Too much going on

At work, at home, in the country... I think my brain is on overload.

First: The McCain surprise yesterday: suspending his campaign, asking the president to call a meeting of the congressional leaders and presidential candidates, and pledging to work until this crisis is resolved. Hmmm. It was bold, I'll give him that. McCain is a leader, no doubt about it. Personally I wouldn't have gone the route that he did. I think some will see it as desperate. Of course, financially our country is in a REALLY tight spot, so... We'll see. President Bush definitely helped him out by calling the meeting he asked for, but I think that more than anyone, Obama helped McCain out with his response press conference where he said, "I'm available if you need me." Hmm... doesn't exactly scream leadership.

Second: The speech from President Bush last night was pretty good. He left out a lot of stuff historically and sugar coated some other stuff, blaming the collapse of the mortgage industry on outside investment that came and went. From everything I've read and seen it really seems to have started with the HUGE accounting scandals by Freddie and Fannie back in the 90's and early 00's. As part of a pseudo plea bargain with Congress and the administration to not jump on them with increased regulation they increased their purchasing and encouraging of sub-prime loans in order to increase home ownership. This was seen as a win by the Bush administration and congressional leaders. This willingness to pick up bad loans by 'government backed entities' encouraged mortgage brokers to explore a whole new market of people who really couldn't afford loans. Worse than that, Fannie and Freddie were buying up way too many of these loans and putting themselves in a bad cash position. Greenspan and others warned about this. McCain and some Republicans tried to push through some legislation to clamp down on this unhealthy practice at FM and FM, but it was blocked by Senate Democrats. At the same time FM and FM were buying off politicians with campaign contributions to try and get them NOT to regulate FM and FM like regular banks (Sen. Dodd was the biggest recipient over his career and Sen. Barack Obama was number two in over all money after just TWO years in the Senate and yes John McCain over his two decades collected 1/5 the money that Obama did).

As the borrowers in the sub-prime market started to default on their loans, the cash position at FM and FM got worse and worse, until they finally got taken over by the Fed a couple of weeks ago. So then you have this downward spiral by all of the businesses that worked closely with them in addition to banks and investors who were heavy into mortgage securities. Banks are regulated (if they want to be FDIC insured) and so they have to have a certain ratio of cash on hand to outstanding loans (mortgages are a big part of that). Well, people start defaulting, FM and FM aren't buying up the loans like they were, so now banks are stuck with them and they panic and stop lending anything to anybody so that they can stay solvent and maintain the ratios that they need to be in business. The bummer at that point is that businesses then can't get loans, you can't get a car loan, and even though you have good credit, you can't buy a house because no one is lending money. This is the big pile of steaming credit crisis that we are in.

So, the 'bailout' package is basically purchasing these sub-prime loans from the banks that are in trouble so that they improve their cash position and resume (hopefully) responsible lending. Of course these loans are going to be purchase at something like 20 cents on the dollar. It is a "write down" for the company, but they are out of the loan and they have cash. Obviously these banks just can't go on business as usual. In most (if not all) cases the government will sack the management of the institution and put in government managers who will temporarily run things while the board of directors seeks new leadership. This is similar to the whole Savings and Loan fiasco a while back. In the meantime the American taxpayers become owners of all of this bad real estate. Congrats! :( The hope then is that the market turns around and that not all of the sub-prime loan holders actually default and eventually the Fed (you) makes their money back.

I think that's the gist of it. As a responsible person who pays their bills and taxes, you get hosed. But if they didn't do anything, then you wouldn't be able to get a loan to BUY anything. The company you work for would be in a similar situation. Good companies would go under. All kinds of jobs would be lost. Basically, you would probably get hosed even worse. At least this route, the financial industry can keep functioning, the stock market will respond well, people keep working and maybe in the end the tax payers make some of the money back. I've heard some people speculate that we will MAKE money on the deal, but considering it is all coming straight out of the national debt, I don't see that happening.

And when they say $700 BILLION, that is the high end. Of course that also equates to about $10,000 for every family in America. Nice eh?