The bailout - part II

Hi

This blog is going to be about the bail out that is currently going through Congress. It is referred to as a bail out but in actuality I see it as a hand out. There seems to be no oversight, no thought out plan and above all no one who will finally give any definite answers to the questions of how much and why. I thought that with the election of Obama we were going to get open government, where is it? All appointees seem to be recycled from the Clinton era. Those that aren't have burdens to carry, tax problems, investigations into dealings while in office and heaven knows what else. Congress isn't doing much better, Representative Conyers is after Bush and Cheney, but now it comes out that his wife is under investigation. Who is running the ship of state?

As for the banks this is a direct result of government intervention. Carter started a policy of forcing bank to lend to unwarranted borrowers. Reagan stopped this policy, but under Clinton it was reinstated. Bush let it ride. Just as a refresher, when an individual buys a home and goes to a bank for a mortgage loan, the process begins. The bank lends the buyer the difference between the purchase price and the down payment, and in exchange the bank is given an IOU, called a bond. The bond is identified by a legal description of the property used to secure the loan and this is the mortgage. The purpose of this is to file it with the County Clerk where the property is located so that the lender is protected.
Within a short period of time the mortgage is sold by the bank to a mortgage holding company. The federal government created two such companies, Fannie Mae and Freddie Mac. These two agencies then in effect forced the banks to restart making the high risk loans with the proviso that these mortgages would be bought by the agency. The lending banks had nothing to lose. The theory was that with house values rising if the buyer cannot meet payments he can sell the house, pay off the bond and mortgage and walk away with the increase in value as a profit. Great in theory but some thing unforeseen happened, house value became stable or even lowered. Now there is no equity to keep and in fact these is a deficit. Since Fannie Mae and Freddie Mac hold the bond and mortgages, they hold the devalued paper. Thus we have a banking credit crunch. Now they scream, bail us out. Mean while, both Fannie Mae and Freddie Mac knew this was happening and did nothing, no, they did act. The directors gave donations to politicians, (Are you paying attention - Senator Dodd(D-Ct) and Congressman Frank(D-MA). Now these two are still on the congressional committee that over sees the banking system. My mother always used to say, "we are sending the wolf to guard the chicken coop" Obama can do something about this, but he will not because he owes a lot to lobby groups who supported his election. Obama chooses to support these lobby groups even at the expense of the American taxpayer. Change???

America is strong not because of this type of politics but in spite of it. We must pray for those brave man and women who are protecting us and our Constitution.
GD Bless.