Hundreds of opinion pieces have been written about the current financial crisis, (not including all that has been written in web blogs). A big topic has been : Who is reponsible for the mess? Many ordinary folks, perhaps most of them, think that “Wall Street” is largely responsible. I don’t think so. In my opinion Wall Street bears only a minor responsibility. At the top of my list for an accusation of irresponsibility is the United States Congress. How have they been irresponsible? Well, starting over 30 years ago, Congress has passed more and more laws which, in one way or another, encouraged financial institutions to give mortgages for houses to people who really could not afford them. Fannie Mae and Freddie Mac were government created insitutions which helped with this “effort”. As Charles Krauthammer put it, “For decades, starting with Jimmy Carter’s Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac — which in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That’s called subprime lending. It lies at the root of our current calamity. Were there some predatory lenders? Of course. But only a fool or a demagogue — i.e., a presidential candidate — would suggest that this is a major part of the problem”. I could not agree more.
Let’s not forget that some “ordinary folks” also bear some responsibility. These are those folks who did take out mortgages for homes which they really could not afford.
Concerning those very few Wall Street CEO’s who are actually guilty of malfeasance in this crisis, I enjoyed Krauthammer’s suggestion – “What we need are a few exemplary hangings. Public hangings. On television. Pick a few failed investment firms, lead their CEOs in chains through the canyons of Manhattan and give the mob satisfaction. Better still, precede the auto-da-fe — fire is highly telegenic — with 24-hour reality-TV coverage of their recantations, lamentations and final visits with the soon-to-be widowed. The ratings would dwarf “American Idol,” and the ad revenue alone would make the perfect down payment on the $700 billion”. My only suggestion would be to add Representative Barney Frank and Senator Chris Dodd to this televised “sport”. According to some information found in this Wikipedia site, Barney Frank, who is the Chairman of the House Financial Services Committee, bears major responsibility for some of this mess; read the article on that site for details. Also include Senator Chris Dodd, the Chairman of the Senate Banking Committee. His past actions have frequently benefited those who furnished subprime lending and worked against those who attempted to more stricly regulate banking and lending practices, to include stricter accounting standards. It is not difficult for the reader to find many sources for these past actions of his.
This opinion piece makes many good points about this mess, points with which I agree, and some of which I stated above. I particularly like the statement that says that the government should « Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending ». Right on !
Archive for September, 2008
Let’s not forget Congress
Monday, September 29th, 2008Wall Street vs. Main Street
Friday, September 26th, 2008The recent financial crisis in the United States is hitting a jarring high note this week. This crisis is often portrayed as a conflict between “Wall Street” and “Main Street” by various commentators, political pundits and politicians. Furthermore, this conflict is often said to be one in which “Wall Street” is trying to stem their losses, if not in fact to actually profit, but at the expense of the ordinary people and taxpayers who make up “Main Street”. This is very misleading.
First of all, most of the “Wall Street” institutions do not have their main offices on Wall Street, but instead in other places, including cities which are not New York City. But that means nothing. What does have meaning is that the large majority of the people who work for these financial institutions are more or less ordinary “Main Street” types of people. These include security guards, receptionists, clerks, bank tellers, computer programmers, researchers and beginning traders of financial instruments. Only some of the employees of these financial institutions make high salaries, but then some employees of firms which are not at all financial institutions also make high salaries. Of course I personally do find it disgraceful that most people in the very top levels of management – in those financial institutions which are losing huge amounts of money – do make very large amounts of money in the form of salaries, bonuses and pension benefits.
Secondly, “Main Street” is not entirely free of blame. We know that many ordinary “Main Street” people bought houses which they could not afford, and they should have known better. “Main Street” over the past 20 to 30 years has gotten into the harmful habit of spending too much money, even if that meant running up large credit card debt and borrowing money for autos and houses that were too expensive and that they really could not afford. In addition, too many in “Main Street” know next to nothing about finances and economics, and this is not at all good. Why they are ignorant about such important matters is another story.
