Posts Tagged ‘U.S. ELECTIONS’



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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September 30, 2008

It’s truly amazing how politics can stifle efforts to plug the bleeding U.S. economy. To the surprise of many, the much anticipated approval of the $700B Emergency Economic Stabilization Act of 2008 didn’t happen. An agreement was not reached contrary to the much publicized forecasts made by both political parties over the weekend. Each of them wants to prevent the other from taking credit for this bold move to prevent a meltdown of the markets. With the presidential elections just around the corner, this is politics at play!

Both the Democrats and the Republicans know that a bail-out is necessary. The country has been bleeding for along time now from the bubble burst effect triggered by the mortgage industry subprime crisis. A government intervention in the form of a bail out is long overdue. The situation has placed the Democrats and Republicans alike in a classic “damn if you do and damn if you don’t” type of a situation.

Could it be that the Republicans really waited this long before solving the crisis so they can use the issue as a political propaganda to boost the sagging popularity of their candidate?

Could it be that the Democrats intentionally remained passive about the issue since the Mortgage Industry’s “bubble burst” happened earlier on so they can pin the blame on the Republicans and wrest control of the white house?

We may never really know. What I do know is that both parties are aware of the fact that something must be done to correct the country’s financial woes immediately, because if nothing is done right now it will send the U.S. economy into a tailspin which will send the country and the the rest of the whole world into a long drawn recession. I believe the Democrats realize too that such a scenario will not be to their advantage even if they wrest control of the white house by November because by then the job of reviving the economy will be a herculean job and their white house residency may be short lived if they fall short of expectations.

I am sure by now both parties are trying to map out their own strategies to resolve the impasse. I even believe a solution will be had before the week ends. Each of them just want to make sure that the other will not unduly gain politically from the passage of EESA 2008. Already the stock market made the steepest dive since the last depression! Further delays may cause long lasting damage to the U.S. economy and ultimately the rest of the world.

Below is a short summary of EESA 2008 which amazingly, had to come from Xinhua, China’s People’s Daily Online (

The following is the summary of U.S. financial bailout bill draft, which will authorize the U.S. government the largest financial intervention since the Great Depression.

I. Stabilizing the Economy

The Emergency Economic Stabilization Act of 2008 (EESA) provides up to 700 billion dollars to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit, which is vital to a strong and stable economy. EESA also establishes a program that would allow companies to insure their troubled assets.

II. Homeownership Preservation

EESA requires the Treasury to modify troubled loans many the result of predatory lending practices wherever possible to help American families keep their homes. It also directs other federal agencies to modify loans that they own or control. Finally, it improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes.

III. Taxpayer Protection

Taxpayers should not be expected to pay for Wall Street’s mistakes. The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. The legislation also requires the President to submit legislation that would cover any losses to taxpayers resulting from this program by charging a small, broad-based fee on all financial institutions.

IV. No Windfalls for Executives

Executives who made bad decisions should not be allowed to dump their bad assets on the government, and then walk away with millions of dollars in bonuses. In order to participate in this program, companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits “golden parachutes” and requires that unearned bonuses be returned.

V. Strong Oversight

Rather than giving the Treasury all the funds at once, the legislation gives the Treasury 250 billion dollars immediately, then requires the President to certify that additional funds are needed (100 billion dollars, then 350 billion dollars subject to Congressional disapproval). The Treasury must report on the use of the funds and the progress in addressing the crisis. EESA also establishes an Oversight Board so that the Treasury cannot act in an arbitrary manner. It also establishes a special inspector general to protect against waste, fraud and abuse.



September 29, 2008

Filipinos in general couldn’t careless as to who will win the upcoming U.S. presidential elections. Most of them are too pre-occupied with their day-to-day struggle for survival to even bother about it. Besides, there’s nothing much anyone here can do for any favored candidates if ever they have any. However, immediately after campaign started in the U.S., there was one section of the Philippine business community that went abuzz with some election rumors which somehow found its way to the country. Word quickly got around the business community here that Obama will close all call center operations outside the U.S. Obama is not in favor of outsourcing call center services and would want these jobs offered to Americans and confined to the U.S. only. According to the spreading rumor, an Obama win is bad news for local call center companies here.

Call center companies are actually making very significant contributions to the Philippine economy. Not only do they provide easy-to-land employment opportunities to the ever growing local work force here, they have also triggered significant adjustments in salaries and wages of white collar workers. Before the proliferation of call center outfits in the Philippines, local companies feasted on hiring underpaid, over qualified workers who were left with no choice but to accept whatever employment opportunity that comes around their way. Now, these local employers need to adjust wages to compete with job offers made by call center companies to the great benefit of the local workforce.

If the rumors are true and if Obama does win the elections in November, it will be goodbye time for the call center companies and hello once again to low wages and widespread unemployment. However, a McCain win will be a welcome relief and will mean a continuance of the call center contribution to the local economy.