The Right Doctor

If you go to a retina specialist when you are having trouble with your eyes, chances are that Doctor will tell you the problem is your retinas.

I was having trouble with my eyes. My vision was decreasing, and I was having crippling headaches. Light bothered me and I was wearing sunglasses. I went to a retina specialist and he told me that I had macular degeneration. For a year I was “treated” by him for this incurable disease. My vision continued to deteriorate, and my headaches and sensitivity to light became worse.

In desperation I went to another Doctor. He was a Neuro Ophthalmologist. One look by him and he diagnosed me with an entirely different condition. He told me that I had a Pituitary tumor that was pressing on my optic nerve. Surgery followed, and my condition was cured.

We are having an economic crisis. The government is asking us to treat our Economy. The “Economic Doctor” that we are going to is a previous employee of a large bank holding company that engages in investment banking. He has diagnosed our current economic crisis as being caused by a “Banking Disease”. He feels that if we direct our attention to the Banking sector that we can cure our problems. He is asking us to wear sunglasses to treat our macular degeneration. He is treating the symptom, not the disease.

We need to go to another Doctor. We need to go to a Neuro Ophthalmologist to diagnose our REAL disease. We need to stop treating the symptoms and treat the disease. That doesn’t mean that we should stop wearing our sunglasses until the light no longer hurts our eyes. But it does mean that we need to address the underlying problem that is causing the light to hurt our eyes.

JOBS!

The task of creating new jobs is one that will have to be handled by our next President. It will be up to him to create an atmosphere conducive to the creation of jobs to replace the jobs that have been lost to cheap labor in other countries. It will be his task to design programs and conditions that will create new industries that will surpass what foreign countries are doing. I wish the next President, whoever he will be, much success in that task, as the future of the country that we will pass on to our children and grand children is at stake.

Gridlock

`The problem loans that are causing the "meltdown" are not loans made due to CRA motivation.

The loans that are going bad are suburban area loans. Not the type of loan that one would think of as being made under CRA. The loans that are currently causing the market to choke are loans that banks made in areas of rampant speculation. These loans were made for the purchase and re-finance of properties in areas that attracted "flip" type buyers. The "flip" buyer was looking to make a quick buck buying and then selling a house that he couldn't afford in the first place. The flip buyer was borrowing money with artificially low initial payment terms. At these low payment rates, if he was able to sell the house during that period of time, his profit would be maximized. (More rate of return if you lower the money invested).

The banks were motivated by the short term profit that would hit their bottom line by the recognition of yield spread premiums (Points) collected at time of closing and service release premiums collected when they sold the loans and the servicing of those loans. The long term effect of loading up the system with risky loans was not a consideration in their profit model. Corporate executives that were dictating lending policy were not concerned with the long term health of the Bank for whom they worked. Their compensation was based on bonuses they received based on quarterly profit numbers. As long as the bonus rewarded short term numbers the long term viability of the Bank was never given any consideration.

Yes, that is right, trillions of dollars of these loans were made and sold to foreign investors through the creation of Mortgage Backed Securities (MBS) As long as these foreign investors were able to place a realistic value on their investment, money continued to flow. The placement of a true value on ANY asset is mandatory for commerce to continue. There was a problem. These investors relied on Bond Rating Companies to tell them the current value of the MBS. United States bond rating companies were hired to value the MBS's that were being created. These SAME Bond Rating Agencies were receiving a commission when the MBS's were sold! - CONFLICT - It was beneficial to them if they gave high ratings to the MBS's. Once it became evident that their investments were of questionable value they stopped buying them. They began to realize losses on the ones that they had already purchased. The Bond Rating Companies started to collapse. Banks stopped lending because they had no one to buy their loans.

In order to continue to lend money, even though they had their money tied up in the MBS's that they couldn't sell, the Banks looked to each other to borrow money. The Banks that were in a position to lend money were not willing to lend to the Banks that needed the money, because they were concerned about the troubled Bank's ability to repay the loan.

Gridlock

Recently a European solution was announced. It places the government in guaranty of new loans being made to the Banks. Voila! The banks now have money to lend. Money flows. I am not as confident that the "bailout" or "rescue" legislation that was recently passed is as simple or easily put into play to assist Banks in raising Capital. We will see.

There are other problems in the United States that complicate our economic woes.

JOBS!

For any Capitalistic society to survive we must have consumers and motivated business owners to sell to them. When jobs started to flow overseas in search of cheap labor the fundamental soundness of the Economy faltered. Answers to the Jobs problem must be dealt with as a separate issue in solving our Recession.