Last week, it was Fannie Mae and Freddie Mac that needed a government bailout. This week, it looks as though American International Group and Washington Mutual will be on the hot seat. We have actually reached the point where there are now only two independent investment banks left: Goldman Sachs and Morgan Stanley. It boggles the mind.
But it really shouldn’t. Because after you get past the mind-numbing complexity of the derivatives that are at the heart of the current crisis, what’s going on is something we are all familiar with: denial.
Indeed, it is not all that different from what is going on in neighborhoods all over the country. Just as homeowners took out big loans and stretched themselves on the assumption that their chief asset ”” their home ”” could only go up, so did Wall Street firms borrow tens of billions of dollars to make subprime mortgage bets on the assumption that they were a sure thing.
But housing prices did drop eventually. And when people tried to sell their homes in this newly depressed market, many of them had a hard time admitting that their home wasn’t worth what they had thought it was. Their judgment has been naturally clouded by their love for their house, how much money they put into it and how much more it was worth a year ago. And even when they did drop their selling price, it never quite matched the reality of the marketplace. They’ve been in denial.
This mess was not caused by Bush as much of the media and presidential candidates Obama and McCain are reporting. It was, in fact, cause by Bill Clinton and the Democrats who ordered lending institutions to make loans to people of color and the under-privileged with little or no down-payment and very little hope it could be repaid. If the lending institutions did not, they would incur significant penalties…this includes Fannie Mae and Freddie Mac. It was an attempt to make themselves look good, and their Democrat friends running the institutions and sitting on their boards became extremely wealthy. It was a Welfare program in poor disguise.
Now that the lending institutions have failed or are failing, the very same people have taken over the companies and are putting themselves in charge of regulation or re-regulation!
This is a perfect opportunity for Republicans to show the public what really happened, and who is really at fault. Yet, they are not.
I would counter that it was caused by lending institutions (banks) accepting on face value that estimated housing prices were valid and would remain at least what they were claimed and loaning money using that value as collateral in case something happened to the loan and also claiming that value as an asset of the lending institution. The banks then sold for cash and shares most of the loans to investment firms who also happily accepted the face value. One would have hoped that someone would have been willing to deal with the reality of what the mortgages were – outstanding loans based on shaky assessments of worth.
The reevaluation of the value of these paper assets in lieu of the collapse of the speculative housing market is what’s going on. Bush coulda/shoulda let regulators regulate and not claim such gambles as money in a firms vault. But no one in finance, not Treasury, the Fed, or Wall Street, was in a hurry to kill the golden goose of real estate that was keeping the economy humming and making paper money that could be passed around. Unfortuately, the goose has been laying rotten eggs from the start.
I read that the Fed dropped $70 Billion today to shore thing up. $70 Billion of what? Future tax receipts? T-bills? Ugh.
However, it was Bush who ran up the federal deficit so high. And it is you and I (figuratively speaking) who have run personal debt up so high. I don’t know whose fault it is that we’ve lost our manufacturing base – some say it’s the unions. There’s plenty of blame to be passed around. Perhaps we should stop passing blame and instead acknowledge that our economy is on shakey ground indeed, for a variety of reasons.
I’ll tell you what it is. It is a failure of this country to pass meaningful energy legislation that encourages and rewards the development of new technologies produced by the originally innovative American companies so that they could meet the profit objectives ascribed by American business schools in order not to be sold to foreign companies. I have personally worked for two companies, Sylvania Lighting (compact fluorescent lamps), and Solarex, (solar panels) and with more than a dozen other energy companies, such as, Mobil Solar, Arco Solar, Westinghouse, Cutler Hammer, Square D, Allen Bradley, Kenetech Wind Power, First Solar, and many others who were eventually sold or moved overseas to foreign investors willing to make the long term investment in the future energy technologies, in energy technology friendly countries who knew how to pass energy policies that supported them. Sylvania was sold to Siemens in 1993 and Solarex was sold to BP in 2000.
And we have no one more to blame but the sorry leadership in Washington. For example, even as we speak Ohio Senators and Congressmen couldn’t find a way to get the solar tax credits extended to save the solar industry just starting up in their own state. As a result, First Solar of Toledo, Ohio decides to move its production to Asia. The reason they didn’t support First Solar’s need to extend the solar and wind tax credits is because the oil lobby is more important to them. They, (The Whole Congress – and the Administration too) are a sorry lot to be leading us into the state we are in. With rising energy costs, we have little relief but to import the very energy technologies we invented and used to make on these shores.
Energy (though probably not solar) may be the next big investment “thing”: http://www.harpers.org/archive/2008/02/0081908
But apparently too late for the jobs and the companies mentioned in my earlier post. We are where we are now because of failed leadership.