog, http://dagnygromer.wordpress.com/2008/09/25/ron-paul-on-the-wall-street-bailout/
Thanks for the link. I appreciate a lot of what Ron Paul has to say on the economy for sure, and I’ve read many articles by him over the years. He does have a handle on where the economy is, and he has for a while. If I could only get past some of his thoughts on foreign policy….
Ah well, you can’t like everything about candidates can you?
Where’s the mystery candidate that has it all? 🙂 Ah well, it’s going to be an interesting ride for sure!
I am currently teaching here in Florida and have used your arguments as an example of what must be done. The congress must be voted out lock stock and barrel. We currently have an incumbent who took a bribe and is now apologizing because it was a “rookie mistake”. This “rookie mistake” took five years for him to acknowledge and only after the ethics committee dragged him kicking and screaming to pay the money back. I say get rid of the lot and start all over. We cannot do worse for we only have up to go.
Glad to be of help Bill. I am a reformed economist you know. 🙂
Once upon a time those making up the Congress were of humble beginnings, and remained humble people. Now it’s a career. Heck, it’s a career with a sweet retirement package and health plan. I think that needs to change soon. Save some money right there!
Seriously, Congress has sold us out. They’ve been doing it for a while, and blame should fall with them and the system they’ve expanded. Whether there’s a D or an R assigned to each of them is irrelevant. They don’t represent us any more.
Oh, and Greenspan too. I’m sure some day there will be a “History of Economic Thought” book out on him….oh wait, Bill Fleckenstein already wrote one, and it’s a good summary for sure!
I agree that the politicians need to go to a point. There are many incumbents in the house, fighting the good fight, esp. during the amnesty debacle and now who get no credit.
They are saying that the solution IS in the freemarket and thankfully McCain left Washington yesterday agreeing that the Bush/Paulson/democrat massive socialist takeover is not palatable. (let it be known, I do not like McCain but the alternative gives me diarrhea.)
You know where I’m at with all of this Rich…seeing as we talk about it a lot (which is apparently what happens when you date a reformed economist…that and I find myself knowing more than I thought I ever needed to know about this and Washington, but in a VERY good way…well, except for the throwing up parts 😉 ) and I agree with you…Out Out darned incumbents! We’ve got to get a handle on this, and if that means pulling together and cutting back and getting realistic, then gosh darn it…let’s do it.
Are we not Americans?
Are we not living in the greatest country?
I thought so.
Just read this to hubby. He says “we should flush our lawmakers down the toilet.”
Yes, there is something to be said for simple living. If we didn’t have the condo we’d be doing the same. Who knows, we might become landlords and live in the “tin” for a while. Looks like some rental property will be needed.
i’m here from lois! interesting article for sure. so it all comes back to term limits. we have it for the presidency, we need it for the rest of them. i try to think they start out with the best intentions, maybe i’m a dreamer, but soon they get caught up in the whirlwind of it all. follow the money works too…
Things are going to work out perfectly, I think.
Our age of Information has enabled even the most mildest armchair patriot to understand the corruption occurring.
Whether this plan goes through or not, it’s clear we’re headed (well, in) a depression-like state. Unfortunately, people keep relating it to the 1920’s and that’s the first mistake. We’re not in the 1920’s, we’re almost a HUNDRED years later. History may resemble, but it certainly never repeats.
I feel this depression is giving the Earth a much needed breather. Massive production of useless goods bought on bad credit HAD to stop and this is simply life working itself out for the best, which is what seems to happen when we truly examine human history. Shit, we got this. Past seemingly endless wars, massive genocides, multiple atomic bombs and the Bush Presidency! 😉 This hiccup is sure as hell not going to stop America or the world.
Personally, I feel this current state of affairs is going to give the world a nice jolt of a reminder of how tender our economies and lifestyles are, in addition to reminding us of how interconnected we are now.
Good things are coming, I feel. Of course, I live in an RV as well next to Richard and not in a 4 bedroom house bought on an adjustable rate with 3 kids and a single 25k/year job! But who’s fault is that, really? Too bad their bad decisions coupled with corporate greed is in the end going to affect my life, but so be it. I’m VERY excited for this time in History and I have only the most positive outlook for the broadest outcome, no matter how painful it might appear at first.