No, not a movie review. Something far worse than a Mel Gibson production is on tap for the US. The mortgage and banking crisis has come upon us and the world is at stake. The questions become…what can be done and who is to blame. I suppose, maybe who is to blame is a bit vindictive on my part rather the question is how can we avoid this happening in the future. So we will address that first…in my opinion (as an amateur economist with no formal training whatsoever…except for one semester of college), the problem stems back to a fundamental shift in the secondary mortgage market way back in 1999 when the Clinton administration in its infinite wisdom pushed fannie mae and Freddie mac to take on more of the sub-prime mortgage market to make for more affordable housing for low-income families. Now don’t get me wrong…as someone of suitably low-income, I have at least a basic understanding of paying bills and wanting things that you can’t afford. I would love to own a home…but I know that I can’t afford that right now. Unfortunately, the democrats in this country don’t see the logic of capitalism in the sub-prime market. The fundamental idea is that these people were getting high interest rates to compensate for the highly increased risk that they would default on their loans and the underlying financial instrument would become drastically undervalued. The value being lost not only in the process of foreclosure (very costly for banks, loss of payments and interest, insurance etc.) but also in the absolute loss of value that occurs when a property is foreclosed upon (vandalism, surrounding property value decline, and increased crime). So we had a system where banks, rightly decided it was best to avoid giving loans to people who could likely not pay them back. But the government stepped in with a social engineering approach and said, we need to give money to people and allow for banks to make bad investments with implicit assurance that the government will bail them out. Well, as the Rev. Jeremiah Wright said…”America’s chickens are coming home to roost.” Now, I don’t mean to put this squarely on the shoulders of the Clinton administration, because on the other side of things are greedy investors who look only to profits and corporate success in the short term. Thus we have a perfect storm of interests coming together in a massive collision. They turned wall street into the LHC of finance. We have on the left, social engineering without mind for reality, and on the right short sighted greed also without mind for reality. Push them together and wait 10 years and we get a massive explosion of long standing financial powerhouses. Now the super sensitive detectors, (i.e. the public) have become aware of the fragile underlying particles…sub-prime mortgages. Unfortunately, unlike the elusive Higgs-Boson this will be staring us in the face for quite some time. With all these people worried about a black hole emerging from CERN, after watching the aftermath of this collision I now wonder if maybe they’re right. Patrick OUT!!!


NY Time 2003



Rev. Wright

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