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A Government Bailout that Is No Joking Matter

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Will Rogers once said, “I don't make jokes, I just watch the government and report the facts.” Spoken in the 1920s, his words are still true today. Indications out of Washington this week are that Uncle Sam is about to do something that if it weren’t so serious would be an absolutely hilarious joke. Of course, I am referring to the planned taxpayer bailout of Fannie Mae and Freddie Mac.

First of all, in a related story, Federal Reserve Chairman Ben Bernanke should be investigated for perjuring himself before Congress. In testimony given before the House Financial Services Committee on July 16 Bernanke confidently told members of Congress that the beleaguered mortgage giants Fannie Mae and Freddie Mac were in “no danger of failing”. His testimony was instrumental in getting Congress to approve Treasury Department and Federal Reserve proposals to make sweeping changes to the relationship between the two institutions and the government. The changes included making funds available to the firms to ease the credit crunch and allowing the government to purchase shares of stock in both firms. Just seven weeks later, news breaks that the government is moving in to take control of both institutions to save them from collapse. With the data available to Bernanke, he either lied to Congress to get his way or he doesn’t know what he is doing.

In any event, the point is that now the American taxpayer is going to be left holding the tab for these federal boondoggles. The problem is that no one knows how big the tab is going to be? Combined, the two institutions own or have guaranteed $5.1 trillion in mortgage debt. Perhaps Treasury Secretary Henry Paulson’s request to Congress in July for essentially a blank check to help Fannie and Freddie was prophetic? Only time will tell.

But, besides the direct cost of the bailout, greater dangers exist in two other areas. The first is the harm it could do to the government’s credit rating. What if the economy experiences a prolonged recession? What kind of pressure will an unknown debt amount for Fannie and Freddie coupled with customary Keynesian spending put on the credit rating of the U.S. government? In other words, how much longer will lenders be willing to loan us money in the future for debts that essentially have no end. Secondly, the Fed always could and will print the money needed to pay the bills. With current debt levels and future obligations (e.g. Medicare) projected to be in the trillions of dollars, how much money would have to be printed and how much inflation would result?

Of course, Washington believes that without Fannie and Freddie the mortgage market would be left with a deficiency of funds to conduct business hurting the ability of millions of Americans to own their own homes. Therefore, the politicians are going to do whatever it takes to save them, apparently even if it means bankrupting the country. In fact, it is because of Fannie and Freddie that we are in this mess in the first place. They have interfered with the free market’s mechanism of sifting out unworthy borrowers by purchasing bad loans from smaller banks and guaranteeing them with taxpayer money. Both firms knew all along that they would not have to suffer the consequences of their risky actions. Ironic how the very institutions Washington wants to save in order to prevent a credit crunch in the mortgage market are the ones that caused the credit crunch in the mortgage market in the first place. If Will Rogers were around today he could use that line in one of his monologues.

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  • http://www.republicofdave.com Dave Nalle

    I agree that this is troubling news, but the bad part is that these two mortgage monsters were so poorly managed that they now need a bailout, not so much that they are being bailed out.

    One rabid commentator on todays morning shows claimed that this was going to increase our national debt by a third overnight. But the truth is that this is $5.1 trillion of secured debt, not actual borrowed money like the rest of the debt. There are real assets out there which back up this debt, so if the economy and the loaning banks can be stabilized the debt will be neutral as far as the impact on our overall indebtedness.

    As for harming our credit standing, it would be harmed a lot more if we let these quasi public institutions go under.

    Dave

  • http://biggesttent.blogspot.com/ Silas Kain

    Maybe you can help me on this one, Dave. If these two agencies were “private” but remained quasi-public how are they allowed to have political action committees? Granted the amount of soft money coming out of both agencies isn’t all that great but somehow the whole thing seems to border on illegal. And, finally, how many mortgage companies or banks caught up in this disaster come from Delaware?

  • http://www.republicofdave.com Dave Nalle

    Lots of businesses are incorporated in Delaware, but very few actually come from there. I imagine a number of the banks in question do.

