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Monday, September 29, 2008

Who Caused the Current Financial Crisis? Not Bush and not Wall Street

What a day! The Dow suffered its worst loss in history. The S&P and Nasdaq also got clobbered big time. How did it come to this? The genesis was in the sub-prime market meltdown and the consequent inability to value these assets on the books of banks and other financial institutions. Note that these securities are not valueless but no one knows how to fairly value them.

Now here's where it gets interesting. One of provisions of Sarbanes-Oxley is that companies are now required to take a conservative approach in valuing any balance sheet assets. Since no one can put a fair value on the securitized mortgage assets, Sarb-Ox requires that they be written down to essentially zero. This is what is causing the failure of banks and other financial companies such as Bear Sterns and Morgan Stanley.

So what happen? The short answer is that up until 2 years ago Frannie and Freddie were prohibited by law from providing security for mortgages issued to unqualified borrowers. In other words there were specific borrower qualification requirements that banks had to follow in order to use the Fannie and Freddie facility. Guess what happened. The congressional Democrats were unhappy that so many low income people could not qualify under these rules so they forced (remember that the Dems have controlled congress for the last two years) Frannie and Freddie to lift their requirements. This gave banks and other lenders a free reign to sign up mortgages with as many people as possible regardless of their ability to pay. Not only that they were allowed to market all sorts of non-conventional products such as interest-only and teaser rate adjustable loans that the GSE's were now allowed (in fact encourgaged) to securitize. In addition liberal activist attorneys sued lenders - e.g. Citibank - if they did not aggressively market this junk even though most bankers realized that this was a very risky move.

Who raised the alarm? The Administration and John McCain were on the forefront in issuing warnings but they went unheeded. Bottom line is that we have the congressional democrats and their leaders to blame for the current crisis and no one else.

You can perhaps understand why I am outraged at the blatant and unabashed hypocrisy of BHO, Pelosi and in particular Barney Frank who orchestrated the situation we now have to fix.

Even more remarkable is that they try to blame it on Bush and "greedy" Wall Street! Unbelievable. This is a very important election issue that can not and must not be swept under the rug.

Friday, September 5, 2008

Hilary vs. Sarah in 2012?

In the spirit of equal time I thought it only fair that I submit a few thoughts post RNC. Needless to say Sarah hit a grand slam. Her VP acceptance speech was watched by as many folks as watched BHO's Presidential acceptance speech. On top of that and incredibly the Obama campaign was going after her as if she were the Presidential nominee by dissing her experience as compared to Obama. Message to the Obama campaign - your candidate is running against JSM and not Sarah!

One thing for sure Sarah is much more telegenic than either of the old guys on the Democratic ticket and her running mate. The best description I have seen of Sarah is that she is "Smoking hot in a kinky librarian kind of way." Must be the hairdo and the glasses.

As for JSM's acceptance speech it was about as good as it gets from the old war horse. Unlike Obama, large venues and grand speeches are not his strength. He works much better in smaller town hall groups where the dynamic is one of questions and answers. For this reason I think he will come across the better man in the debates. It is also clear that Obama avoided JSM's calls for a series of town hall meetings prior to the conventions for just this reason.

Dumb things I have heard from the candidates this week. First was Obama talking to an audience in the mid-west about all the people "losing" their pensions. Excuse me!! Who exactly are these people. Pensions - if they are truly that - are protected under federal law and are managed by a trustee. While pensions are being phased out for younger workers in favor of defined contribution plans (e.g. 401k's), I know of no company that has revoked a pension benefit already earned by older workers. This sounds like a phony straw man designed simply to evoke fear.

Second was both BHO and JSM talking about jobs and how they will both "increase" jobs. Excuse me big time again! The notion that government - especially the federal government - creates jobs is patently false and ludicrous. Message to both candidates - the PRIVATE SECTOR creates jobs not the government. So how will BHO's plan to increase taxes on the the most productive part of our economy increase jobs? It won't. It will reduce jobs. At least JSM understands that calculus. Even if his public statements are uncomfortably populist he at least knows the right levers to pull at the federal level to stimulate job growth.

This won't be the last of the silly statements we are likely to hear in the next two months leading up to the election. But let's cut the chase on the real issue confronting voters this November.

Ask yourself do you really want to have the House, the Senate and the White House controlled by Pelosi, Reid and Obama. They would spend four years all trying to get to left of each other with what I believe would be very bad news for America. In an earlier blog I made the statement that the Republic would survive no matter who wins the election and I stand by that statement.

After all we "survived" the Carter administration and the first two years of the Clinton watch which were the last times the Dems had such complete power. We all remember the stagflation and 20+% interest rates of the Carter years. I don't think any of us want to go through that again. And I am always amused that the Dems point to the good times under Clinton without mentioning that the economy didn't start to improve until the Republicans under the leadership of Newt Gingrich wrested control of congress from the Dems in 94.

Let's also not forget that the go go eighties occurred with Reagan in the White House and a Tip O'Neil led Democratic congress.

The message is that America prospers under divided government. Something about checks and balances that our founding fathers understood very well. An alignment of the stars with Obama, Reid and Pelosi in ascendancy would be a very bad omen for the next four years. So my fellow voters, for the sake of our economic and national security please follow my lead to ensure that we have divided government and help elect John and Sarah.

Final thought. Here is my scenario. McCain wins a very close election with Sarah at his side. Obama licks his wounds while the Clintonistas revel and quietly mumble "We told you so," and begin immediately to plan her 2012 campaign. In the meantime McCain does a great job as President, is popular, but decides that at 76 enough is enough, so in 2011 he announces that he will not be candidate for re-election and throws his support behind Sarah.

It will be a Hilary vs. Sarah contest for presidency in 2012. Remember that you read it here first.