2008 Election: Economy and the Election

[Shawn Azman]

Who will you trust to keep your money safe? It may seem a weird question, but I believe it is one paramount in this years election.

In case you haven’t heard, in the past six months, three of the nation's top five banks have failed. These banks are Merrill Lynch, Lehman Brothers, and AIG. This is undoubtedly a major issue, and a necessity in knowing how to fix the issue is finding out what caused it.

There is plenty of blame being thrown around in Washington. Is it President Bush's fault, or President Clinton's? Is the Democratic Congress to blame, or the Federal Reserve? Or is it solely the banks' fault?

In my opinion, the answer is YES to all of these. However, I do feel most of the blame goes to the Democratic Congress because they forced banks into this bad situation.

Most of the financial crisis we are seeing today is caused by bad mortgage lending. Meaning, banks are giving out loans to people who do not have the means to pay them back. Why would banks do this, you ask? Simple: governmental regulations.

Under President Clinton, the Democrats in the Congress passed the Community Reinvestment Act, which used activists and community organizers to coerce lending institutions to make these bad loans. This policy has been continued by Democrats through the present day, because they are still insisting that banks give loans to people who are not in a position to pay the loan back.

When we apply this to this year’s election, there are a few major problems with some easy solutions:

1. If we want banks to keep failing, elect Democrats to the Congress and get the same policies that caused Merrill Lynch, Lehman Brothers, and AIG to fail.
   
   Solution: Elect Mike Sodrel (R-District 9) to the House.
   
   
2. If you want a President who will value politics above good loan practices, elect Barack Obama, who will weaken the private sector.
   
   Solution: Elect John McCain for President.
   
   
3. If you want your property taxes, as well as many other taxes, to go up instead of down, elect Jill Long Thompson (D) as the Governor of Indiana.
   
   Solution: Re-elect My Man Mitch Daniels and allow him to continue leading one of the best economic states in the union.

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So, do you feel the Democratic Congress is to blame?
And which candidate do you feel is best suited to help solve this crisis?

[Alex Luboff]

Ok.

(First of all, I'm not a Democrat. Nor a Republican.)

1. It wasn't the Democratic Congress that approved the bailouts of AIG, Merrill Lynch, and Lehman Brothers.

It was the $888 billion that the Federal Banking system, whose Board of Governors is appointed by the Republican President, has to make those decisions. And it was the work of the Republican appointed Treasury Secretary Henry Paulson that got the deal to go. And it was the Republican President George W. Bush that signed off on their moves. Moves that are, by the way, counter to the REAL conservative notion that nationalizing industries, like the takeover of Fannie Mae and Freddie Mac, is wholly and completely anti-capitalist.

2. Senator John McCain may not pull the same moves as President Bush, however, you have to consider that if he didn't do the same things, he would be perceived as anti-business. Now, I'm a smart lad, and I know that he wouldn't be anti-business by not approving bailouts, but you know what, not everyone in the country feels that way.

And it's Senator Barack Obama.

3. Property taxes go to things like schools. The fact of the matter is that Indiana has relatively low property taxes, but what happens is that in order to fill the needs of the state, they need to borrow money from private banks or the Federal government to save those things. Cutting property taxes when you can't afford to means you have to rely more on things like No Child Left Behind, a BRILLIANT Republican program.

And Mitchy cut property taxes and raised sales taxes. Which hurts a few more people.

National Property Tax Levels:
Property taxes: Where does your state rank? - MSN Money

So the 'high' property taxes aren't the problem: thinking that Indiana doesn't need the revenue from property taxes is what is really dangerous.

And also, "the union"? Is it 1864?

[i-heart-sarah]

1. blaming the current Fed for the current mess is like blaming the firemen for the fire. this started back in the 90's under Clinton as Shawn stated. Congressman Rangle and Senator Dodd have continually insisted that the taxpayers bore no risk with Fannie/Freddie ("F/F") and now we own them. the housing mess has many groups to blame, but the root goes back to the 90's. the housing problems, in my opinion, are the root of what's happening to the financial firms the past few weeks.

