My Two Cents on the Economy

When I visited San Francisco a few weeks ago, I spoke with a friend who insisted on his desire to convert me to an Obama Democrat. Having great respect for both his tenacity and intellect, I have found it difficult to shy away from such a challenge.

Okay, I’ll be honest, he practically challenged me to a duel.

He even sent me reading material.

I felt fortunate to make it out of San Francisco without someone (not him, of course) poisoning my coffee.

Okay, Mark, you got my attention. The gloves are coming off. I’m ready. It is going to take me several days, but I’ll try to make it through one issue at a time.

Sigh. I barely have time to answer all the questions from my children.

Oh, and excuse me if I take things down an intellectual notch. I am sure you already understand all of these details, perhaps even better than I do, but this will give us a chance to understand if we have a different view of the issue itself.

Okay, enough stalling, here goes . . .

THE ECONOMY

I believe that Mark and I agree that the economy is in a tailspin. We probably even agree that it is due primarily to the mortgage/credit crisis that has caused uncertainty in values in the market. The question here is how do we solve it, and perhaps to a lesser degree, how did we get to this point.

The bailout is absolutely necessary. To keep things in terms my first grader can understand, the government will be buying mortgages. This is necessary because with so many people not paying their mortgages, homes are going into foreclosure. If a bank is left with a home, normally they could sell the asset. But, since they can’t sell the assets and aren’t sure what they are worth, no one knows what these mortgages are worth anymore in the market. So, if the government buys them, then they are worth whatever the government pays.

Since the government is buying something American, we can assume that the government will later be able to sell these assets back to the American people. This is a loan from the government that should be repaid to some degree (not sure how much, of course) after this is all over.

This makes sense to me.

Yes, it also annoys me that my family has NOT gone outside our budget and our tax money is going towards this bailout. This should have been fixed.

What confuses me is why the Democrats are now being touted as the heroes of the economy. Somehow, the Democrats are going to save us from all of this?

I understand that the problem is essentially with Fanny Mae and Freddy Mac. These organizations, which are government supported, were “told” (or at least encouraged by the market and the government) to create mortgages, even (especially?) very risky mortgages. The government, well, the Democrats particularly, encouraged it because it supported their pledge of widely available low cost housing. The market encouraged it because mortgage type securities sold well on Wall Street because people believed the housing market would continue to be strong. Fanny Mae and Freddy Mac didn’t stop, because they are government supported. They could create these securities and sell them at a profit without worrying about the downside risk, because they knew (and they were right) that the government would bail them out.

While I am not suggesting that we should change the system entirely, it does seem curious to me that Fanny Mae and Freddy Mac were able to run wild not because of capitalism gone wild, but because they knew they were not completely at the mercy of market forces. This tells me that more regulation is not necessarily better, it’s the right balance of regulations that is important: tricky stuff.

I also find it curious that the very Democratic Congress that has been in office for the past two years were unable to pass any legislation that was recommended (some as I understand by Sen. McCain) to put the breaks on Fanny Mae and Freddy Mac. Apparently, some people argued that it made no sense to fix something that wasn’t broken. I mean, who wants to deny people the ability to buy homes? That certainly isn’t going to make you very popular. It is really hard to do the right thing when no one is complaining, especially if the American people do not understand the details.

(I am having a very big problem right now with politicians assuming that the general public does not understand issues very well. It is the public’s responsibility to require politicians to talk about the issues, and to vote based on them rather than giving the politicians further incentive to throw mud. Sorry, I digress.)

If the Democrats wanted to fix this problem, they could have done it. Congress knew about it. President Bush didn’t get a bill on his desk and veto it. It is much easier to do nothing and blame it on President Bush, as if he generates legislation. (Go back and watch Schoolhouse Rock again. I’m only a bill, on capital hill . . .hee hee).

Both Senators McCain and Obama received campaign money from Fanny Mae and Freddy Mac. Of course, Sen Obama received six times more money, or at least that is what our media has reported. Wasn’t the work Sen Obama did in Chicago a grass roots effort to help people buy their own homes? Not to say that people owning homes is all bad, but it does seem that Sen Obama should have understood the issue well enough to be pushing for some restraint on Fanny Mae and Freddy Mac. I don’t think he did, but I could be mistaken on that point.

So, based on Sen McCain’s interest in applying restraints on Fanny Mae and Freddy Mac prior to the meltdown, the Democratic Congress’ inability to prevent a meltdown, and the apparent need for high leverage regulation rather than lots of regulation, I do believe the Republicans are more equipped to handle the economic crisis.

Considering that I could go on for a few more pages with as many questions as I have answers, I am now thinking that my friend Mark may need to actually post on my blog to be given a proper response.

What do you think, Mark? Or, perhaps I should go back to writing sweet things about my kids? (I would get more sleep that way).

The only person scarier than someone who doesn’t speak the truth is someone who is not willing to listen for it.

I’m listening. Lay it on me.