Ignoring Reality While Killing the Economy ... Alan Caruba

Ignoring Reality While Killing the Economy
By Alan Caruba

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The powers in Washington, D.C. seem to be living in a parallel universe from the one the rest of the nation occupies. Even worse is the way the Obama White House and Democrat controlled Congress appears to be hell-bent on destroying the economy before they can be voted out of office.

No Congress since the days of the Great Depression and the Roosevelt administration has been driven to pass legislation that is more injurious to the present and future of the nation. It began with the so-called Stimulus Act that is widely seen as a failure, followed by Obamacare, the government takeover of one sixth of the economy replete with the rationing of care that will literally kill some people.

On Wednesday the President signed "financial reform" legislation that will play havoc with the financial industry while expanding government regulation still further.

Let us examine the reality. Washington tells us that the unemployment rate is 9.5%. Raghavan Mayur, president of TechnoMetrica Market Intelligence has been closely following unemployment data. His survey in May revealed that 28% of a thousand households reported that at least one member was looking for a full-time job.

Mayur’s firm owns the TIPP polling unit, a polling partner for Investors’ Business Daily and Christian Science Monitor. The June poll revealed 27.8% of households experiencing unemployment and, in the second week of July, it showed 28.6%. That translates to an unemployment rate of more than 22%!

The so-called financial reform act is likely to be as great a power grab as Obamacare, but it totally ignores the root cause of the 2008 financial crisis, Fannie Mae and Freddie Mac, the two government sponsored “entities” whose collapse revealed that many of mortgages granted by banks and lending companies, and then purchased by Fannie and Freddie for bundling and resale were inherently unsound.

Why? Because the government had long been pressuring banks and mortgage lenders to issue mortgages to people who could not afford to borrow the price of a hamburger. They were called “Ninja” loans; no job, no assets.

The concept of the government getting involved in the housing market is based on the notion of “social justice” and the belief that everyone had a “right” to own their own home.
Social justice was the basis for Social Security when it was established in the 1930s and later for Medicare/Medicad. Both programs are insolvent.

Everything the FDR administration did prolonged the Great Depression for ten years until the advent of World War Two rescued the economy. The Obama administration is repeating the same mistakes.

In June, Bloomberg Business Week took a look at four scenarios regarding the cost of the bailout of Fannie Mae and Freddie Mac. Bear in mind that together they hold or guarantee 53% of the nation’s $10.7 trillion in residential mortgages. They operated as shareholder-owned corporations that financed home loans with the tacit support of the federal government.

In February the White House Office of Management & Budget estimated a bailout cost of $160 billion; a December report by Barclays Capital analysts put the figure at $230 billion based on a doubling of defaults and losses averaging 50% of each loan. According to a Congressional Budget Office estimate in August of last year, the figure was estimated to be $389 billion and Sean Egan, president of Egan-Jones Ratings estimated it would come in closer to $1 trillion.

Wall Street and the banks were being lambasted for having purchased the bundled securities Fannie and Freddie were selling them while the White House and Congress ignored these agencies. Well, not totally ignoring them. In October 2008 the government seized control of both. They are not, however, part of the new financial “reform” legislation.

Fannie Mae and the whole system in place since 1938 functioned on what can only be called a system of winks, nods and self-deception.

That mindset led to a 2004 scandal in which the Office of Federal Housing Enterprise Oversight revealed a pervasive misapplication of accounting standards. That, in turn, led to the resignation of Fannie Mae CEO, Franklin Raines. In a spooky sidebar, Raines owns the patent on the exchange system for the trading of carbon credits, the objective of the Cap-and-Trade Act under consideration in the Senate.

The debate about what to do with either or both will not even begin until next year. It is useful to keep in mind that the two legislators, Rep. Barney Frank and Sen. Chris Dodd, who have defended Fannie and Freddie for years, are the authors of the new financial reform bill. The foxes have been in the henhouse for a very long time.

