Wednesday, September 24, 2008

Financial Prudence

Once important reason for the widespread nature of the present financial crisis is that insurance companies (e.g. AIG), banks, and investment banks were allowed to merge by act of Congress signed by President Clinton. This has mean that millions of people with insurance policies from AIG are left without insurance, or, in the case of personal disaster, without the ability to obtain it from a different company. All the banks were in on the toxic mortgage mess. When I discussed a loan with Suntrust Bank the loan officer was all too quick to suggest that I just include Lona's income with mine in applying for a personal loan. I refused to do so because that would be fraud. It is too bad that the heads of Fannie Mae and Freddie Mac were not so careful about misrepresentations of the trillion dollar magnitude.

Congress is also to blame for the present mortgage mess. They, mostly Democrats, put pressure on Freddie Mac and Fannie Mae to make sure the poor (often with poor credit) could get in on the housing boom. They got in on it all right. This is the origin of the toxic mortgages. Now we have two presidential candidates urging the country to take on the bad debts of many entities all merged and no longer properly financially isolated.

If we really want to make a mess of things just vote for a president of the same party as the Congressional majority.


Lona said...

The author of the legislation that repealed the bank safeguards put in place after the great depression is currently the chief economics advisor for John McCain, Phil Gramm. McCain was saying just a few days ago that "the fundamentals of the economy are strong". And Gramm is the one who called Americans "whiners" when he heard complaints about tough economic times.

Lynnis said...

What you say is true, but the mess really started before the housing boom. It was cause by the Feds "economic fix" post enron with slashed interest rates. This made credit cheap and lenders sold mortgages to people who obviously didn't have the income to afford them once the rates increased. The economic fixes just make the pendulum of ups and downs swing wider and wider, each one a magnified echo of the last.

Gordon said...

What you say makes sense. The implication of it is that things will get even worse after the proposed "fix."