23 September 2008

Where the financial mess goes from here: my 3-point plan

OK, so, for the purposes of this discussion, let's assume the bailout passes, in some form. Congratulations, taxpayers, you're the proud new owners of approximately $700B in other people's bad debts. (I won't get into those arguments here, but I think Senator Jim Demint and former Speaker Newt Gingrich have already made the best cases against the bailout...)

All that said, let's assume for the moment that, 70% of the American public's lack of support notwithstanding, the bailout passes Congress this week, in some form or fashion. Where should we go from there? Here's my three point plan...


The Federal Government must get out of the federal housing and mortgage business, phased out over the next ten to twenty years.

This entire mess happened when President Clinton bowed to liberal pressure (or helped engineer it) and pushed through initiatives to expand home ownership. A laudable goal, to be sure, but never underestimate the power of unintended consequences when dealing with the behomoth that is the Federal Government. The government's interference into the marketplace, loosening credit to folks who frankly never should have gotten loans in the name of expanded home ownership and a growing economy, blew up in all of our faces this month. Fannie is a New Deal relic whose expiration time has come due.

So, just as soon as the Treasury Secretary gets his grubby mitts on those debts and the public panic calms down, the US government needs to get out of the mortgage business altogether. Take a couple of years, five at the most to quietly and slowly sell off all of the assets we're taking control of now. Then take a couple of years to sell off all of the Fannie and Freddie assets and close them down. The experiment into government-based lending needs to stop - the government is great at taking people's money, but a rank amateur at managing the process. (Oh, and Rep. Barney Frank should not be allowed within one hundred nautical miles of this process. He's as much responsible for this mess as anyone.)

While we're at it, after we've closed Freddie and Fannie, the whole federal housing mess needs to go away as well. No more crime-stricken, drug-ridden housing projects, no more foot-bridges to nowhere for local congresscritters, no more corrupt under the table favors for which landowner gets to sell out to the feds at an overinflated price. As with so many other things, this is just something the federal government has no business dealing in, no matter how noble the goal. The sooner we get out of this mess, the faster it can get cleaned up - though I'd take ten years to phase the program out altogether, just to make the landing as soft as possible for the folks ekeing out a living in those homes now.

No "Government sponsored entity" should be allowed to donate money to political campaigns. Ever.

The Obama folks will quite rightly point to the $180K that has been donated from Freddie and Fannie to the McCain camp, who will quickly and even more rightly retort that Senator Obama has taken more money in less time ($500K in only two and a half years in the Senate) than any other member of either house of Congress. They're both right, and they're both wrong. I know how much campaigns cost, I don't begrudge politicians' ability to raise money, and I'm willing to give them both a pass on this one, because they accepted legal political contributions.

(Political integrity should mean you accept all legal donations, and still work for what's best for the American citizenry. If you can't work for the citizens because you've taken a political donation, you're in the wrong business. But I digress...)

But that doesn't excuse the fact that Freddie and Fannie have been spreading the federal largesse to the political campaigns of more than three hundred members of Congress. That's unacceptable - federal government entities should not be allowed to influence the campaigns of those whose oversight impacts their business (which should've been closed down years ago...see above.) Frankly, the Hatch Act should've covered this, but since they made Freddie and Fannie "Government Sponsored Entities" (GSEs) instead of departments of the government, the employees weren't covered, and neither were the companies. That should stop - and these companies (and any quasi-governmental or GSE entities like them) shouldn't be allowed PACs, either.

While we're at it, this goes at the state level too - states shouldn't be lobbying the feds for funding, and neither should cities and counties be hiring lobbyists to go for state money, while state associations give money to State Senators, Reps and Leadership PACs. That's just Big Government Corruption begetting more Big Government Corruption, as far as I'm concerned.

On to the Wall Street side of the mess...

No More Short Selling, Naked or Otherwise.

For the uninitiated, the process of short selling involves selling a stock you don't own shares of, and then making up for it later by buying the shares at a lower price. This isn't responsible or moral investing, it's a casino game for vultures - and it directly contributed to the downfalls of Lehman and AIG last week. Senator McCain has quite rightly criticized the SEC for allowing short-selling to continue, and for now, the SEC is banning it - for financials. I'd like to see that go across the board and permanently.

(The difference between "Short Selling" and "Naked Short Selling" is whether or not you borrow someone else's shares first before you sell them. I'm largely referring to Naked, or unborrowed, Short Selling, but the problems apply to both types.)

This isn't the first time this battle's been waged either. In addition to being banned in England after a Dutch tulip crisis, short-selling was partly blamed for the crash of 1929 that brought about (or at least exacerbated) the Great Depression. It's also partly to blame (along with Bernie Ebbers' $11B fraud) for the collapse (and subsequent bankruptcy) of WorldCom, my former employer. After the near-death experience the market had last week, it's long since time to say "Real Men Don't Sell Short."

So, that's my three point plan. Comment away.

4 comments:

Anonymous said...

When do I get to vote for you?

looking in said...

Gettin' real, now, man. Good stuff. Amen to 2:37. But I'd add a 4th (regardless of Rush's knee-jerk rejection). No bonuses for the same Execs who crashed this plane as part of any bailout scheme (ie., they get to bail out while the plane crashes). Shame on Lehman Bros. for even suggesting it.

I lived in one city where the Execs laid half the town off, then gave themselves millions in bonuses because they'd earned "shareholder value". Never mind that many of those shareholders were employees on profit-sharing who now had no jobs!

Freedom for the Rich Man (a la Lincoln's phraseology) must not include the freedom to take away the freedom of others. The Old Testament had some wonderful laws that allowed liberty for landowners (including inheritance as not only a sacred right, but sacred duty), but never let them become oppressors. Market capitalism must also be responsible capitalism.

Chip Nelson said...

After sending e-mail to both DeMint & Graham urging them to abandon this socialist tripe I've published an open letter on my blog to the Joads and the Waltons to come over for dinner and a bath. We've pulled out sufficient cash to tide us over in case it becomes difficult to obtain when the rain stops and we can golf again. WaMu's death was advertised to be the end of civilation, it happened today, Walmart's parking lot is still full. McCain should stand up Obama at Ol'Miss and let him debate himself. Dodd & Frank should be on America's Most Wanted and picked up for questioning. If wishes were horses.......

Anonymous said...

All those that can't live in an apartment, move to Lexington SC and live with Joshua Gross. He will put you up.

Fannie Mae and Freddie Mac are not the only GSE's. There is also the Farm Credit system. I was googling the name of a former coworker and I found an entry; he signed his name to a canned letter. With so many similarities in a letter, only the name and address changed, his employer told them to write to Congress about the Farm Credit bill. That's lobbying and that company has a lobbyist team.

I agree with Gross that short selling of stocks should be stopped.