Crisis mode.

I’m growing very weary of politics, so I apologize for posting so much about it lately, but this election has become (probably) the most important in history… and my life is so boring at the moment I don’t have much else to talk about (I will soon since Theresa is coming to visit!).

Some things to consider:

• McCain wants to tax company subsidized health benefits and only provide a $2500 individual/$5000 family credit. This is a travesty against health care and enough to give pause when voting for him (if you want to).
• Obama will indeed lower income and generalized taxes for about 82% of Americans (not the 95% they say, but whats ~40 million people?), however, anyone who likes this idea very much needs to look into the rest of Obama’s tax policies. I could care less if he raises taxes on people making more than $250k, but it is very important to note that he intends to raise taxes on business (including windfall taxes on industries he doesn’t like) and on capital gains. Consider the effects to small and medium businesses as well as investment firms. If they can’t make the money they need do, no one will invest and FAR less jobs will be created, if any given our current economic problems. Also, consider for a moment what a company normally does when anything cuts into its profit margin (assuming one still exists). The costs of everything are likely to go up which will, in the end, create an effective tax increase (albeit not direct).
• Obama has said he intends to move forward with his tax and health care plans despite our immanent economic collapse. He did concede that “some” programs may have to be delayed in the debate, but would not get anywhere near specific despite repeated prodding.
• For a rant on energy click here
• A couple interesting links: Fox News Report on financial warnings [youtube.com] ; Dems on Fannie Mae & Freddie Mac [youtube.com]

I think its obvious that I lean towards the conservative side and therefore McCain, but I do consider everything and will go with whichever candidate happens to have the best policies. I know McCain is old and “he voted with Bush 90% of the time” (the real number is actually in the 80’s but so is a lot of the democrats when you consider entire voting records); I know he wants to drill for oil which many think means he’ll ignore alternative energies; I know many argue he is a Bush-like war monger… I’ve looked at the records of the candidates on these issues and made my decision on their truthfulness. If any Obama supporters out there have an intelligent reason for voting for him, please make the argument to me… I truly want to know.

Ignoring all of the above, I want to talk about the economy for a moment, which was the original purpose for me posting. I know there isn’t many people out there who understand exactly what is going on, so I’ll try to explain.

The first question is (obviously): what the hell happened? No shock here… the government put its nose where it didn’t belong. Under President Clinton, Congress passed a fair housing law that created a new type of loan so that people who made little money could get a long and buy a house. The argument here was that every American deserved the opportunity to own their own home… unfortunately they didn’t care whether or not they could pay for it. I don’t know all the rules, but the new loans, called sub-prime loans, were issued to people of lower income (usually families with a cumulative less than $40-45k per year) and had two features: the had subsidized lower interest rates and weren’t judged based on ability to pay. Many people were ok with this because the housing market at the time allowed people to sell these houses off in just a couple years for a profit and pay off the loans and buy something bigger (likely with a similar sub-prime loan). Because of the likelihood of these loans being paid back was extremely low, banks issuing the mortgages didn’t want to keep them. Here is where we meet the federally backed Fannie Mae and Freddie Mac: Banks, knowing the risk of the loans and wanting to recoup as much money as possible, sold these loans off for (sometimes significantly) lower than principal to Freddie/Fannie or similar. In the 90’s this still wasn’t a problem because they made (huge) profits with all of the buying and selling of houses. Well, when the cost of energy increase to a point that it hugely effected the budgets of everyone and people could no longer afford their full mortgage payments, the banks had to start foreclosing. Unfortunately, most of the sub-prime loans in default couldn’t be recouped from the signer (they were way in over their heads) and now there weren’t many people who could buy up the houses. This problem continued and progressed throughout the last couple years to the current point of crisis.

So what is the crisis? Since Fannie Mae and Freddie Mac and others are currently left holding the bag on so many bad loans, the amount of liquidity in the market has all but dried up. This means that banks are increasingly less open to giving loans, both public and private. This means that even qualified home buyers are being rejected. More importantly, this means that banks and corporations are unlikely to get loans which is very common in these industries to meet general business needs. Without credit in the public world (yes it sucks that I can’t buy a house, but there are bigger fish in the sea) companies are starting to hit ceilings on operation costs which is causing them to fail.

Now, the big question. What is being done? A little over a week ago, the president, on the advice of the SEC chairman and the Secretary of the Treasury, offered up a 3 page plan suggesting that the office of the Treasury should be given $700 billion dollars to buy up these bad assets (at a discount) from the holders. There were some other provisions and and idea or two to make money from the debts, but this was the basic idea. This was a bad idea. Never mind the socialist premise, but this only helped investors while doing nothing to stabilize private citizens. So Congress argued for a week and came up with a 100+ page plan that included a few things: 1) A LOT of government regulation, 2) A phased approach with discretion split between the President and Congress, 3) limits on executive pay, bonuses, and severance at companies receiving funds, 4) required a plan of investment to recoup losses, 5) required presidential plan in 5 years to force investors to buy back debt. It failed. Why? Republicans think it benefits financial institutions too much and puts too much risk on the shoulders of tax payers. [For the record, I agree and am happy the plan failed.]

The simple fact here is that we did this to ourselves. I don’t me we the people, but I do mean as a nation. We aren’t likely to buy our way out of this by adding nearly $1 trillion to our national debt (yes, we would be borrowing all of this money from other countries) and if the plan were to fail (which it is very likely to do) all we have done is made the situation worse for our future. With this debt looming over us, the American dollar will turn into confetti and inflation will go up much faster here than globally. The government can’t protect this bill from failure and therefore can’t protect us from ill effects. I hope we aren’t destined for a depression (which we are on the very dangerous edge of), but if we are, lets not make it worse. We have to do something, but not this… find another way.