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October 01, 2008

Comments

Tim

What irritates me most about the MSM is that they do not reveal vital information the American public needs to make sound judgments about what is going on. Freedom of the press was established so the truth could not be distorted and disseminated by people in positions of power without accountability. Now those in charge of establishing the truth are the ones distorting it as much as those in power do. What will become of us if this continues?

For example, the financial crisis caused by so many defaulting sub-prime mortgage holders should lead the press to ask why these defaults are occurring. The facts reveal that the mortages were given at sub-prime interest rates[lower than the rates we pay] to those who could not qualify for such loans under regular, time-tested bank rules. Therefore, when the business cycle began to turn down, those mortgage holders had no savings/investments to cover their payments and so they have been defaulting.

The press should then ask why such risky loans were given out by banks, who by nature have always been very conservative. The answer is simple- the Clinton administration set up an organization to help poor people get in on home ownership. To get banks to make such loans, they told the banks the federal government would guarantee the payments on loans if the mortage holders couldn't make the payments. They did it by setting up Fannie Mae and Freddie Mac to back the mortgages.

About a month ago, Fannie and Freddie went bankrupt and were taken over by the federal government because of so many loan defaults [mortage holders not making their payments on time]. So the current so-called government "bailout of Wall Street" over sub-prime mortgages is the result of a faulty mortgage loan program established by the government itself. Therefore, the truth is that this current sub-prime crisis should be called a "bailout of government". Those are the simple facts anyone can understand.

In addition, due to the turndown in the business cycle, there have also been defaults on some regular mortgages. Companies like AIG insurance company, who did not diversify their investments, but put 70% of their money into buying mortgages from banks, have collapsed due to poor leadership/management of their resources. The same could be said for Bear Stearns and Merrill Lynch. The government has no responsibility for bailing out these companies because they must live with their bad decisions.

Finally, because of all these problems, regular people like you and me have become worried that our bank may go bankrupt and we would lose our money. Since banks keep only 15% or so of our deposits while loaning out the rest, they don't have all of our money for us to withdraw. So, if many of us go to withdraw our money at the same time, banks can't handle it. This has begun to happen, and many fear that a lot of banks will have to close up as IndyMac and others already have.

There you have it in a nutshell - think about whether or not your news media sources have taken 5-10 minutes to explain these main facts. Since I have a degree in economics, I have been able to find these facts. But the average American should not have to have a degree in economics to have this information. The media should provide it. The MSM doesn't. They prefer to blame their favorite whipping boy - the Bush Administration, and make it appear that an Obama administration will be able to fix the problems. In reality, it was the liberal economic policies of the Clinton Administration related to sub-prime mortgages that caused the main problem. How will the most liberal Democrat in the Senate, Mr. Obama, ever fix such a problem since he has the same political/economic views that those who caused the problem had?

chris corwin

this is simply not an accurate portrayal of what went down, nor why.

it has to do with greed and taking from the top -- not a failed attempt to bring up the bottom.

John

Chris, unrestrained greed certainly contributed to this crisis, but a number of economists have verified the above scenario. I'm interested to know what evidence you have to support your theory that "this is simply not an accurate portrayal of what went down, nor why"?

Greg

Check out all the pork belly's on the "Bail-out".
http://www.foxnews.com/projects/pdf/AYO08C32_xml.pdf

andy

chris makes a valid point, although not completely accurate. the ceo's of freddie mac and fannie mae (government entities who were appointed by the Clinton admin.) were greedy. they received HUGE bonuses, mostly by fudging the numbers. and it started an investigation, which has been overshadowed by the mess it's caused.

Tim

It is an absolute certainty that mortgage defaults by those who borrowed the money to buy their homes caused this crisis. The greedy corporate executives who made excessive salaries and cooked their books did not force the people to take the loans nor did they have anything to do with the defaults. Had the mortgage holders made their payments on time, the only problem would have been less profit for the corporations from Fannie Mae to Bear Stearns. The illegal actions of a few like Franklin Raines of Fannie Mae could have been taken care of in the courts without throwing our entire economy into turmoil. The primary lessons from an economic perspective is that we can't distort the free enterprise system either by illegal financial behavior of corporate executives or by messing with the time-honored qualifications for mortgage loans. In this case, we did both.

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