From the “I’m not a nuclear weapons expert, but I won an Oscar for playing a Wall Street banker” department… You just have to laugh at the irony of actor Michael Douglas holding a press conference to push the US and other holdout nations to ratify a nuclear test ban treaty, then being peppered with questions about what Gordon Gekko thinks of the current financial meltdown. Hilarious exchange:
Reporter – "Are you saying Gordon that greed is not good?"
Douglas – "I’m not saying that. And my name is not Gordon. He’s a character I played 20 years ago."
Somehow, I think the reporter already knew that. The only other question is whether Douglas knows more about nuclear test bans or investment banking. But, I have a better job for him. When their current star retires, perhaps he can do Geico commercials.
Please bear with me, but I can’t resist… Thanks to Roger Covalt for sending this along. The photo below captures a disturbing trend that is beginning to affect wildlife in the US.
Animals that were formerly self-sufficient are now showing signs of having been raised by Democrats. They have apparently learned to just sit and wait for the government to step in and provide for their care and sustenance.
Uhhh, kind of like huge government bailout programs. But, add a bunch of Republicans to the list of those providing the care. No bull.
Burning Down the House… Let’s segue to the serious. With the financial mess on everyone’s mind, we can’t just focus on fun this weekend. If you would like a primer on the Community Reinvestment Act, how government regulation led to the forced provision of sub-prime loans to non-credit worthy borrowers, and ultimately to the meltdown the nation is facing, this linked video is an absolute must watch.
Who will regulate the regulators?… I’ll leave you with former San Diego City Councilman and real estate investor Fred Schnaubelt’s take on the matter:
If you can keep your head when all about you are losing theirs, it’s likely you don’t understand the problem
A lot of people are oblivious as to what is going on. What’s the big deal about a $700 billion bailout of the banks? “Interesting, but that’s the banks’ problem, not mine.” The primary cause of the depth and length of the Great Depression, most economists agree, was a 1/3 decrease in the money supply by the Federal Reserve, aggravated by Smoot-Hawley and some other government “cures.” (SEE: Milton Friedman – Monetary History of the U.S.) For every $3 in circulation in 1929 only $2 was left in 1933. Unemployment reached 25% at the peak. Ask yourself: If 1/3 of your income disappeared today would it have any impact on your family’s life style?
In our current situation and why everyone in the know is running around crazy like is that $700 billion to solve today’s situation may be just the down payment. You probably have read that the true losses in subprime loans may be closer to $1.5 trillion dollars. The big banks that have recently fallen or about to fall, in some cases have leveraged their assets/reserves by 25 to 40 to one according to the WSJ. (Typically local banks are closer to 10 to one). Real Estate is usually leveraged 4 to one with a 25% down payment. When $1.5 trillion is written down across the entire system it may reduce the money in circulation by up to $40 trillion or more. That’s TRILLION with a “T.” This far exceeds the U.S. annual Gross Domestic Product. Is it any wonder that the President has called a special meeting at the White House and government types and politicians are working 24/7 to head off a catastrophe?
It appears the crisis has been precipitated by Fannie Mae and Freddie Mac, government entities. (See: WSJ and Investor’s Business Daily 9/25/08). Some of you are aware that the San Diego Housing Commission was selling condos with $5,000 “Silent” Trust Deeds whereby if you made your regular mortgage payments on time for five years the $5,000 became a gift. CCDC was offering $70,000 “Silent” Trust Deeds for low-income people to buy “affordable” inclusionary downtown condos in buildings alongside million dollar homes. Most of this came about as a result of the Community Reinvestment Act and the local Community Reinvestment Task Force. Reportedly, Wachovia as a condition for acquiring World Savings Bank agreed to give away one billion dollars to first time homebuyers, $25,000 a pop, so long as they financed with Wachovia. These “deals” were “encouraged” under the Community Reinvestment Act. Some say banks were threatened not encouraged. Do the sub-prime loans or else! Fannie Mae gladly purchased many of the sub-prime loans which in retrospect appears pretty stupid. But it was all done with the best of intentions to help low-income families and minorities own a home. And the former head of Fannie Mae, Franklin Raines, was paid $91 million between 1998 and 2004 for implementing the good intentions.
This week Raines’s sweetheart deal on his home loan from Countrywide is being dredged up. Countrywide was a major seller to Fannie Mae. What’s the big deal some say? So he got a $900,000 loan at 4% plus or minus instead of at 5%. Well this 1% difference translates into everyone else paying 25% more in monthly payments for the same loan amount. (Google: United States of America “Notice of Charges” against Franklin Raines. Notice Number 2006-1). Raines was President Clinton’s White House Budget Director. For those screaming for more regulation ask yourself who will regulate the regulators?