Over the past couple of weeks I’ve read dozens of articles by various economists, financial writers, media pundits, politicians and a few wits, trying to get a handle on the current financial mess on Wall Street and what should be done, if anything, to fix it. While the cause is based on sub prime home loans, promoted by Carter era’s Community Reinvestment Act of 1977 and it’s enhancement during the Clinton administration. As you probably know, this bill sought to promote greater home ownership by the poor and minorities. Lending institutions were pressured to lower their standards for home loans thus allowing people who would not otherwise qualify for such credit to purchase real estate. The original lenders sold the mortgages to other financial institutions, which in turn sold them to investment banks. This commercial paper was the basis for stock, sold to investors. All of this went along nicely with the price of homes continually going up. People who bought homes they couldn’t pay for were able to sell them for a profit and get themselves out of their shaky loans. This worked fine until the over inflated housing bubble burst and the real estate market took a deep dive. This was not unlike the internet stock bubble that collapsed in 2000 and the Savings & Loan crisis back in the early eighties. What goes up must come down and it always does.
 
Presently, congress is fiddling with a bill designed to fix the problem that will cost the government $700 billion. It will mean buying the bad mortgages from the Wall Street banks in hopes that stability will quickly be restored to the financial market and thereby prevent a collapse that could well result in a depression. The question I have is “will it work?” 

Everyone has an opinion. George Bernard Shaw once commented that “if all economists were laid end to end, they wouldn’t reach a conclusion.” Taking the word of one economist over another is pure guess work.

Listening to media pundits requires determining who they favor for president. In an election year, the ins say things aren’t so bad while the outs claim we’re on the brink of disaster. The best rule there is to disregard what any pundit says just to be safe.

Financial writers are generally more knowledgeable than pundits and not as cocksure as economists. The only problem I have is knowing who to believe. Even then, there’s no way to know in advance who is right.

Those with the least knowledge, the comics on late night TV, have the widest audience. Last week I watched Letterman, Leno and Ferguson make jokes, blaming not only Wall Street but the president, who actually tried to fix the problem though Democrats voted it down. Ferguson ranted for five minutes, saying he wouldn’t stand for a bailout. He’s been a US citizen for only a few months. Maybe he doesn’t know that he doesn’t have any more say in the matter than the rest of us. That’s a good thing. The problem needs to be solved through logic and good judgment, not partisanship and emotion. The general public (including me) lack sufficient information to make an intelligent decision on the matter.

As I am writing this (Monday), the Dow has dropped more than 600 points as the house defeated the bill. The market, ultimately I think, will decide the issue. The market runs on confidence. If confidence goes, people sell and the market goes down. The farther down it goes, the more investors lose. I don’t think congress has much choice—either bail out the investment banks or we go into a deep recession. That’s my opinion among hundreds.

Jim Pinkerton, who I quoted extensively last week, has a different take on today’s action in congress. He is against the bailout, which he considers blackmail by the bankers. He thinks if we get the banks out of their current situation, they’ll be back again and again.  Said he, “No sovereign nation should allow itself to be pushed around by finance like that. If it does, the same blackmail threat will be made again, and again, and again. The time has come to say ‘No!’ And to make it stick.” He may be right. But he’s not retired and may not have every dime invested in mutual funds, stocks, bonds et cetera. For me and millions like me, the situation is more than a just another national crisis, it’s downright scary.

There’s really no point worrying about though, because it’s one of those things beyond our control. Either it works out or it doesn’t. I think I’ll go fishing.