Finally, what is often missing from this debate are the politicians themselves, that is to say, those who help run and control our governments, both State and Federal. In case you do not know it, for years many of our elected representatives, including such people as Barney Frank, put pressure on financial institutions to “make housing more affordable” by giving mortgages to people who were really not in a financial position to afford the monthly payments for such mortgages. Those institutions who failed to do that were penalized by the government in one way or another. The now infamous Fannie Mae and Freddie Mac were created by the government mainly in an attempt to make more housing available, even to folks who really could not afford it. (Of course many politicians and executives at Fannie Mae and Freddit Mac deny this, but the facts belie those denials.) No longer did the government promise a “chicken in every pot”, but also a “house for every family”. In 1999 our politicians also abolished the second Glass-Steagall Act via a law finally signed by president Clinton. This second Glass-Steagall Act, originally passed in 1933, separated banking institutions into commericial banks and investment banks. This Act, by law, had made it difficult for “bad” investments in such things as stocks, company bonds, derivatives, company mergers and acquisitions, to carry over into the commercial sector, the sector used by ordinary people for checking accounts, savings accounts, small-business loans and the like. So when it comes to the “sub-prime mortgage crisis” which supposedly started this whole mess, do not talk to me only about greedy Wall Street. Do not forget to include those darn politicians who did have some responsibility for getting us into this mess – major responsibility as far as I can tell. (Of course now almost all of these politicians deny any wrong-doing. Instead they constantly blame others, often with an angry tone and partisan bickering. Senator Chris Dodd is one of the main culprits here, a really bad man who just escapes earning the adjective “evil”. Only a few politicians, such as Ron Paul, put much of the blame on Congress, which is where a lot of the blame belongs.)
Those darn lobbyists again !
Thursday, September 25th, 2008Yep, those lobbyists are at it again. You know who these lobbyists are. They are those men (and women) who try to influence our lawmakers in order to gain advantage for themselves or for the “folks” they represent – the “special interests”. In the old days these lobbyists apparently did their work more secretly than they do today, usually in “back rooms”, with cigars in their mouths, and plenty of good food and liquour on tables for the lawmakers with whom they would meet. (I suspect that today political correctness has banished most of the cigar-smoking.) Well, according to this news article, those lobbyists are really active this week. After all, due to the current financial crisis, hundreds of billions of dollars are at stake !
I personally am upset by the bold headline in that article : Lobbyists look for their piece of bailout pie. That is very misleading. It strongly implies that the government, which is probably going to hand out huge amounts of money, should give some of that money, if not most of it, to the “lobbyists” and/or their “special interests”. However, if you read that article, you will notice that by “lobbyists” the writers do not mean cigar-smoking individuals working in back rooms in order to gain unwarranted favors for themselves and their “special interest” groups. Instead you will notice that these “lobbyists” include such groups as the AFL/CIO for the labor unions, the U.S. Chamber of Commerce, the American Bankers Association, the Center for Responsible Lending, and the Independent Community Bankers Association. The latter represents thousands of community banks, most of which are small. These small banks certainly do not want to get “lost in the shuffle”, neglected and even harmed by the federal government, when all the big banks get the attention of lawmakers. And although I do not know much at all about the “Center for Responsible Lending”, if in fact they do strive for responsible lending practices, then their actions in this matter are probably laudable and not at all to be condemned. For example, I note that they want consumer loans capped at 29 percent interest! Good gosh, I would want them capped even lower than that, such as 18 percent. (I saw a short segment on the TV last night in which it was said that some credit card companies, taking advantage of the “fine print” in their contracts with the people who use their credit cards, sometimes charge huge amounts of interest! Why has not the U.S. Congress ever put a stop to that in the past ? Why are they only addressing that issue now?) Note also that the AFL/CIO is one of the “lobbyists”; many ordinary US Citizens would not object to the labor unions getting involved here in order to make sure that union members do not get short-changed.
To conclude, it is very misleading to vigorously condemn all lobbying and all lobbyists, and in such a way so as to imply that they are “greedy”, self-serving men and women, usually working in back rooms against the interests of the “common folk”. Given the present financial crisis, and the hundred of billions of dollars which the federal government will likely dole out, not to mention all the new rules and regulations, I would certainly expect many people, and many groups of people and businesses, to get involved with this. At the very least they would not want to be mistakenly harmed. I mentioned this lobbying business in a previous post of mine, and it is worth the read again, at least at this time.