    As I understand Freddie Mac and Fannie Mae, they started out as government agencies and then got set free and made private during the Johnson administration but with some passive government backing and loan guarantees. As I understand it they were privatized going into the election of 1968 as a way to reduce the massive deficit that Johnson’s administration was running.

    As for how they can have PACs, I guess that’s not an issue now that they are more or less private. Maybe the PACs will go away now that the government is taking them back over.

    Dave

  • Lisa Solod Warren

    I just love how Dave manages to get both Johnson and Delaware in there as “persons” to blame. Silas, please do your own research. Counting on Dave for this is really not a good idea.

    No, we can’t let these institutions go under because they would then cause huge horrible financial disaster waves for us and, perhaps, the world. We have no choice. But the key is not to let the taxpayes hold more of the bag than the investors. It’s very complicated and essentially the government’s fault for deregulating. Remember Phil Gramm? Mr. Deregulation? This is the kind of thing that happens when there is non.

  • bliffle

    They demonstrated the big peril of a combined public/private enterprise: privatizing the profit and socializing the risk.

  • Arch Conservative

    But the key is not to let the taxpayes hold more of the bag than the investors.

    By taxpayers do you mean the taxpayers that didn’t foolishly get into mortgages that they couldn’t handle Lisa? Or did you mean the ones that did because you feel sorry for them.

    Both sides are to blame. The shady mortgage lenders that preyed upon idiots and the idiots that allowed themselves to be preyed upon.

    Now what we are faced with is the rest of us who weren’t in either of these camps having to pick up the bill.

    I don’t know about you guys but there’s nothing I enjoy more than having my own personal income taken away to subsidize stupidity and greed.

  • Cannonshop

    #2:
    Silas, Government Agencies conduct Lobbying. So do Government Unions. This bailout is an atrocity on more than one level-thanks to shady loan practices in the mortgage biz, people like me who’ve been saving for years, are still unable to afford to even LOOK at housing beyond rentals. (well, we could’ve, but zero-down-interest-only is just renting with the headaches of ownership.)

    The old, pre-deregulation standard of three times a family’s annual income kept house-payments and down payments reasonable, and kept prices in check, since you didn’t have people playing the “Flip That House!!” gamble. Thirty percent profit after paying off the buy and the work (when work even happened) is fucking insane. Half a million dollars for two bedrooms and a garage in a place where the average income is between thirty two and fifty grand a year? this bailout rewards that kind of irresponsibility, props up artificially inflated property taxes, and just guarantees nobody, but nobody, will learn anything from it.

  • http://www.associatedcontent.com/user/39420/joanne_huspek.html Joanne Huspek

    AC: Both sides are to blame. The shady mortgage lenders that preyed upon idiots and the idiots that allowed themselves to be preyed upon.

    That’s the truth.

    Everyone was looking for a pot of gold at the end of the rainbow, instead of thinking clearly and rationally. Great. For that, everyone suffers.

  • Cannonshop

    Damn, Joanne, you said it in five sentences without all the wandering around that I did trying to say it…

  • Cannonshop

    erm…lemme back up.

    AC and Joanne… (crap,gotta learn not to blow through comments that fast…)

  • Arch Conservative

    OOOHHH, it looks like Cannonshop has found a new guilty pleasure.

    Agreeing with me.

  • Cannonshop

    Well… when you’re right, you’re right. I’ve agreed with Bliffle and Jet on occasion, too, not to mention Lisa, and as Pablo has pointed out (and I sarcastically reinforced) I’m actually a bit to the right of most folks, just not on the religious thing. On this thread…(besides my props to both You, Arch Conservative, and Joanne), Bliffle in comment #5 is dead on-but probably not the way he’d like to be. MOST conservatives that are serious, would agree that socializing risk is just plain stupid, and privatizing profit while doing so is the very essence of political corruption…and often a trait of the Left when they are in power. (what Congress was in session when FNMA and Freddy Mac were created?? Phil Gramm didn’t do it all by his lonesome, after all.)

