Can Obama Really Fix Wall Street’s Financial Crisis?
By: Jim Byrd
The short answer: No. The long answer: No.
To correct a problem from the most diminutive dimensions to the magnitude of the problem haunting Wall Street, the banking industry, and the mortgage industry, one must comprehend three fundamental components: First, define the problem. Second, define what caused the problem. Third, have a comprehensive plan to correct the problem by addressing the fundamentals causing the problem, as you understand them. Obama does not understand fully the dynamics of the financial problem, and is wandering around in a stupor as to what caused the problem, and is most assuredly incapable of devising a plan to both correct the problem, and implement adequate measures to prevent it in the future.
Obama stated, after the news of Lehman Brothers’ Bankruptcy filing:
â€œThe challenges facing our financial system today are more evidence that too many folks in Washington and on Wall Street weren’t minding the store. Eight years of policies that have shredded consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression.â€
A simple dissection of his statement would lead one to the conclusion that the author is completely ignorant of the fundamentals that have caused the financial crisis the country is in the midst of, and ignorant as to what caused the problem, and, in the usual Obama M.O., is void of a curative plan of action to correct the problem. Obama cannot, in any current situation, move beyond blaming Bush, then transferring that blame to McCain by proxy.
A very interesting assessment by Obama–considering that in 2005, McCain co-sponsored bill S. 190, the Federal Housing Enterprise Regulatory Reform Act, to address the very crisis we are experiencing. The bill would have reined in Freddy Mac and Fannie Mae’s out of control lending practices. McCain warned Congress of the eminent collapse of these two institutions, and others, if not regulated. What did Obama do concerning this legislation? He was vocally against S.190, and watched as his Democrat compatriot Chris Dodd killed it in committee, and stood in line, behind Chris Dodd, with his hand extended, then walked away with $126,349 doled out by Fannie Mae and Freddie Mac. Obama then hired Fannie Mae CEO James Johnson to vet his prospective vice presidential candidates, who had to quit because of a shady mortgage he received. A heartfelt thanks to Obama for “the change we need.”
If Obama is foolish enough to point a finger at the Bush Administration’s policies as the root cause of the Bear Stearns, Lehman Brothers, and the manifold problems plaguing the financial industry, he should probably take a closer look at the tip of his finger, because his prints, and the prints of the entire Democrat party, are all over the evidence.
Who is to blame?
The policies that opened the door to the current financial situation can be, with rudimentary forensics, traced back to Clinton’s housing policies, then perpetuated by the Democrats in Congress. To address the blame with any honesty, the problem must be fully understood–which for some reason, seems to have the Democrats in Congress in a state of bewilderment. Embarrassingly, most people with a modicum of common sense knew the financial crisis was coming, but the MBA’s, PHD’s on Wall Street, and most politicians were either blinded by greed, in the case of Wall Street, or blinded by Socialism, as the case of Congress, with a Socialist ideology that believes everyone deserves a piece of the pie regardless of whether they deserve it or not, i.e.–everyone gets a house regardless of their qualifications.
The following is a painfully simplistic and formulaic encapsulation of how the U.S. financial markets arrived at their current destination:
Deregulation of the financial system (Clinton) + flood the market with cheap liquidity (Bush) + Democrats in Congress rebuffing any type of fix to the impending mortgage related meltdown + pushing absurdly low mortgage ARM rates (brokers) = HOUSING BUBBLE.
HOUSING BUBBLE + no money down mortgages to buyers with either bad credit, no credit, or unwilling to prove ability to pay + Wall Street loading their portfolios with sub-prime mortgages from mortgage holders as mortgage backed securities and collateralized debt obligations + mortgage holders and Wall Street grossly imbalanced ratios of sub-prime mortgages vis-a-vis conventional mortgages to credit worthy buyers with equity in the property + expiration of ARM’s + marginally affordable mortgage payments increasing to absurd levels = HOUSING BUBBLE BURSTS.
HOUSING BUBBLE BURSTS + substandard borrowers holding mortgages they can’t afford on houses they have no personal investment in + unable to refinance + abhorrently high foreclosure rates = Bear Stearns, Fannie Mae, Freddie Mac, Merrill Lynch, Lehman Brothers, and AIG + one trillion in government bailouts = FINANCIAL CRISIS.
This is a classic example of how a Socialist and radical liberal ideology wreaks havoc on a capitalist economic system, when mixed with an industry, whose history is riddled with greed and corruption, and is expected to operate under self-regulation. The root of the problem started with the Clinton Administration. The left’s ideology, especially Obama’s, is obsessed with giving everyone the same benefits, whether they have earned it or not, and in this case, everyone should have a home, whether they deserve one or not. Andrew Cuomo, Clinton’s Secretary of HUD, set the rules that regulated the mortgage industry, especially Fannie Mae, and Freddie Mac. Clinton expanded the Community Redevelopment Act for the purpose of increasing minority home ownership. We are suffering the consequences of playing with socialism.