Ben & Jerry’s Ice Cream
Wednesday, September 24th, 2008It has always amazed me that so many liberal people and consumer advocates, most of them environmentally-friendly, and not much in favor of our capitalist economy, have been very much in favor of Ben & Jerry’s company. You know, the company that makes ice cream, ice cream that is said to be very delicious. Well, I tend to agree that it is very delicious. But in no way is this ice cream of real benefit to consumers, at least not from a consumer standpoint. First of all, it is very expensive. That is of no help to consumers. Secondly, it has an extremely high fat content, and that is not good for the health of consumers. I guess Ben & Jerry’s just overwhelmed these bad points with extensive and excellent marketing and propaganda. For example, they publicize highly the financial aid they give to charity. And Ben and Jerry profess to be liberals and not greedy capitalists; they only started a “small” company in order to help out their community and to provide a few jobs, with good-tasting ice cream as the product. Anyway, given all of that, I find this latest news amusing. Yep, instead of using cow’s milk to make the ice cream, PETA wants them to use human breast milk.
Back Home after hurrican Ike
Saturday, September 20th, 2008After having spent one week as an evacuee from hurricane Ike, I returned to my apartment “home” Friday afternoon. I did so because I found out that my electric power had been turned back on late Wednesday evening. There was no damage at all to my apartment, nor to any of the others, thank goodness. One carport was effectively destroyed, but all the others still appeared normal. There are a couple of hundred small trees on the property, most around the borders of the apartment complex, and a few of these had either been uprooted or else snapped off at the trunk close to the ground. A lot of the apartment residents had not evacuated for the hurricane. I just do not understand how they managed to avoid going crazy without electricity for about 5 days, especially with no air-conditioning. It is true that a mild cool front came through Houston one or two days after the hurricane had passed. That did then lower temperatures a bit. The high temperature each day reached the low 80′s, and at night the temperature dropped down into the low 60′s. But still it could not have been really comfortable. I am especially glad that my children are fine. My daughter and her family, thank goodness, are back in their apartment, their electricity having been turned back on almost 3 days ago, with no damage to their apartment. I do not know the condition of my son’s apartment, but he is constantly out, with friends, apparently helping with some clean-up work.
Now that I know the exact path that the hurricane took after landfall, I can see that the exact center of the storm passed about 10 miles to the east of my apartment. That put my apartment on the west side of the storm, which is generally the safer side. I think that the hurricane’s strength had diminished to a Category 1 storm by the time it got closest to my apartment. Thank goodness for that. Imagine if it had been a Category 3 instead; in that case there certainly would have been bad damage to my apartment complex.
Now this is unfair !
Wednesday, September 10th, 2008I had completely forgotten that everyone who owned common stock of Enron lost all of their investment money when Enron collapsed due to fraudulent accounting practices. Well, according to this latest news, a U.S. Judge has approved a class-action settlement brought by the stockholders. Each common stockholder will receive an average payment of $6.79 per share. The grand total will be over 7 billion dollars. However, the lawyers who obviously worked very hard on this case will only receive about 688 million dollars. Why that is not even 10 percent of the total, but only about 9.5 percent! Considering how long and hard these lawyers worked, that is grossly unfair! After all, in civil liability cases, lawyers usually receive between 25 and 33 percent of the total settlement. In addition to being unfair, this is a gross injustice ! (Yeh, right.)
Some chickens come home to roost
Sunday, September 7th, 2008Some latest news has General Motors asking for 50 billion dollars in low-interest loans from the US Government. Why? Well, General Motors can not borrow that much money from any conventional source since their credit rating is ranked close to “junk”. But of course General Motors claims that they are worthy of that loan, and will use much of it to invest in more fuel-efficient cars such as hybrids and to increase research on fuel-efficiency and alternative fuels. In additon, General Motors says that they are not asking the government to “bail out” Wall Street, but rather ordinary working men and women. By the latter, of course, General Motors means only their own employees and, to a certain extent, their own retirees.