2. for the record, i'm against all of the bailouts - F/F, AIG, BearSterns, and whoever comes to the teller window next. Capitalism means you take risks and bear the consequences of those risks. I think the big winners will be Warren Buffett (who bought the energy company Consetllation this week) and Barclays who bought Lehman. by that logic, the taxpayers may also "win" by the AIG and F/F ownership, but this is not a business model for the government to be in, unless you're Hugo Chavez.

3. agree that property taxes => fund schools and local resources like libraries. also agree that the drop in the property taxes was to be offset by an increase in sales taxes, which expanded the tax base. now, when conventioneers and out of state race fans visit our fair state, they help pay for our schools. i'm not sure whether this is a good or bad idea - i like the idea of LOCAL funding for schools since that ensures LOCAL control. when the state starts paying more & more of the costs, they'll insist on more controls. i also think that many of the "better" school districts - whose cities were drawing a higher prop tax will find ways of boosting prop taxes in the future, meaning these residents will pay twice (higher prop tax + higher sales tax)

and, i think this is more a "we're spending too much" question than a "we don't have enough revenue" question.

[Alex Luboff]

1. I never blamed the Fed for what happened. I blamed the Fed for the takeover.

It's also Congressman Rangel. Just for the record, in case people want to look him up. (I'm also a site admin, so these things are important for better site dialog, please understand).

2. You think that the American people will benefit from these takeovers? I think we COULD avoid losing, but that may or may not be a 'win'. I think that proper regulation is the real key. The government doesn't want to do that because it looks like they are wasting money. But the fact of the matter is that proactive regulation can avoid the need for reactive bailouts, at a much lower price, and with less drama. And if you know anything about the stock market, drama causes panic, and panic causes prices to fall. So "save the drama for your mama" and implement proper regulation to help prevent problems.

3. Education is the most beneficial thing a government can spend money on, and it pays the second biggest dividends to society that any governmental investment can, second to infrastructure spending. But when some districts get more money than others, what do we get? Neighborhoods without a way out. If education is supposed to present an equal opportunity for all Americans, then we have to realize that we don't have equal starting points, and that it's not that people "aren't working hard enough", its that whatever they do, they can't because they just didn't have an equal opportunity to get ahead. If you don't believe that all Americans deserve an equal opportunity to get ahead, then that's just your opinion and we can't argue that.

Additionally, the sales tax is regressive, which can do a lot of damage to the poorer people in Indiana. That can be bad, especially during times of economic hardship. Yikes.

"and, i think this is more a "we're spending too much" question than a "we don't have enough revenue" question."

We have $10 trillion in debt. This is a huge debt. Huge. I think the fact that this amount is what WE will have to pay off (though we may never be able to as a generation) makes this situation a huge question of how much revenue we have. The debt weakens us, so let's work on the debt. It's not time to cut taxes. We've got too much to pay for because of bad policies and a bad situation. No one person or group is to blame, but no one person or group can fix it either.

$10 billion dollars in Iraq every month. We were taken into this conflict by a Republican President, supported by both Republican and Democrat Congresses', pressured to always support the troops by the American people (can't cut funding because it is 'un-American').

If we spent $10 billion a month on education in public schools, we could really be making a difference (though we shouldn't do that until we have a balanced budget, in my opinion).

[i-heart-sarah]

1. you blamed the feds for the takeover, but it sure looked like a counterpoint to the original post's putting the blame on the dems.

2a. i don't think we should be participating in the takeovers

2b. i think the winners in this will be those who bought assets at steeply discounted (undervalued) prices. Buffett & Barclays were mentioned specifically. if the US ends up buying AIG at a steeply discounted price, we may end up with a financial win.

2a redux. i don't think we should be participating in the takeovers

3. not sure where you're going with your education / equal opportunity points. are you saying we need to equalize education spending amongst districts in Indiana, so that Carmel or Zionsville can only spend what Indianapolis or a rural school district can spend? or are you promoting choice for those "without a way out"?

4. think you switched gears on me. $10T = federal debt (outside the unfunded medicare/soc sec obligations). my "spending too much" was in the context of prop taxes / sales taxes / Indiana thread.