Cuomo structured Fannie Mae and Freddie Mac to dole out sub-prime loans without the benefit of regulators to monitor their portfolios. He also put into place the mechanism for FHA-backed loans to be dispensed with no money down. The predatory lending practices by mortgage brokers, who had everything to gain by pushing sub-prime loans loaded with adjustable rate mortgages, was his doing, also–he went as far as approving their receiving kickbacks from the mortgage companies. The end result was the predatory lending practices that the Democrats have been harping about. These liberal monetary rules were the result of direct pressure from the Democrats. This, along with a recession, is what Bush inherited from the Clinton Administration.
What did Bush do about it? Nothing from a regulatory position, but not for a lack of effort. Even though he inherited a recession, had 9-11 to deal with, and two wars–five years ago, he tried to completely revamp the regulations of the mortgage industry by forming a board, within the Treasury Department, to oversee Fannie Mae and Freddie Mac for the purpose of regulating these types of loans that have been the catalyst for the current crisis. The newly formed board would set the capital reserve requirements for mortgage related companies, especially Fannie Mae and Freddie Mac, and essentially keep their portfolios in balance. The bulk of the issues Wall Street is contending with now, in regard to the financial crisis, could have been largely avoided, if the Democrats would not have blocked the implementation of these regulations. Rep. Barney Frank, (D-Ma), was instrumental in killing the legislation, along with the majority of the Democrats. The hundreds of billions of dollars of taxpayer money the U.S. Government is spending on bailouts, can be directly correlated to the Democrats in the Congress.
Was the inevitable collapse of the mortgage industry a well kept secret from the populace and investors? No. Please note this extremely prophetic article from the Wall Street Journal dated February 2002 titled, “Fannie Mae Enron”?
â€œWe were reading President Bush’s budget the other day (we know, get a life), when we came across an unusual mention of our all-time favorite companies — Fannie Mae and Freddie Mac. What we found is a tale we think taxpayers and investors should want to hear.
It seems that Fan and Fred, two “government-sponsored enterprises” that hold the majority of all home mortgages in the U.S., have been growing their debt at an annual rate of 25%. They now have about $2.6 trillion in debt outstanding, a big number in any case, but really big considering that taxpayers are on the hook for it. The budgeteers also expressed some anxiety about Fan and Fred’s increasing dependence on derivatives.
Hmmm. Where have we heard this before? The more we’ve since looked at Fan and Fred the more they look like poorly run hedge funds: lots of leverage and snarkily hedged risk. The word Enron ring any bells?
Last year, Fan’s debt/equity ratio was about 60 to 1, more than five times the average for commercial banks. Moreover, as mortgage lenders, Fannie’s equity can hardly be said to be well-diversified. Risk thus becomes a critical question.
We aren’t trying to scare readers here, and perhaps all of these concerns will come to nothing. So far during this recession, the housing market has held up well, knock on wood. Then again, unlike Enron, where only shareholders got taken to the cleaners, in the case of Fannie and Freddie taxpayers will take any bath. Maybe this time Congress should hold hearings before things go wrongâ€.
The Bears Stearns, Lehman Brothers, AIG, and Fannie Mae, Freddie Mac debacles should hardly have been a surprise to anyone. Not only was it inevitable, every attempt to prevent it was blocked by Democrats.
With the record clearly acknowledging that the current crisis started with the Clinton Administration, and the Democrats in Congress preventing the Bush Administration from implementing regulation to avoid a crisis, this is what Nancy Pelosi, head of the infamous “Do Nothing Congress”, had to say about the current situation when asked if the Democrats shared any culpability in the crisis: “No.” Pelosi has also ordered an investigation into the crisis. She, naturally, blamed the Bush Administration for the problem and will spend millions of dollars trying to prove this is all Bush’s fault. In all fairness, Bush does share in the culpability with the housing bubble with his ridiculously inane monetary policies of flooding the market with cheap liquidity, resulting in cheap and abundant money for home loans. And Wall Street, mortgage lenders, and banks share the brunt of the blame for their blinding greed, and abuse of this liquidity.
This Democrat led Congress, headed by Nancy Pelosi, and Harry Reid, has unilaterally proved that they have earned their reputation as the “Do Nothing Congress”. They have been a complete failure operating as one of the three branches of the Government for the past two years. They bear an equal amount of the blame for the economy in its current situation as does the irresponsible mortgage industry. If the Democrats keep their majority in the two houses of Congress, then couple that alarming scenario with Obama as President, imagine how the state of the U.S. Economy would end up.
Do you really believe Obama can fix the problem?
Jim Byrd's website is A Skewed View.