Posts Tagged ‘business’

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GLOBAL FINANCIAL CRISIS? – BLAME THE DEMOCRATS, BLAME OBAMA!

October 13, 2008

The crippling financial crisis being felt globally…and conveniently being blamed on the Bush administration is actually Democrat initiated and Democrat supported. The whole issue is in truth and in fact solely triggered by the sub prime lending woes – the mechanics of which are seemingly too complicated for an ordinary citizen to even try to comprehend and understand … an issue which is now conveniently exploited by the Democrats to their political advantage in this presidential elections. The Democrats knew they can easily hoodwink the ordinary suffering citizen into believing that the Republicans should be faulted for all the misery. The sorry and miserable plight of the citizenry makes them susceptible to calls for changes and this is exactly what the Democrats are doing – exploiting the miseries of their fellow Americans!

Let us try to understand the root causes and beginnings of this financial crisis.

Everything that we are encountering now a days,,,, widespread foreclosures, paralyzing credit crunch, bankruptcies, and the over-all slack in the economy, are all solely triggered by one problem …the problems with sub prime mortgage industry’s?

Just what are these subprime woes and how did they come about?

Normally to spur economic growth, the Fed would entice industries to grow their businesses by making available credit facilities at low lending rates through the banks. The Fed started cutting rates in 2001 at the time when the country was in a recession. The lowest point the Fed rates reached was at 1% in 2004 which after inflation, actually yields negative interest rates. As a result of this, mortgage rates also went into all time lows. This was normally followed by an increase in borrowing and lending because people are apt to take advantage of the low interet rates .

Meanwhile, the real estate boom started in 2000 with property values rising as much as 50%. The cut in Fed rates from to 2001 to 2004 coincided with the boom further fueling increases in new real estate projects. Low interest loans had to be extended by banks and new housing projects have to be sold.

The rise of the housing industry into a bubble (where the prices of real estate properties are higher than their actual intrinsic values) is actually a regular economic cycle occurrence. What made it irregular is the fact that at the onset of the boom in the housing industry sector, sub prime lending was also being done with careless abandon by the banks. (Sub prime lending are mortgages extended to individuals deemed as “sub prime” or high risk individuals – people who have little or no capacity to pay.)

It must be remembered that In 1995, it was President Clinton who mandated new regulations that coerced banks to make significantly more subprime loans to inner-city residents previously viewed as unqualified buyers in high-risk areas. Banks were even rated on how well they complied and faced big fines if they didn’t do what government regulators wanted.The House Financial Services committee meets. Committee members sit in the tiers of raised chairs, while those testifying and audience members sit below.Image via Wikipedia

To make matters worst, the Democrat dominated legislature after Clinton’s term allowed the two big giant mortgage companies Fannie and Freddie to package the risky sub prime loans together with regular prime mortgage loans into mortgage backed securities which were passed off to investors as safe investments since both Fannie and Freddie were government sponsored. These mortgage backed securities were gobbled up by both local and international investors. The inflow of capital from these securities made Freddie and Fannie buy more and more of the risky sub prime loans as the demand for their mortgage backed securities also increased. Banks on the other hand also aggressively extended more and more loans to high risk individuals since they can always sell them back to Fannie and Freddie. And when the inevitable happened… when sub prime mortgage defaults started to mount and mortgage foreclosures started to rise, the mortgage backed securities of Freddie and Fannie lost their luster. Banks started tightening by 2007 and the ensuing credit crunch was simply paralyzing.

And what was government doing all these time? After Clinton, the Republicans took over. What have the Republicans done? Or,did they do anything at all?

Today, very few people remember the fact that it was President Clinton (a Democrat) who mandated that sub prime lending to be offered extensively by banks in 1995.PaulsonFreddieFannieImage by robertodevido via Flickr

Very few people knew the fact that with the predominantly Democrat legislature after Clinton, Freddie and Fannie were practically allowed to perpetrate this pyramiding scam on the American people. Many even try to forget the fact that Freddie and Fannie were major campaign contributors to the political campaign kitty of known Democrats who have been their patrons in the government, the list of which includes Barney Frank, Chris Dodd, and Barack Obama. It’s quite ironic that now with the unexpected dismal turn-out of their own political follies, and with a likelihood of a financial meltdown staring us in the eye, the Democrats are still able to throw blame on President Bush and the Republicans.

I am neither a Republican nor a Democrat, but I find it abhoring to hear the double talk in Obama’s political campaigns blaming Bush and the Republicans for the economic ills they themselves perpetrated!

Take a look at this chronology of events leading up to current crisis and decide for yourself who should be blamed for this crisis: (- from the Investor’s Business Daily Editorial)

April 2001: The Bush administration’s fiscal budget stated that the size of Fannie and Freddie was “potential problem because financial trouble of a large Government-Sponsored Enterprise could cause repercussions in financial markets, affecting federally insured entities and economic activity.”

May 2002: The Office of Management and Budget wanted disclosure and governance principles in Bush’s 10-point plan for corporate responsibility to apply to Fannie and Freddie.

February 2003: A federal housing oversight report warned that unexpected problems at Fannie Mae could immediately spread into financial sectors.

September 2003: Treasury Secretary John Snow, in testimony to the House Financial Services Committee, recommended that Congress enact legislation to create new agency to regulate and supervise financial activities of housing-related government entities to set prudent and appropriate minimum capital requirements.

Rep. Frank, the committee’s ranking member, strongly disagreed, saying: “Fannie Mae and Freddie Mac are not facing any kind of financial crisis . . . . The more people exaggerate these problems, the more pressure there is on these companies, the less we’ll see in terms of affordable housing.”

February 2004: The president’s new budget again highlighted risks of the explosive growth of these government enterprises and the then-low levels of required capital. It also called for the creation of a world class regulator. The administration determined that housing regulators of government agencies lacked the power and stature to meet their responsibilities and should be replaced with a strong new third regulator.

February 2004: Greg Mankiw, chairman of Bush’s Council of Economic Advisers, cautioned Congress against taking the strength of financial markets for granted. He too called for reducing the risk by ensuring that housing GSEs are overseen by an effective regulator.

April 2004: Rep. Frank ignored warnings, accusing the administration of creating an “artificial issue.” “People pay their mortgages,” he told a group of mortgage bankers. “I don’t think we are in any remote danger here. This focus on receivership, I think, is intended to create fears that aren’t there.”

From 2004 to 2008 the Bush administration made 12 more attempts to get Congress to pass legislation to have safer, sounder regulatory oversight of Fannie and Freddie and capital rules. You can see them for yourself on the White House Web site. But here are a couple of examples that show how Democrats resisted:

July 2005: Senate Majority Leader Harry Reid rejected legislation on reforming Fannie and Freddie. “While I favor improving oversight by our federal housing regulators to ensure safety and soundness, we cannot pass legislation that would limit Americans from owning homes and harm our economy in the process,” he said.

August 2007: Sen. Dodd, another Democrat, ignored President Bush’s emphatic calls for Congress to pass Fannie and Freddie reform legislation and called for him to immediately reconsider his ill-advised position.

Wake up America, Indeed!

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