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Politics Fixing the Economic Crisis

September 29, 2008 by politicalbanker  
Filed under Economy

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The economic crisis that is dominating our lives these days has become way too political. After telling us that the problems facing all of us must be addressed quickly and without regard for party politics, the conference with our leaders (?) and the Secretary Treasury, SEC Chairman, the President, and house and senate leadership, produced absolutely NOTHING.

Maybe tonight or tomorrow or over the weekend, we might get something, but I’m not optimistic about the process. All of the House members, one third of the senators. and Obama and McCain face election in just a few days. If they pass anything right now, they will lose more votes than they gain and all of them want to stay in office. Think about it; what would you do? I suspect that after a week of talk, they will tell us that it will have to wait till after the election, because of reasons beyond control. Maybe that isn’t fatal to us, but there are those who believe it might well be catastrophic.

Some thoughts from one who has some experience in compromise and taking the heat that comes with tough decisions. There are some things that should be easy. CEOs and their top people must be highly compensated, or they won’t take the jobs, unless they have broken some laws and want to save their rear ends. There are ways to solve this, but not overnight. Those who tried to get rich, (and some of them did) by buying multiple houses, and using equity leverage to buy even more, must not be protected from foreclosure, and should be penalized. I’d like to include the scammers who sold these “Get rich and No Down Payment” schemes in seminars, or on the internet. They fleeced a lot of folks, who now can’t pay the mortgage debt they incurred. They need to be sorted out and the lender should foreclose. without taxpayer support.

The real problem is the sub prime debt that is nearly impossible to solve. It has brought FNMA and Freddie, as well as some large investment bankers to ruin. As a banker who handled the investment accounts for two national banks, I can assure you that the high pressure salesmanship is nearly impossible to resist, especially when competitors are buying high returns and stockholders and regulators want the bank to make as much or more money than peer groups banks.

Another name for it is greed.

When I came back to banking after trying retirement, I asked what these M.B.S. securities were that were showing in the investment account. “Mortgage Backed Securities,” I was told and when I finally realized they were backed by loans made to sub-prime borrowers, meaning people with poor credit or no credit check, I could not believe it! Of course they paid a bit more interest and were issued by agencies of the federal government.

So what?

People with poor credit can’t or don’t pay their bills. Every loan officer in every bank knows this. I know from experience. I grew up with a single mom and we were poor. My first job out of college was collecting delinquent accounts for GMAC. To put these type of loans into securities, and put sales people who make LOTS of money selling these shams is akin to fraud!

The big problem is that we can’t let the whole system fail.

Unemployment for those who are hurt the worst, loss of social security and medicare, failure of health insurance providers are just the beginning. Think of every civil servant, policemen, firemen, city, state, and county employees, and teachers who have always been poorly paid, might lose their retirement benefits. IRAs, retirement plans, and savings could be wiped out. Mutual fund investments could be endangered.

And our congress is playing politics? Off with their heads!

More later.

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