    This crisis, this bailout, and the taxes we’re all going to have to pay, are proof that Government reaches too deeply into ALL of our lives, and doesn’t do a good job when it does this sort of thing.

  • http://biggesttent.blogspot.com/ Silas Kain

    I just love how Dave manages to get both Johnson and Delaware in there as “persons” to blame. Silas, please do your own research. Counting on Dave for this is really not a good idea

    Well, Lisa, there’s a method to my madness. I purposely asked the question knowing some of the answers in advance. I thought that by asking it might spark somebody to actually do some research on their own. Dave responded. Bliffle, Arch, Cannon and Joanne also provided their take. While you may have provided your perspective, you began with an assault on Dave. So which is more important: slamming Dave or getting to the truth?

    Delaware and its practices with regard to incorporations is a subject that deserves very close scrutiny as Delaware is no friend to small business. Insofar as mentioning LBJ, Dave was also on point. I’d love to see you and Dave go toe to toe on his show.

  • Jordan Richardson

    So which is more important: slamming Dave or getting to the truth?

    That’s a tougher question than you think, Silas. Sometimes A can lead to B. Plus A is more fun and tends to be better for you. Kids love it.

  • http://biggesttent.blogspot.com/ Silas Kain

    Nothing like common sense Canadian humor to brighten my otherwise cloudy day.

  • Jordan Richardson

    *humour

    ;)

  • Cheryl

    Well well ol’Paulie thought he could continue to deceive instead having some Integrety but it just doesn’t work that way…Paulie thought he could fool China into continuing to invest in US but he was wrong…per the following interview “”The seizure of the two firms, prompted by worries over their shrinking capital, was the latest in a series of emergency steps taken by U.S. authorities to quell a year-long credit crisis that has helped push many economies toward recession. [ID:nN07479172]
    “China has bought a lot of asset-backed securities, and there might be short-term improvement in price,” said He Fan, an economist with the Chinese Academy of Social Sciences.
    But, taking a longer view, he said the bailout posed a problem: if the Treasury issues new debt to fund the rescue, should China be a buyer or not?
    “For China, whether or not you buy the new treasuries, there will be losses: if you buy them, you’re getting deeper in the hole; if you don’t buy, your existing holdings will lose value,” He said.
    The Treasury’s equity stake could reach $100 billion in each of the lenders, which own or guarantee almost half of America’s $12 trillion in home loans, but it said the ultimate cost of the rescue plan depends on how well the companies perform.
    He said the takeover was the last resort for the U.S. government, underlining that the credit crunch was far from over.
    “This shows that the risks involved are greater than we thought. As such, Chinese banks should be cautious and prudent,” the researcher added””.

  • bliffle

    Bernanke should be fired for misleading people about the financial condition of FNA in July.

    House prices have been way too high for 10 or 20 years. But it just kept getting more outlandish.

    The house buyers, perhaps foolish, simply have little choice. If they have moved from another house they are ill-advised to not buy and take a capital gains tax. And the price escalator has been running crazy for so long that you couldn’t afford to stand aside and not be on it.

    It’s the lenders who destroyed things by trying to pump up the system with subprimes as the prices got way too high and they faced cutbacks. So they created this ‘securitizing’ thing to move loans into secondary markets. And they hired creepy loan salesmen to scam everyone, collect quick commissions, and get out.

    The sales side of house sales exercises de facto monopoly power, all the way from RE Agents with their fixed 6% commissions, to the massive RE industry systems.

    The poor house buyer or seller faces a solid phalanx of monopoly when they try to deal.

    They are on their own, and lacking organization they are victimized by the better organized.

