Dan Quayle wrote, “Bank failures are caused by depositors who don’t deposit enough money to cover losses due to mismanagement”. Yes indeed.
Reader, as I return from an eight day leave of absence due to a trial, and in continual praise to the Creator and Architect who has mercifully seen fit to bless my clients with justice, I find myself once again drawn into the “bank” crisis issues. Stopping into Papa Petroni’s in Woodbridge to pick up my favorite lasagna—I highly recommend it—I was stunned to come across a number of folks discussing the possible bailouts of Fannie Mae and her brother, Freddie Mac.
Shocking it is that they actually believed it was a necessary thing for the Federales to bail these quasi-private financial institutions. When I queried whether Freddie and Fannie should fall rather than be placed as an anchor around our necks moments before we jump into the economic ocean, the reply came: “But we have to! It’s necessary for stability.” I asked, “Why should we pay for their stupidity? And, do you feel stable now?” They cried, we shall fall into the economic abyss. I then asked how much they had benefitted from either institution and what amount of weight would they be willing to swim in the ocean with. This of course was met with silence. I told them, “No one pays your bills when you can’t make it. So why should we pay for those who’ve made plenty of the backs of the subprime? Just because the government uses Enron style accounting doesn’t mean it will help. In fact, government never seems to be successful at anything save war.” They seemed to become converts. Back to the big picture.
If folks were uneasy about the failure of the third largest bank failure in history from the second-largest in U.S. history, IndyMac Bancorp, the situation doesn’t seem to be getting any better. In fact, it’s starting to get rather ugly. Several hours ago, CNN reports that Wachovia reports a hefty $9 billion dollar loss. And this on the heels of Fannie and Freddie. What should be troubling is not the news that we expect to hear, namely analyst predictions of the failure of 300 banks over the next few years, but rather that the FDIC and the Federales appear completely inept. How is it that ”they” sit back with no anticipatory solutions with this news we are now expecting to hear on a regular basis?
The short of it is, the U.S. Taxpayer is getting the mushroom treatment. And we’re grimacing, hoping that the 9000 degree heat wave that’s about to greet us isn’t going to hurt too much. Yes, I freely admit that I’m a bit nervous. But don’t get me wrong. I’m not looking for a self-fulfilling prophecy. The problem is that prophecy has nothing to do with what we’re seeing. What we’re seeing is bank failures and nationalization of banks, a weakening dollar, and concern over Fannie and Freddie’s $5 trillion in mortgages backed only by $98 billion in assets! This comes from Chairman Paulson’s speech.
In the spirit of finding the solution, we must look at where we have we have been. To that end, I highly recommend a rant, an article by Paul Ferrell.
Brother,
I dissent from your endorsement of Ferrell’s article. I found it very poorly argued; long on assertions and short on anything backing up those assertions. Further what he blames on free market ideologues I don’t even beging to recognize as the free market. It is perhaps the case that free market jargon has been used to mask a corporatist-big government alliance in the name of “Capitalism” - though Ferrell is nowhere making this case. He has his labels backward and is simply incoherent on some of the issues he addresses, such as health care and health insurance.
Respectfully,
–Eric
“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”
-Thomas Jefferson