Guys, I've been busier then all get out as of late and haven't visited one of my favorite econ page. I've missed a few posts. So here is the latest from Dr. Walter E. Williams.
A MINORITY VIEW
BY WALTER E. WILLIAMS
RELEASE: WEDNESDAY, OCTOBER 8, 2008, AND THEREAFTER
Lessons From the Bailout
In my more cynical moments, I think that we Americans deserve what we get from our politicians, many of whom can be generally described as nothing less than loathsome. You say, "Williams, that's a pretty heavy putdown." My question to you is how else would you describe these congressmen who are now blaming the financial mess on the failure of the free market? Starting with the Community Reinvestment Act of 1977, that was given more teeth during the Clinton administration, Congress started intimidating banks and other financial institutions into making loans, so-called subprime loans, to high-risk homebuyers and businesses. The carrot offered was that these high-risk loans would be purchased by the government-sponsored enterprises Fannie Mae and Freddie Mac. Anyone with an ounce of brains would have known that this was a prescription for disaster but there was a congressional chorus of denial.
Five years ago, Congressman Barney Frank (D-Mass.) vouched for the "soundness" of Fannie Mae and Freddie Mac, and said, "I do not see any possibility of serious financial losses to the treasury." In 2004 congressional hearings, where the Bush administration sought greater oversight over Freddie Mac and Fannie Mae, congresswoman Maxine Waters (D-Calif.) said, "We do not have a crisis at Freddie Mac and particularly at Fannie Mae," adding that "the GSEs have exceeded their housing goals." Congressman Gregory Meeks (D-N.Y.) said, "There's nothing wrong with Fannie Mae and Freddie Mac." In these hearings Barney Frank said that he doesn't see "anything in the reports that raises safety and soundness problems." Earlier this year, Sen. Christopher Dodd (D-Conn.) praised Fannie Mae and Freddie Mac for "riding to the rescue" to help people get home mortgage loans, adding that they "need to do more" to help high-risk borrowers get better loans.
The financial collapse of Fannie Mae and Freddie Mac is not a failure of the free market because lending institutions in a free market would not have taken on the high-risk loans. They were forced to by the heavy hand of government. The solution is not a taxpayer-financed bailout. The solution is to let them fail and allow the people who invested in them, as well as the people who purchased homes they couldn't afford, suffer the losses. Of course that takes a level of political courage that is in short supply. There are other measures that should be taken as part of a second-best solution.
In 2002, when the Enron and WorldCom scandal broke, the Congress held hearings and some chief executives were jailed. Who did what was the big story in the major news media almost every night. Congress rushed to enact the Sarbanes-Oxley Act, also known as the Public Company Accounting Reform and Investor Protection Act of 2002. The act placed unnecessary, onerous and costly accounting standards on American businesses. The Enron and WorldCom debacle is a drop in the bucket compared to the financial mess that Congress has created through Fannie Mae and Freddie Mac, in the name of "affordable" housing. Have you heard Congress calling for hearings? They haven't called for hearings because many of them, both Democrats and Republicans, receiving hundreds of thousands of dollars, were in cahoots with Fannie Mae and Freddie Mac. If Americans are going to be on the hook to bail out these government-sponsored enterprises, at the minimum congressional hearings ought to be held to find out who did what and when.
Corporations employ accounting practices promulgated by the Financial Accounting Standards Board (FASB) that established Generally Accepted Accounting Principles (GAAP). Fannie Mae, Freddie Mac and government agencies have accounting practices that don't come close to, and never did, the honesty of private accounting practices. Accounting fraud and deception are the dominant features of government agencies. If a private business kept and cooked the books, like government agencies do, the top executives would go to jail. Shouldn't the accounting standards businesses have to meet be applied to Washington? My answer is yes and if a congressman says no, I'd like for him to tell us why.
Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
COPYRIGHT 2008 CREATORS SYNDICATE, INC.
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John Adams “The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.”
Ronald Reagan: 'Everybody that is for abortion has already been born'
"I never said I was worth it. I only said I wouldn't do it for less " William F. Buckley Jr.
Unfortunately, Williams is political mouthpiece who refuses to but any blame on the Republicans in congress and the white house for the current debacle. Both the pukey Democrats and the pukey Republicansare to blame for the current mess.
They haven't called for hearings because many of them, both Democrats and Republicans, receiving hundreds of thousands of dollars, were in cahoots with Fannie Mae and Freddie Mac.
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John Adams “The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.”
Ronald Reagan: 'Everybody that is for abortion has already been born'
"I never said I was worth it. I only said I wouldn't do it for less " William F. Buckley Jr.
Exactly right. DO NOT GIVE LOANS TO PEOPLE WITH BAD CREDIT WHO ARE A HIGH RISK TO PAY THEM BACK, PERIOD! Feel good socialism doesn't work in the real world, and now we're seeing the fallout.
The financial collapse of Fannie Mae and Freddie Mac is not a failure of the free market because lending institutions in a free market would not have taken on the high-risk loans. They were forced to by the heavy hand of government. The solution is not a taxpayer-financed bailout. The solution is to let them fail and allow the people who invested in them, as well as the people who purchased homes they couldn't afford, suffer the losses.
Actually it is a failure of the free market. Predatory lending was the infancy of the problem. At one point the Wall Street Journal noted that 61% of the high risk loans written should have qualified for conventional loans. The mandates, which eventually swung too far the other way, were designed to curb the abuse of the loan processes. It sort of like a fighter failing to do the job and then losing the fight to the judges. Do the right thing and you won't normally get legislated against.
Also the last sentence is pure conjecture, although I agree it is an arguable stance. I will only say that many bright people have agreed with the idea of a bailout to prevent wholesale, serious, and widespread instability...which would lead to a lot of financial collapse in smaller weaker nations and in my opinion, could lead to insurrection and wars.
The thing that pisses me off so much about this deal is that no one is admitting anything was done wrong. No lessons have been learned at all. Once again we catch the crap end of thie stick. Congress isnt admitting any of the policy that caused this is flawed and the people they are interviewing from the failed institutions that made millions from this whole thing are defending their actions to the end.
If there was some action to stop this from happening again I wouldnt be so bitter...but theres nothing but rhetoric and blather coming from all directions.
As has been said before, there is enough of a sh!t sandwich here for everybody to take a bite.
Quote:
The thing that pisses me off so much about this deal is that no one is admitting anything was done wrong. No lessons have been learned at all.
It is a scary thing, but I think that this is such a complex and tangled problem on such scale that many can't even comprehend it's mechanics, still, most everyone involved at any level was wrong.
Even when politicians are found guilty, they usually don't admit they were wrong so it seems a far stretch to get them to do it voluntarily.
I would like to see a non partisan commision hold public and televised hearings on the whole thing.
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Looney tunes deductive reasoning:
--Me smell Mohican burning
--Me last Mohican
--Must be me!!!
--EEEOOOWWW!!!!!
Lessons From The Bailout
