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Someone must have screwed up, because when Bush made his speech the other night, he actually got part of it right.  In the past 7 years, you can probably count on one hand the number of times that has happened.  It’s probably lower than mere chance would allow!

I’ve said it before, but it bears repeating - GWB is the worst president in my lifetime - perhaps ever.  I’m 46, so that includes such fuck ups as LBJ, Nixon (who actually bears the brunt of the blame for removing us from a semi-gold standard which led to the financial mess of today) Ford, Carter (I didn’t think anyone could ever top Carter in incompetence!), and Bush I.

The Daily Show had a great segment last night comparing the speech Bush made before the start of the Iraq invasion to the one he gave Wednesday night.  Pretty hilarious!  Terms like “crisis”, “immediate action”, “urgent”, etc, were used in almost the exact same context in 2003 as they were in 2008 - and both were mostly lies.

Anyhoo - here’s the part that Bush got right.  I’ll highlight a few things that I feel are especially pertinent to this “crisis”.

Here’s part of Bush’s speech as transcribed on Whitehouse.gov:

First, how did our economy reach this point?

Well, most economists agree that the problems we are witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions — along with low interest rates — made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition — some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.

Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit — combined with the faulty assumption that home values would continue to rise — led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.

Optimism about housing values also led to a boom in home construction. Eventually the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell. And this created a problem: Borrowers with adjustable rate mortgages who had been planning to sell or refinance their homes at a higher price were stuck with homes worth less than expected — along with mortgage payments they could not afford. As a result, many mortgage holders began to default.

These widespread defaults had effects far beyond the housing market. See, in today’s mortgage industry, home loans are often packaged together, and converted into financial products called “mortgage-backed securities.” These securities were sold to investors around the world. Many investors assumed these securities were trustworthy, and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.

There’s not much disagreement anyone should have with that.  One point that I want to make sure everyone understands is what started this process - the Feds lowered interest rates too far, and kept them artificially low for waaaay to long.  Individuals and institutions basically had free money to play with - and they played.

I’m in the IT business, and when we have a problem, we conduct a “root cause analysis” which examines the real cause of the problem, then we use that info to figure out how to prevent the problem from happening again - ever.

So, root cause for this “crisis” is the Federal Reserve interest rate policy from about 2002 through 2005.  Still with me?  Good.

So, what enabled the problem to continue until it reached “crisis” proportions?   Fannie and Freddie - the Government Sponsored Enterprises (GSE’s) - bought up the bad debt from the companies who originated the bad loans - enabling them to originate more bad loans because they didn’t have to worry about being paid back.

Fannie and Freddie had already paid them, so they had money to lend to make more bad loans…. Which they sold to Fannie and Freddie which enabled them to make more bad loans….  Which they sold to - I hope you get this, because I don’t want to say it again!

Ok, still with me?

There’s one last key part that needs to be mentioned.  The part where Bush said “many believed they were guaranteed by the federal government”. This is key because investors (including many foreign governments, hedge funds, and state pension funds) bought the mortgage backed securities from Fannie and Freddie specifically because they had an implicit guarantee from the federal government - after all, what does “Government Sponsored Enterprise” mean?

So what’s the key ingredient in all of these key points?  The government.  The federal government created this mess, the federal government kept it going and growing long after normal market forces would’ve caused it to slow down or stop, and the federal government got gullible investors to buy up the toxic crap, repackage it, and sell it to other (still more gullible) investors.

This same government is the one who now says they need $700 billion and a bunch of new regulations to clean up the mess.  And a bunch of people and gullible investors believe them!  Give me a break!

Here’s the gk plan - let the stupid assholes who spent more than they could afford, gave loans to people who couldn’t pay them back, and bought the loans from the people who originated them - let them all eat cake.

Let them go broke.  Wiped out.  Bankrupt, disappear, and otherwise vanish.  The are stupid and they should reap what they sowed.  Idiots!

But that’s not Bush’s plan.  His plan is to make all of us fork over our money to bail out these stupid people.  That’s a dumb plan.  I don’t care if it’s called a bail out or a rescue, it’s still a dumb plan

gk

The Office of Thrift Supervision shuts down mortgage lender IndyMac and transfers the operations to the Federal Deposit Insurance Corporation.

That’s the headline from a CNN story dated 7:30pm today.  The story goes on to say “This institution failed today due to a liquidity crisis,” OTS Director John Reich said.

I just posted an article about inflation entitled “Sound Familiar” but does the quote above sound familiar?  It should, a liquidity crisis is what killed Bear Stearns, and that’s what’s caused hundreds of financial institutions to fail over the past year.

The next line of the story says IndyMac had $32.01 billion in assets as of March 31.

For comparison, here’s what Fannie Mae and Freddie Mac have according to a story on Bloomberg: Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules. The fair value of Fannie Mae’s assets tumbled 66 percent to $12.2 billion and may be negative next quarter, Poole said.

The official line (in the same story) says Fannie Mae “has access to ample sources of liquidity, including access to the debt markets,” Chuck Greener, a spokesman for the Washington-based company said in a statement today. In a separate release, McLean, Virginia-based Freddie Mac said it’s “adequately capitalized, highly liquid and an essential part of the nation’s housing system.”

I know it’s getting overused by me tonight, but does that sound familiar?

Here’s a hint - the chairman of Bear Stearns said they had plenty of liquidity on a Wednesday.  The company no longer existed the next Monday.  We’ll find out in a couple of days, but I think something is going to happen with Fannie and Freddie over the weekend.  I wouldn’t be surprised to see them under some sort of special operations on Monday - with their stock basically worthless.

I wonder why the OTS waited until after the market closed to announce it?  Do you think they’re trying to bury things over a weekend and hope everyone forgets by Monday?  I know some people may be that stupid (hello Ben Stein!) but I would hope that most of us have the sense not to run back into the burning building.

In case anyone is wondering, I really don’t want the markets to crash.  I have most of my money in a 401K with very limited options.  I can’t short stocks or funds in it, and I only have about 10 funds to pick from, so I only make money when the market goes up. 

That being said, I do expect the markets to crash at some point.  Most of my 401K money is in a money market fund while I wait it out.  The longer the Fed drags this crap out, the longer I have to sit on the sidelines and watch inflation eat away at my savings. 

I want to get back into the market (I got out last year) but getting in right now would be the same as running into a burning building.  Or catching a falling knife.  Or beating my head against the wall.  It just doesn’t make sense at this time.

So if the Fed would stop delaying the inevitable, I could put my money back into the market after it crashes.  Except they keep stopping the crash, which simply drags it out and makes it more painful. 

Note to Helicopter Ben - let the fricking market weed out the bad institutions on its’ own.  The bad ones will disappear (266 and counting according to ml-implode.com) but the good ones will emerge with clean balance sheets, ready to make big profits again.  And I’ll be able to watch my money grow instead of slowly withering away into nothing because of the Feds’ inflation.

gk