  • Cannonshop

    Um, no, Bliffle, Bernanke shouldn’t just be fired-he should be imprisoned. for Fraud, in fact, there are a LOT of guys who should be going to room with Bubba, going back to the eighties and including Neil Bush (GW’s little brother, cheif scumbag of Silverado Savings and Loan). Congress chose the coward’s way out with a Bailout, probably because it’s an election year, and their man is at least tied with, if not slightly ahead of, McCain. (much the same reason Christine Gregoire stepped in and tried to get a stay of execution on the Boeing Strike-she’s up for re-election, and if the strike goes long enough to reach November, she could find herself running on a crashed statewide economy against a challenger who almost beat her in ’04. As it is, a LOT of union members from the IAM have decided to remember her interference on behalf of Corporate in November, and not with a fondness.)

    But, the fact remains-these are multimillionaires, and such folk are not treated by our incumbent scum as the rest of us are.

  • http://www.republicofdave.com Dave Nalle


    The sales side of house sales exercises de facto monopoly power, all the way from RE Agents with their fixed 6% commissions, to the massive RE industry systems.

    Bliffle, you’re living in the 1970s or in some very different part of America from the rest of us. These are the times of cutrate and cutthroat brokers, of brokers acting for buyer and seller for 4%, of 1% high-volume brokers and of all sorts of other variations. The monopoly power of the slick white-glove Realtors is well and truly a thing of the past.

    Dave

    Dave

  • Cannonshop

    Dave, my parents were in RE back in the late seventies through the eighties (which is why I harbour a special hatred for Neil Bush and his ilk), and I think you’re dead-on about Bliffle being a bit stuck in the past on this. Real-Estate has turned cut-throat some time ago.

  • http://theugliestamerican.blogspot.com Andy Marsh

    There seems to be a lot of people that deserve blame in this mess.

    It seems to me that every time I’ve gone house hunting that some shady things were going on…

    First thing I noticed was when I went to pre-qualify and the lender would tell me that I qualified for some outlandish amount of money. I usually use a very simple formula for what my house payment is gonna be…I say basically, it’s gonna be 1% of the loan amount. So, a 200K house is gonna cost you $2 grand a month…it’s a rough estimate, but it’s close. So, I remember 12 years ago when I bought my first house lenders telling me that I qual’d for a $250K loan. I actually yelled at one guy. You really think I can afford a $2500 a month house payment? You on crack???

    But then all of a sudden everybody could afford a house. Or would it be better to say that lenders started loaning money to anybody. Now we, the taxpayers, are gonna pay for it.

    I think things like that are predatary! But I also think some people just don’t think.

    We’ve been bailing out banks for years now. And when we’re not doing it the Saudis or the chinese are doing it.

    But this isn’t bailing out the people, this is bailing out the rich, again. But I guess, if we want to put more poor people in houses they can’t afford, we have to bail out the people with the money so they can prey on the stupid.

    What about the recent bankruptcy law changes. They changed everything for the banks and nothing for the people.

    Here’s a good one for you. Years ago I had a few credit cards. A few more than I have now anyway. I never missed a payment. I never paid just the minimum. I got laid off during the dot com bust and all of a sudden I was over extended. According to the banks anyway. They started raising my interest rates. I called and asked, why are you doing this? They told me, you’re over extended Mr. Marsh. I said, you’re the mother fuckers that over extended me!

    So, instead of them getting all their money at a reasonable interest rate, they got squat after I paid a lawyer $750 for a bankruptcy. I warned them, hell, begged them, that they were forcing me to do something I didn’t want to do and they blew me off. Paybacks are a bitch.

    I would have kept paying those cards off if the banks hadn’t tried to screw me. I was really against the idea of a bankruptcy, it seemed almost criminal! But honestly, I thought that what the CC companies were doing to me was even more criminal, so I did what I had to do for me and my family.

  • bliffle

    I don’t know what Dave and Cannonslop have done for RE transactions lately, but I did several transactions in the past 5 years for myself. With a lot of hard work I got an RE agent to give me a 5% deal, but on two occasions she tried to jerk it back up to 6% at the last minute.

    Are you guys actually doing deals or just reading the RE section of the sunday papers?

    I’ll put my creds up against yours.