Here we have a stark example of chickens coming home to roost. How easy it is, (and has been), for large entities such as large corporations, state and federal governments, to make promises to their employees, promises for health care and pensions which will only have to be met in the future. Well, as far as General Motors is concerned, the “future” is now. General Motors is losing money, and not making it as they did years ago. And the major reason they are losing money is because of high health-care costs and pension costs that they have incurred, both for their existing employees and their retirees. And right now they have a large number of retirees. The most recent data that I have been able to find, which is three years old, says that about $2200 per car is spent just for health-care and pension benefits. This figure must be higher today.
An article in this blog, which references this opinion piece, gives some details about how General Motors got into this mess. What I find interesting about the opinion piece is that it seems to put most of the blame on General Motor’s management and little on the United Auto Workers’ Union. But both management and the union are equally to blame. The opinion piece also says that Walter Reuther was correct when he said, “the government is the better provider of social insurance”. And yet the same opinion piece follows that up with this paragraph : « Unhappily, however, the fate of many public-sector pension plans is even worse than G.M.’s. Responding to the same temptation to offload expenses into the future, public employers have committed to trillions of dollars in future liabilities. In New Jersey, a huge pension liability has created a budgetary nightmare for the state. The city of Vallejo, Calif., burdened by police pensions, recently filed for bankruptcy ». The most recent contract with the auto workers provides for a union-managed health care fund for the unionized workers, with General Motors contributing much of the money. However, General Motors recently announced that they will cut back on their contributions to this fund, and starting next year they will drop retiree health insurance for all retired salaried workers. They will, however, increase each retired salaried worker’s pension by 300 dollars a month in order to help the retiree with his or her health care expenses.
I have been astounded by the reaction of the retired GM workers to all of this ! They claim that they are being cheated out of what is clearly their due. They claim that they do not know what they will do, and that relying on Medicare alone for their health care will be very difficult! That extra 300 dollars a month added to their pensions amounts to an extra $3,600 a year ! I bought health insurance on my own dime to supplement my Medicare, and it costs me almost $2,200 a year! So these retirees are still better off than I am with respect to health care! In any case, what makes them think that they should be that much different than all the other retirees in this country, most of whom have never had any retiree health plan, and instead have to depend entirely on Medicare and whatever kind of supplemental insurance they can buy with their own money? The General Motors’ employees, salaried or not, have enjoyed wages, salaries and benefits for the past 40 to 50 years that have been greater than those for the average worker. So now I am supposed to feel sorry for them? Hey, as a retired person myself, all I have is Medicare, and the supplemental health insurance that I buy with my own money. My small pension is not much more than the 300 dollars per month that will be added to the already good pensions that the retired salaried workers receive! Of course I’m sure that they, as do I, also receive social security. I have no sympathy for them, except perhaps a little bit of sympathy for those retired workers who are not complaining and whose pensions are small because they only worked a short time for General Motors. My father worked over 40 years for the Bethlehem Steel Corporation. For at least a quarter century it was the second-largest steel company in the world. They eventually went bankrupt, with all retirees losing health insurance, and their pensions cut drastically when the Pension Benefit Guarantee Coporation assumed responsibility for the pensions. They basically went bankrupt for the same reasons that are now giving General Motors much trouble. But my father is no longer around to have to “suffer” from that.
By the way, for those of you who are inclined to dislike the legal owners of General Motors, its stockholders, these latter have seen the value of their stock drop by more than 80 percent during the past 5 to 6 years, and more than half just during the past year. And they no longer get any dividends. (Note: This recent Wall Street Journal article says that General Motors is still paying dividends to shareholders. But that is not true, as several articles say otherwise. The General Motors web site for investors clearly states on July 15, 2008, that dividend payments to common stock shareholders will be suspended.)
A very interesting point
Thursday, September 4th, 2008I recently visited some old friends of mine, a man and his wife. We talked briefly about politics. It turned out that the man held about the same position as I did with respect to the presidential candidates. Both he and I will definitely not vote for Obama, but at the same time both he and I do not much care for John McCain. However, my friend’s wife said that she really liked Obama and was almost probably going to vote for him. So her husband told me that he will then have to go and vote for McCain in order to cancel out his wife’s vote.