5. also, it's really "Congressman Barney Frank." not only did i spell it wrong, i had the wrong guy.

[Alex Luboff]

And I'd just like to say that I was mainly arguing with the author's original blame spreading to non-Republicans. I was not (at THAT time) arguing the merits of anything. I was simply saying that the author was wrong in pointing out that it was the Democratic Congress was the primary blame, which he does.

I'm actually all for the 'bailout'. It will stabilize falling mortgages, the main reason that these investment banks got caught in a bad spot. They (the investment banks) have no capital to fund these things (because they don't take deposits like other banks), so they have no holding power, which is what is needed for the market to correct itself. This way, the government buys these mortgages (which, while mostly bad, are not ALL bad) as assets and sells them as they are bought off. The housing market will recover with this stabilization, market confidence will restore, and the government could make a little money off of the sale of these assets (not much, but several billion). The plan could cost the taxpayer money if the housing market NEVER recovers, but that's just silly. And after the market recovers, and these assets are sold, that money will go into the U.S. Treasury, which, in turn, it could possibly (though unlikely) make its way back to the taxpayers' pockets (or, more likely, goes to paying back the debt). While this isn't a 'win' for taxpayers, it is a big win for our economy, and that can't be underestimated.

[piggybank]

I think the reason we are in this mess is because banks can make more money
lending $100,000 at 15% interest to someone who has bad credit history and
is a high risk customer, rather than lending at 7% to a good customer who
has an excellent credit score.

I saw it all the time in real estate. In 1990, a buyer could not buy a house without having a down payment of 5% or more. Soon afterward, banks started offering zero down loans, so the buyer is more likely to walk away from the loan, walk away from the house when they cannot make payments, because they don't have any of their own money invested.

A few years ago, the headlines were, "banks have the highest recorded profits in history". Banks caused this problem by being greedy, and making high risk loans. Just my input...

[i-heart-sarah]

Alex and I are not that close in our opinions...

PB - couple points. Zero down loans became available back in the late 70's / early 80's when mortgage rates were 12-15% for customers w/good credit.

and why wouldn't a bank charge a customer with a higher risk of default a higher rate?

and for the most part, these loans were not held by the issuing bank, they were sold, packaged and resold. IMHO, companies bought these loans without understanding the risks, but as long as interest rates stayed low and real estate prices rose, nothing bad happened. once things started going south, things went south quickly.

[Shawn Azman]

It seems like in most of these replies, we are talking about who is to blame for the proposed bailouts, not who is to blame for the crisis, which was my basis for the original article. And, I agree, talking about the bailouts and the merits of them are important, and I will get to that in a second. However, I still feel, that the Democratic Congress has the most blame in Causing the crisis we are in now. That is not to say the banks themselves have no faults, they do, but I feel it’s the Congress pushing banks to take these sub-prime loans that has caused us to be here.

Now, about the bailouts. I will agree with Alex that this is not an instance where one can blame only non-Republicans, and where all Republicans are in the right. This would be very wrong. I am against Secretary Paulson’s plan for the 700 billion dollar bailout. And this is why

1st) I am troubled that the Executive pushed this plan before going through the Congress. And I am glad to see Congress taking this seriously and sitting down this week and talking about what should be done. If they do not, and we pass this bill too quickly, we may end up overlooking other, perhaps better, solutions to the problem. Glad to see Separation of Powers is working.

2nd) If we bailout these banks, how long will it be until the next time we have to bail someone out? This is a slippery slope, and a scary one. This would set a bad precedent that if your company fails, don’t worry, because the government will buy it and you’ll be fine. Already, the automotive industry is asking for a $25 billon loan. There is a quote from the Heritage Foundation that says “the goal should not be to keep troubled enterprises in business but to ensure that they are restructured or wound down in a way that does not cause undue disruption in the financial system as a whole.” Thus, we should not bail them out, but help work them out, so as to ease the transition.

3rd) It seems to me that the burden of the failures of these companies should not be set upon the shoulders of the taxpayers, but upon the shoulders of the managers and stockholders. We should hold businesses responsible for their failures, not give them money from the tax payer’s pocket.