  • bliffle

    Besides Bernanke, who was palpably lying in July about condition of FNMA, and should be jailed for perjury, another similar character is this Lockhart fellow, who said on June 30 that FNMA was adequately capitalized. But instead of being prosecuted he’s put in charge of the bailout.

    Now, when confronted with his own duplicity, he says that was true by conventional standards at the time although he had personal misgivings.

    that was then, this is now.

    But what can you expect from an administration that has set a precedent of convenient lying?

  • Clavos

    But what can you expect from an administration that has set a precedent of convenient lying?

    The same as from all the administrations before it, ALL of whom lied about something to an equal (or greater) degree? “Has set a precedent?” NO. Has followed a precedent, set long before.

    Americans are such naifs. You persist in this fantasy that your politicians and government are going to act honestly and for the good of the people, even in the face of more than 200 years of history to the contrary.

  • http://theugliestamerican.blogspot.com Andy Marsh

    Clavos – everybody knows that ONLY bush lies…all the “progressive” pols are as honest as the day is long…gee wiz man, get a grip!

  • Clavos

    [Hangs head in embarrassment]

    I know, Andy, I know.

    It’s just that…just that…

    Interestingly, yesterday I was in a car full of Jewish liberals, (who are good friends) for a couple of hours, and the talk turned (inevitably, in an election year) to politics. Much to my astonishment, I discovered that, to a man, they ALL think that McCain will be our next President.

    As Arte Johnson used to say on Laugh In,

    “Veeery interestink…”

  • bliffle

    Now clavos has sunk so low as to bow to Andy.

    I don’t expect politicians to be honest, I expect liars to be turned out and punished.

    And I don’t like facilitators much either.

    Constantly alibiing serial liars creates an unacceptable Moral Hazard.

  • Les Slater

    Clavos,

    “You persist in this fantasy that your politicians and government are going to act honestly and for the good of the people, even in the face of more than 200 years of history to the contrary.”

    “Interestingly, yesterday I was in a car full of Jewish liberals, (who are good friends) for a couple of hours, and the talk turned (inevitably, in an election year) to politics. Much to my astonishment, I discovered that, to a man, they ALL think that McCain will be our next President.”

    “Veeery interestink…”

    I presume, you gave no other indication, that these ‘Jewish liberals’ were going to vote for either McCain or Obama.

    Your only comment was ‘Veeery interestink…. I would think, according to your ‘You persist in this fantasy that your politicians and government are going to act honestly and for the good of the people…’, a more appropriate remark might be ‘Veeery Stuuupit”.

    Les

  • Clavos

    I presume, you gave no other indication, that these ‘Jewish liberals’ were going to vote for either McCain or Obama.

    Good (if obvious) presumption, Les. They are all voting for Obama. Do you see a liberal voting for McCain?

    Your only comment was ‘Veeery interestink…. I would think, according to your ‘You persist in this fantasy that your politicians and government are going to act honestly and for the good of the people…’, a more appropriate remark might be ‘Veeery Stuuupit”.

    True, but that was neither my point nor Arte Johnson’s line. My point was that I was astonished that liberals (at least these few) are already resigning themselves to a McCain win.

  • Cannonshop

    Now clavos has sunk so low as to bow to Andy.

    I don’t expect politicians to be honest, I expect liars to be turned out and punished.

    And I don’t like facilitators much either.

    Constantly alibiing serial liars creates an unacceptable Moral Hazard.

    Okay, so… when are you going to start going after Rangel, or Pelosi, or…see, Jet, here’s the problem with that line-Democrats never go after their own. EVER.

    Your side talks a good line about Ethics, but when it comes to cases, universally it’s “Deny Everything, Admit Nothing, Make Counter Accusations” followed by “Write another set of ethics rules that will ALSO be ignored, add another law to the pile that were broken to remain in power.”

    and so on. Address the scumbags on your own side, then lecture me about mine. Republicans, at least, have a long post-watergate history of DX’ing, indicting, and convicting members of their own party that get caught out. Barney Frank (life-partner ran a whorehouse out of his office) is still in office, Charles Rangel ($75,000 worth of tax evasion) is still in office, Schumer (illegally obtained credit report on a fellow named Steele by “Stealing” said fellow’s Social Security Number…AFTER pressing for an identity-protection law) is still in office.

