Well, as cynical as I am about politics, the Republicans in the House of Representatives just dropped my own cynicism to a historic low. The House just now FAILED to pass the bailout package that was negotiated over the weekend. The result? As this is being written, the Dow Industrial Average is down more than 500 points.
Republicans, who overwhelmingly rejected the bailout package, just had a press conference wherein they blamed not the package itself, but a ‘partisan’ speech given by Speaker of the House Nancy Pelosi that apparently angered some Republicans enough that they voted no, despite previously indicating that they would vote yes. The bailout package didn’t change, but apparently hurt feelings are enough to change somebody’s mind. Seriously, a no vote because you essentially got your feeling hurt? What are we, in third grade again? Are you so clueless that you truly cannot put aside partisan politics to help this country avoid economic calamity and get back on the road to recovery?
While our economic system is wounded, clearly our political system is completely broken, when a group of ELECTED officials find it impossible to do what’s right for the American public because they got their feelings hurt.
Life on some tropical Polynesian island run by a king is starting to look pretty appealing right about now.
Congress continues to debate the government bailout package proposed by Treasury Secretary Henry Paulson, Fed chair Ben Bernanke and SEC chair Christopher Cox. In the meantime, the markets are spooked and the credit markets are on the brink of complete collapse. It seems, as always, that Congress just doesn’t get it.
The Congress may have forgotten (or most may not know) that the Great Depression not caused by the stock market crash of 1929, but by the failure of the Government to provide the liquidity banks needed at the time to keep their doors open and lend money to their customers. While I’m not saying that we’re on the brink of another Great Depression (I’m an optimist by nature), we’re in a similar credit crunch and failure to act could damage our already struggling economy and add years to the time it will take to recover.
Ron Paul was right in his CNNPolitics.com commentary that this mess was created by artificially low interest rates that magnified the real estate bubble, and while his solution of rolling back stifling laws and regulations, divorcing oursleves of Fannie Mae and Freddie Mac, reducing the Federal buget deficit and reducing regulation will work in the long term, in the immediate term, this bailout is the best alternative we have to stabilize not only the U.S. economy, but the world economy as well.
Congress needs to finally get a clue, quickly put together a proposal with the oversight and CEO restrictions they want and pass the damn bill so the financial markets can return to some form of normalcy.
With the bankruptcy filing of Lehman Brothers and the shotgun wedding between Bank of America and Merrill Lynch, many investors are concerned with the viability of our financial markets. Oh, how short our memories are.
Ten years ago, in 1998, a hedge fund, Long Term Capital Management, failed, creating market panic similar to what we’re seeing today. The fear at the time was that, due to the size of the fund and its leverage, having to sell its positions could destabilize the entire financial system.
Similar to today, the Federal Reserve and other large banks worked to minimize the damage from the collapse and the world financial system was ‘saved.’ Not only did the doomsday scenarios fail to materialize, but the stock market went on to log one of the longest bull market runs ever.
The moral of the story is that, altough financial crises like this are scary, even for the professionals, this time is most likely NOT DIFFERENT and our financial system will not only survive, but most likely survive.
With yesterday’s announcement that the government would be taking over both Fannie Mae and Freddie Mac, pundits and television talking heads began asking if the move signaled a bottom for both the housing market as well as the stock market.
Well, the market today responded with a resounding ‘NO’ and fell by almost the exact amount by which it rose yesterday.
The government’s move yesterday did have the effect of immediately dropping most mortgage rates by around 50 basis points. The problem, as I was discussing yesterady with two friends who are mortgage brokers, is that unless lenders are willing to again start lending, the interest rate on loans is largely irrelevant.
Any time there is a bubble in the market, in this case the exceedingly easy access to financing we’ve seen the past few years, and that bubble bursts, the pendulum usually overreacts in the opposite direction. Qualified borrowers, with high credit scores, low loan to value and adequate cash reserves are still finding it incredibly challenging to get real estate financing. Not until LENDERS feel that the real estate market has stabilized will they begin to loosen up their underwriting a little allowing the credit markets to return to some modicum of normalcy.
I hope and wish that those pundits from yesterday were right and that we are forming a bottom in the market as it would be nice to be able to give friends, family and clients some good news for a change, but I’m not holding my breath.