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MAKING CENTS OUT OF THE NEWS
Blog #12
(October 3rd, 2008)
WHA’ HAPPENED?????
By Tom McAllister, CFP™
Steve Forbes agrees with me, I was gratified to learn. And, since the CEO of Forbes Magazine is #1 among the few journalists I respect and whose work I’m careful to read thoroughly, that’s quite a compliment. Forbes’ lead comment in the Oct 6th magazine issue included five paragraphs virtually identical to my Blog #10 posted Sept. 17, in which I discussed the two underlying cause of our credit crunch. I cited the “mark to the market” rules introduced last year, and the suspension of the “uptick” requirement for short sales, and Steve Forbes thinks those two rules are at the root of the current troubles as well.
Since my blog was posted, the U.S. House of Representatives had one of its worst hours in history, voting down the President’s plan to rescue the credit markets. Then, on Oct. 3, the House reversed itself, but only after the Senate had attached enough “goodies” to sway sufficient representatives to switch their votes.
No economist I, but as a student of the markets and a financial planning professional in my forty-sixth career year, I am ashamed. I’m ashamed of the House, its leadership, and the members of both parties (including my own Representative Dan Burton), for voting against the rescue. Instead of doing the right thing for the country, I feel, they put their own re-election concerns first. Yes, I understand that comments from constituents were eight to one against the bill. But, remember this: in a republic, Representatives are sent to Washington to determine, collectively, what is best for the country. Secretary Paulson, Chairman Bernanke, and many other experts had clearly outlined the imminent danger facing the U.S. credit system, explaining that if our system shut down, that would shut down the world’s credit system. (In fact, two large European banks have already failed as a result of our lack of rescue action.)
Great damage has been done, and it will not all be cured by this reversal. We are probably now in a recession in this country, one which could have been avoided in the same manner as the economy escaped recession last winter and spring. In fact, we have just barely avoided a depression!
In addition to the two causes Steve Forbes and I pointed out earlier, a Sept. 30 article from The New York Times shows how the problems started.
(click here for the New York Times article)
The Times spells out how Fannie Mae and Freddie Mac heavily promoted sub-prime lending and guaranteed risky loans. (The article is posted on my website tommcallister.com.)
I’ll keep blogging to help “make cents out of the news”, but, as I’m sure you’ll agree, sometimes it’s hard to put sense into our Representatives!
Blog #13 with opportunities and options will be along next week.
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