    Only Frank was Censured (and may be that only Frank can honestly claim ignorance. Spouses do all kinds of things behind each other’s back.)

    Schumer tossed two of his aides on a short suspension…mind you, they committed a federal crime, but hey, it’s okay because it was Political, right???

    Rangel, who’s sat on the right committees for decades should have known better. If he’s indicted for it, it won’t be by a Democrat.

    Teddy Kennedy: where does negligent homicide, drunk driving,and accessory to forcible rape fall in your particular pantheon of sins, Jet? If he was a Republican, he’d have been run out of office even if acquitted on all charges.
    As a democrat, from a Democrat state, and since the events happened in Democrat controlled jurisdictions, he skated.

    Let’s see now…

    Ken Lay: Indicted by a Republican. Likely to face conviction by…a Republican, died instead.

    Newt Gingrich: Indicted by…Republicans (with special help by democrats who blamed him for their defeats in ’94)

    Palin indicted several Republicans for bribe scandals, and one of ‘em even went to JAIL.

    If there’s a real case for War Crimes in Iraq, the person most likely to indict GW Bush? A Republican. (that’d be whoever McCain appoints Attorney General. An Obama appointee would just soak up investigation funds unless he can come up with something cool for the newspapers.)
    IF GW were a Democrat, the Democratic party would be screaming-not for his trial, but to prevent it.

    You KNOW this is true. Only Republicans go after members of their own party. Democrats play office politics party-preference games.

  • Les Slater

    “I was astonished that liberals (at least these few) are already resigning themselves to a McCain win.”

    I’m not astonished, but on second thought, I do find it interesting. Liberals are a vanishing breed. It’s not a very defensible position. I suspect many self-proclaimed liberals don’t believe the line wholeheartedly, maybe so with these particular Jews. If they are not economically on some precipice then they have little to be emotional about in the election. They can view it with some detachment. They may even harbor some secret desires that McCain actually win.

    If the economy gets much worse, many on the left will move sharply right.

  • bliffle

    Apparently, cannonslops only argument is red herrings.

    None of the culpable persons he mentions are in positions of Great Power. Their crimes are small, no more important, say, than lying about sex.

  • Cannonshop

    I don’t know, Bliffle, Rangel’s the chair of the Ways and Means committee-he WRITES tax-law, and he’s been evading taxes. How’s that differ from a guy going to a Baltimore Bathroom to get a blowjob?

    The guy in the bathroom’s just a pervert, Rangel’s duping the public trust while squeezing Joe Citizen for more of Joe Citizen’s money. You tell me?

    If Rangel were a Republican, he’d be convicted in the press, convicted by his party, and on his way out of office, without even seeing a courtroom. as a Democrat, he gets a pass in the Media, his Party, his Congress, and he’ll likely have the ink dry on his exemption before the first hearing (which his buddy Reid will chair) is even convened.

    Contrast with Gingrich’s questionable book-deal, which got old Newt run out of office and shunned by most of the Party without a conviction, or even a trial.

    The allegations were later debunked, but a Republican Congress threw out their OWN LEADER for having questionable ethics. What’s your side done?

  • jamminsue

    Can we change focus a little? I was listening to financial news tonight and here’s something to think about: Pensions and Profit Sharing Plans will take another Enron-type hit over this; Fannie Mae and Freddy Mac are/were really popular “institutional” investments. I’d relly like to hear what you all think about that little stinkbomb…

  • Cannonshop

    #35- I think it’s time to fire some fund-managers, without the golden-parachute treatment. What Fannie and Freddy were doing was public knowledge, and while it had a ‘high’ return, High Returns tend to indicate large risks. Unfortunately, those risks were hidden by the rather stupid truth that Government would bail them out in a downturn.