Conservatives think that both Fannie Mae and Freddie Mac should be put out of business and that mortgage loans should be a fully private market enterprise. This alone would likely guarantee that a future financial meltdown regarding mortgage lending would be avoided. A trillion dollars or even several hundred billion dollars is too high a price to permit what has occurred to occur again.

When the new, expanded government reforms kick in, there is no telling what effect they will have on the economy, but they are unlikely to be good. Believing anything the government has to say these days is a very bad idea.

Alan Caruba

© Alan Caruba, 2010

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Alan Caruba writes a daily post at http://factsnotfantasy.blogspot.com. An author, business and science writer, he is the founder of The National Anxiety Center.

Caruba's Crystal Ball ... Alan Caruba

Caruba's Crystal Ball

By Alan Caruba

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I rarely make predictions. Events can change the entire direction of a nation in the blink of an eye. It happened in my lifetime with Pearl Harbor, the assassination of John F. Kennedy, the resignation of Richard M. Nixon, and with 9/11.

As this is being written, air traffic to, from, and throughout Europe is barely recovering because of an Icelandic volcano and no one really knows how long that will continue. So, barring any catastrophic natural events or wars, I will look into my crystal ball and narrow my predictions to the period between now and the midterm election on November 2, 2010.

Having forced a healthcare program on America that 85% of the voters did not want, the Obama White House now knows it can do the same with other major pieces of legislation intended to “transform” America into a socialist wreck comparable to European nations, one of which, Greece, is bankrupt while two others, Spain and Italy, are close to it.

The Obama administration is getting ready to put a chokehold on the nation’s financial sector by claiming it needs more regulation. It is a lie. Few sectors of the nation are more heavily regulated by the government. What is needed is more effective enforcement of existing regulations. Had that been the case there would have been no Bernie Madoff and the 2008 crisis brought about by Freddie Mac and Fannie Mae could have been avoided.

The next piece of legislation to be imposed on Americans before November will be Cap-and-Trade, a law based on a “global warming” crisis that is not happening. It will impose “caps” on how much energy industries, businesses, and finally individuals can use and it will institute a “trade” mechanism in bogus carbon credits that will make a few companies, utilities, and individuals very rich while bleeding Americans by taxing energy use at every level. The era of abundant and affordable energy will end and, with it, the economy of the nation. Companies that manufacture goods will move offshore to friendlier places such as China and India. Both were exempted in the United Nations’ Kyoto Protocol intended to force greenhouse emission caps on industrialized nations like America and Europe.

The coal industry, responsible for providing the source of half of all the electricity generated in America, will be under attack in every way at the government’s disposal. Mountain top mining will be the next target. Beyond that, all coal-fired plants will encounter a regulatory hell. There will be no offshore exploration for new sources of oil and natural gas.

When the brown-outs and black-outs begin, the nation will be five to ten years from providing new sources of electrical power whether it’s coal, natural gas, or nuclear. By then billions in government (your money) subsidies will have been wasted on “green” or “clean” or “alternative” energy in the form of wind and solar. They currently represent about one percent of all the electricity generated in America.

By the midterm elections, the unemployment rate will have likely increased. A growing, permanent class of the unemployed will be maintained with endless extensions of government support.

The southern border from Texas to California is becoming a war zone. There’s a reason the State of Arizona just passed a law allowing its citizens to carry concealed weapons and another law to empower its law enforcement authorities to rid the State of illegal aliens. Do not be surprised by the rise of southwestern state militias to deal with the constant invasion. Watch for an effort to pass an amnesty law as well.

What Americans have not caught onto as yet is that the Obama administration’s policies and actions are now fully controlled by people who did not have to go before the U.S. Senate for approval. They are Obama’s “czars” and they wield as much influence or more than constitutionally appointed cabinet secretaries.

So the real question between now and November is “How much damage can the Obama White House inflict?” and the answer is a lot.

Alan Caruba
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© Alan Caruba, 2010