Let me see if I understand what is happening. The banking industry demonstrated questionable judgment by making poor loans that put their businesses in jeopardy of bankruptcy. In some cases the mortgage companies and/or banks did actually go bankrupt. Isn’t that what happens when we get careless? It happens to consumers every day. How is this situation different?
So I have some questions. Did all this happen because the housing market failed to continue its unreasonable meteoric growth rate? What drove that meteoric growth? When the market was exploding upward was anyone concerned that the real value of the underlying assets was much lower? Was everyone seduced by the unreal returns? Since we all know the cyclical nature of the real estate market didn’t some smart guys see the end coming in time to raise a warning? Who is supposed to be listening for a warning? Is there supposed to be someone looking for warnings?
Then when the housing market crashed, weren’t there safeguards built into the regulatory system to soften the landing? Aren’t there safeguards in the system? What should reasonable safeguards be? Where should they be imposed? Is this a State or Federal issue?
Is this whole thing a failure of government or the private sector? Should government be the “Black Knight” and let the failed institutions fail and let the market take care of it or should the government be the “White Knight” and come to the rescue?
The crisis became a catastrophe when we learned that most of the major financial institutions were infected with the disease. Could that be characterized as massive corporate greed? When it was just a crisis, we let the individual institutions be swallowed up by scavenger investor institutions. Isn’t that just the way of the world? Then when it became a catastrophe, the stakes were too high to let the banks go under. There must have been too many failing banks for the “big boys” like JPMorgan Chase, Wells Fargo and the Bank of Americas to step in and rescue (steal) with infusions of capital. When Warren Buffet put up $5 Billion to prop up one of those fat cats, he didn’t do it without demanding a pound of flesh with an equity stake.
Since Fannie Mae and Freddie Mac were privately held public corporations how should they be treated in all this mess? If they hold trillions of dollars worth of mortgages that are performing and a couple hundred billion that are not performing, what are they worth?
In the end, if you had your retirement funds invested with one of these major financial institutions you pretty much lost it all. In the case of Washington Mutual, the company was taken over by JPMorgan Chase for a fraction of the capitalized value of the shares. Everything that made that company worth investing in was gone along with the value.
If the government is stepping in to prop up “Wall Street” so we can save “Main Street”, what are share holders whose IRA’s and 401K’s are invested in those companies, “Wall Street” or “Main Street”? If the home owners are the “Main Street” part, how exactly are they to be helped? If your retirement account has been destroyed because you invested in financial stocks how are you saved? If you borrowed more money than you can repay, why is the government stepping in to save you and not the folks who saved enough to invest and now face the loss of their retirement investments?
There is no doubt that the executives and boards of directors of many publicly traded companies are responsible for this debacle. By not providing the proper amount concern about the downside risk, they put the shareholders in jeopardy. There is nothing wrong with taking advantage of good times, but we now know if you don’t prepare for the down turn, you might be left holding the bag. Let this be a warning to little investors; if the directors of the companies in which you own shares are not looking out for your interests, can you afford to invest in that company?
In light of all this corporate failure there has been a lot of conversation about executive compensation. Some opinions suggest that there should be limits to executive pay. I can’t support that any more than I would a limit on profit. Share holders hire executives to increase share value. Confidence in a corporation comes from smart executives who develop management policies and efficiencies that produce goods and services for a profit. When it is working, things look pretty good. If investors are willing to pay a hundred times earnings, should anyone be concerned? You cannot limit executive pay any more than you can a movie star or a ball player. Super stars command high salaries.
Free market advocates have now seen that there is too much greed and corruption for that system to work the way it is supposed to, but at the same time, most of us are not interested in a Socialist State either. We are looking for a “modified free market system”. For many years the system seemed to work, what changed? Can we shove this thing back into the box?
I sure hope we are making a list of lessons we have learned and formulating some plans for rebuilding the regulatory system to safe guard consumers from predatory lenders and share-holders from irresponsible corporate managers. As for every formidable task, we will have to eat this elephant a tiny bite at a time. If we put a lot of hot sauce on this rotten meat, we can get it down.
I suspect that it will be easier to protect consumers than share holders, but in this difficult time we need to be working on it.
I still haven’t figured out whether I am “Wall Street” or “Main Street”. I could use a bail out.
No Loss for Words 
The Sun will Shine Again!
by Steve DanaWith news of the ongoing crash in the stock market, thoughts about other issues seem trivial by comparison. It is like trying to plan for after Armageddon. Despite the economic news, the sun is still shining outside and people are still going about their lives. All over the world, people face life’s uncertainties every day. I wouldn’t go so far as to suggest that anyone else has problems as bad as mine, but that’s just my opinion.
With a presidential election a couple weeks out, there is some likelihood that the pendulum will swing back to the left again. Obama looks like he has the election in the bag. There are a lot of people fed up with the job Bush has done with the country and I am one of them. In spite of the fact that Bush dropped the ball, I still believe that McCain would lead us better than Obama. I’ve been wrong before.
We spent a lot of years with Democratic control of the Congress and the White House. If you thought they did a good job then, this might not be too bad. I voted for the first time in 1968 when Richard Nixon won the Presidency. The congress had been under the continuous control of the Democrats since 1952 and up until the revolt of 1994 they had their way. Then the Republicans broke the strangle-hold when they won the majority and held it for fourteen years.
At the time of the hand off to the R’s after the 1994 elections, I remember asking rhetorically whether the R’s had learned anything about being better stewards of the government from being in the minority for so long. It didn’t take too long to see that their first order of business was “payback”. Such a disappointment!
In looking back over the past forty years, I think the government worked best when each party had control of either the Presidency or the Congress. Each party holds the other in check. Things go south when the same party has control over everything. The Republicans have been as irresponsible as the Democrats ever were. We’ll see whether the D’s have learned any lessons.
I remember listening to Political Commentator, Carl Jeffers on his radio show one Sunday in 2006 prior to the mid-term elections. He is a left winger and both the Congress and the President were Republican at the time. He was saying the same thing. He was obviously stumping for Democrats when he said that he didn’t think the government worked too well when one party was in control of both the Congress and the Presidency and voters should elect Democrats to take back the majority in the House of Representatives to balance the power. I thought at the time old Carl might be saying something he might want to retract later.
Now after two years of a slim majority in the Senate and a more substantial majority in the House, the D’s are on the verge of a sweep. What does old Carl say now? Well, just this morning he was enthusiastically stumping for Democrats and Obama. I guess he really meant that he didn’t like Republicans to have control of the Congress and the Presidency.
Partisanship is running our country off the road and into the ditch. I am not suggesting that one party is better or worse than the other. I think both parties are more concerned about staying in power than solving our problems.
After this election, I don’t expect much to change for a while. As much as Obama would like to raise our taxes, he might have his hands full dealing with the recession.
I don’t blame the voters for the backlash; a bad experience tends to turn folks to a different direction. I only hope that the different direction we are turning to will deliver the positive difference America is hoping for.
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