    We need to stop telling people they can count on Uncle Sugardaddy to take care of them, or we’re going to have this happen again…and again…and again.

    (and by “People” I mean “bankers, investors, and Citizens”, in that order.)

  • http://theugliestamerican.blogspot.com Andy Marsh

    Cannonshop – I get the impression from reading your comments that you’re in WA. My question is, do you get up really early, go to bed really late, or not sleep at all?

  • Cannonshop

    Somewhat insomniac second-shifter, and yeah, we went on strike. Got picket duty on 9/11/08. (as pissed as I get with the IAM, it IS my union.) I stay up too late. Tomorrow, I’ll be getting up waaay too early.

  • bliffle

    Good point, jamminsue, in #35.

    Many pension funds, especially for public employees and union members, are really huge and hire expert investment analysts as managers. If they are not corrupted by outside influences they can become astute and influential shareholders. In fact, many BoDs resent the influence and questions of those pension funds because it infringes on their perks.

    I wonder how the pension funds played in this problem.

  • Cannonshop

    Bliffle, just… Read This and tell me who you see in the number three spot, and what you think it means. (Jamminsue, you should read it too.) I’m interested in your interpretation of the data.

  • jamminsue

    What I was trying to point out is the institutions like FNMA were the ultimate safe investment for investors like pension fund administrators, because they were stable, and previously were not volatile.
    The implosion of the RE market, coupled with individuals competing with the government for the shrinking amount of working capital are the reasons for the problem, coupled with so many people failing to make thier mortgage payments for whatever reason.

    Working capital is shrinking because of the obscene amount of money being spent in Iraq

    Where do those investors go now for a stable, non-volatile investment?

  • jamminsue

    #40 – Cannonshop – that is a red herring, not germane to what I was trying to get across.

    Yes, there has been abuse in the system, that is because the laws relating to banking have either been repealed (Again, thank you Pres Regan & Neil Bush) but that has NOTHING to do with where do the pension funds go now?

  • Cannonshop

    Jamminsue, the one thing I learned about investing so far, is that there’s no ‘safe’ investment. There’s Low-risk, and High-Risk, and High-risk stuff pays out faster and bigger, but it’s high-risk for a reason. The RE bubble is a perfect example of this- Real Property has long been viewed as a safe investment. Unfortunately, it’s not a safe investment when your mortgage lender is issuing things like zero-down-interest-only bubble-payment mortgages (a cancer that was pretty common in the Midwest and especially Southern Colorado in the late seventies and early eighties, with predictable results that strongly resemble what has happened nationwide this year.)
    Bankers issuing Mortgages were working on the same idea that Houseflippers were working from- massive profits in a short period of time with minimal investment out of pocket. When you could turn a 30% profit (after tax) on an investment in less than six months, and do it over and over again, that’s very seductive. It’s also the very definition of volatile. Prices nationwide skyrocketed until they reached the point that there wasn’t enough of the stable “I want to live here” market with both means and will. That’s when it crashed, and with good reason-the whole thing was based on ratcheting profits with no end in sight, once you can’t make a profit, the money goes away.

    I don’t disagree that Deregulation of the Savings industry was a bad move. In the first election I voted in (at age eighteen), I was a fool and wasted my vote because of the Silverado mess (Neil Bush), but didn’t trust Clinton enough to vote for him. (I voted for a third party).

    But I STILL want to know what your take is on the raw data I linked, because it’s germane to the larger discussion of both the FannieMae/FreddyMac situation, and the Elections coming in November.

  • bliffle

    IMO pension fund managers are going to have to radically alter the way they do business to adapt to the reality of the radical changes in big company management and goals.

    In the last 30 years business pirates have invaded businesses with the intention of looting the big business by cashing out the assets and blue sky, and thence operating the company close to the line, scraping off profits and allowing no Retained earnings for a rainy day.