My friend did make an interesting point. He wished that we had a presidential candidate who was definitely strong, knowledgeable, and a good leader who really looked after the true interests and the security of this country. He mentioned Vladimir Putin as a possible good example, for the country of Russia of course. Right now Russia’s invasion of parts of Georgia has many countries worried, to include most European countries. But now that I think about it, my friend did make a very interesting point when he mentioned Vladimir Putin as a probable example of a strong and competent leader of a country. I know that Georgia is a country right next to Russia, and that two break-away provinces in Georgia have majority Russian populations who prefer to be part of Russia and not part of Georgia, assuming that they can not be independent countries on their own. And my understanding is that this latest brouhaha began when some Georgian troops entered one of the break-away provinces and started fighting with some insurgents in this province. It was then when Russian troops came in. In a certain but real sense, it might then be reasonable for a strong Russian leader to send in some troops in order to protect the interests of his country. (Keep in mind that the United States did invade not only Afghanistan, but also Iraq, and none of those countries are remotely close to the United States. Of course the invasion of Afghanistan was probably proper given our attempt to find and defeat Islamic terrorists, especially Osama bin Laden and Al-Qaeda, since they were responsible for the horrendous attacks of September 11th.) I also realized that Vladimir Putin is not at all reluctant to have his compatriots utilize their resources of energy and search for more, which, in the case of Russia, means mostly crude oil and gas. And boy does Russia now have a lot of oil and gas, and they are not at all reluctant to use it and to exploit it for the advantage of their country. Contrast that with the United States where most attempts to increase our own energy resources by increased drilling for oil, and by finally building new nuclear reactors, are severely hampered by many rules, regulations and lawsuits. And don’t forget the environmentalists, and the many lawyers who profit from all the lawsuits that are filed in an attempt to prevent, or at least postpone, the implementation of these energy resources. Finally, although I am not an expert on Russia as it exists today, I sincerely doubt that their top leaders, Vladimir Putin included, are spending much time and energy addressing issues of little or no consequence to the true interests and security of Russia. These issues include such things as religion, abortion vs. the right-to-life, the supposed need to “save the planet”, the supposed need to “help oppressed minorities” and to give a lot of aid to the poor, etc. etc. Yes, a very good point.
By the way, none of the above is meant to imply that Vladimir Putin is a great and wonderful man. He probably is not. I have read and heard a few reports which say that he has acquired at least a small fortune due to his personal activities, some of which we would call corruption. And there is a lot of corruption in Russia, more than in the United States. There is less freedom of the press in Russia today than there was ten years ago. The Russian people, in general, have fewer liberties than they had ten years ago, and they certainly have less liberties than we have in the United States. But as a top leader in Russia, at least Putin did much to contribute to the true interests and security of his country, especially vis-à-vis the rest of the world. He and the other top Russian leaders do not let themselves get bogged down by a hodge-podge of issues which are either trivial or of little consequence to the true interests and security of their country. (Not to mention constant bickering among political parties.)
Oh the poor man !
Tuesday, September 2nd, 2008An adult man who lives mostly in the United States, and whom I would guess is now a citizen of the United States, is troubled by Ramadan. This man is the founder and executive director of the Interfaith Youth Core, a Chicago-based international nonprofit that promotes interfaith cooperation. He is clearly an educated man, having been a Rhodes scholar. But this article on his blog shows that his education has not done him much good. The poor guy can often not think right, and the fasting required by Ramadan gives him problems. Yes, he is a muslim. He consoles his “suffering” by an emotional mish-mash of thought, expressed in his writings by such sentences as “Ramadan is the time to re-balance din and dunya, to set my life to the rhythm of the One rather than pretend that my hands are beating the drum”. Sorry fellow, but you need to get control of yourself, start thinking rationally more often, and stop this religious nonsense that is making you appear idiotic. The only thing in your favor is that you appear to be a decent man, a man who is not violent and who “works” for a living. (Although the nature of your work, to the extent that I understand it, is not worthwhile.)