    Therefore these businesses have become unstable and easily crashed, so they are no longer stable investment vehicles. Big investors can no longer afford to be anything like passive.

    So I see two strategies for pension fund (and such) investors in the future:

    1-invest with the intention of taking over the Corp., just as a pirate would, with the idea of operating the Corp in the best interests of the fund, whatever that might mean.

    2-invest much earlier in the business cycle when risks and rewards are greater but the fund has a better shot at retaining control of successes. Use a modification of the famous VC principles (modified to better suit the more conservative goals of the fund, but not so starched as previous institutional attempts at VC).

    Basically, funds have to be faster and more adventurous.

  • Cannonshop

    “In the last 30 years business pirates have invaded businesses with the intention of looting the big business by cashing out the assets and blue sky, and thence operating the company close to the line, scraping off profits and allowing no Retained earnings for a rainy day.

    Indeed. It’s a pattern that is inherently unsustainable in spite of its popularity.

  • jamminsue

    OK, Barrack is the third most favored. How much of that is employees?

    As everyone knows, Obama is the all time champ at receiveing money from individuals. The data is not that “raw” as how much is the two big boys and how much is individuals, that may or may not have contributed looking for favorable tratment. Also, specifically when were the funds we given?

    IT is still a red herring.

  • Cannonshop

    #46

    So there is a flaw, in your opinion, about the methodology of the study they used, or about how they presented the results.

    Here’s my take: I work in a Union job, when the Union comes around with the collecting plate, generally it’s going to the PVF (Political Victory Fund), and will probably be listed as such on disclosure documents. If I make a contribution myself, to a candidate, my contribution probably will NOT be listed as being from either Boeing (my place of work) or the IAM (my Union), it’s going to likely be either under a donation “bundler’s” name if I used a middle-man, or my own.

    Similarly, then, I wonder if such practices are consistently enforced in disclosure documentation? In which case, wouldn’t the idividual contributions of employees ALSO be listed either by third-party bundling, or under those employees’ names? and if so, then wouldn’t those donations also be outside the data-set in use for a study such as the one linked?

    I’m just sayin…

  • jamminsue

    I am not sure exactly how bundling works, but from what I have read, PAC’s collect contributions from people (checks are made out to the candidate) then pass the checks on to the candidate. Hence “bundling.” The comment “employee donations” is what triggered the question.

    I do not know how those are reported to the FEC as I haven’t looked into it carefully before. It just occurred to me to ask the question because of reading how Barrack has managed to get such incredible amounts of donations from people.

    Maybe someone reading this will know and pass the information along.

    What fun to work for Lazy B – – NOT, I know there has never been a time that labor and admin has gotten along there…happy strike time. I lived in Seattle for 25 years, prepared income taxes (retired from that now, thank goodness!) and did plenty of Boeing Employee tax returns…and heard the war stories.

  • bliffle

    One thing consistent about the government bailouts is that the gov rushes to bailout Big Guys but gives the back of the hand to small guys. Thus assuring the ascendancy of monolithic society.

    It’s all in keeping with the republicans abandonment of small to moderate businessmen and their evolution into Royalist neo-republicans. Of course, the dems always disliked those little business guys as ‘bourguoise’. So where’s a small businessman or guild-type skilled worker to turn?

  • http://www.kogmedia.com kingdom media

    from a historical point of view, it’s hard to object to the government’s mass bailouts since similar debt-producing methods were used to bring the U.S. out of the Depression… our economy has been supported and driven by debt ever since

  • bliffle

    Better to use the bailout money to help distressed homeowners than to throw it into the bottomless pit of waste that the bankers have created.

  • Ala

    :) well said. However won’t the reprucutions of the collapse (if they aren’t bailed out) of these two Mortgage giants mean that the U.S economy will slide into an even greater recession. This in addition to the effects on the global economy? The problem may lie not in the bailout, but in the fact that these giants were subject to poor management?

  • Aka Akapelwa

    sorry i made the comment above. Just ommited my name.

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