Thursday, October 2, 2008

The Bailout Blame Game

Well I hate to get into it, but it seems every conservative is trying to lay this somehow in the lap of either Bill Clinton or the democrats of the last two years. The reality is far different. But to understand that, we have to take a quick walk through history and couple it with understanding business practices.

It was 1994 or so and I was looking to buy a house because I was sick of looking for a place for my band to practice. So I stopped by a realtor and asked what I needed to have to buy a house. I was told I needed at least 10% down. I needed to be employed by the same employer for two years. Last I was told that I needed to have an excellent credit rating. I had $400 to my name, had different employers every other month, and hadn’t really built any credit. So I left dejected. I was going to have to become a rock star if I ever wanted my own house it would seem.

Time went on and eventually we elected this president named George W. Bush. In an effort to maintain the popularity to ensure reelection, GW introduced a series of policies called the “ownership Society”.

The President believes that homeownership is the cornerstone of America 's
vibrant communities and benefits individual families by building stability and
long-term financial security. In June 2002, President Bush issued America's
Homeownership Challenge to the real estate and mortgage finance industries to
encourage them to join the effort to close the gap that exists between the
homeownership rates of minorities and non-minorities. The President also
announced the goal of increasing the number of minority homeowners by at least
5.5 million families before the end of the decade. Under his leadership, the
overall U.S. homeownership rate in the second quarter of 2004 was at an all time
high of 69.2 percent….

Various well named bills were part of this initiative. The American Dream act, the Affordable Housing, and the Helping Families Help Themselves act to name a few.

These policies paved the way for people with bad credit, the inability to save money, and the inability to hold a job to get houses. They didn’t even have to be rock stars or nuthin!! So they started sell houses like “Moons Over Mihammy” breakfast plates at 3am on a weekend. Of course once you get a house, you get a good credit rating. That is really useful because your new house is empty. So you are going to need credit to get new stuff for your new house.

The reality of the business practices is that prior to “The ownership Society” approach, some risky groups were already given loans to. The economy could handle people of medium low income and job security to have credit. There is a difference between “risky” and “downright dangerous”. People who only had 2 of the three mention criteria would be considered risky. Maybe they had lost their job, maybe their credit was wrecked by a divorce or health problem. Each one was reviewed on a case by case basis. Let us face it, no business would loan to somebody they felt were not going to pay them back. That is unless they had some kind of insurance. As I explained in the previous post, every business has a “theft and shortage” account. As long as that only eats away a few percentages of your profit, you accept it and write it off on your taxes. When your bad deals start taking up most of your profits, especially if you are paying your upper management obscene amounts, you will find your stock plummeting quickly. When you have GWB and his gang reeking havoc unchecked from 2000 until 2006, you can only place blame in their laps.

Well, let me take that back. You could always place the blame on the people who took money they had no way to pay back or exposed them to too much financial risk. Or you can blame it on the business we are now bailing out. Maybe they shouldn’t have given credit away so easily.

1 comment:

Anonymous said...

Lord of Logic indeed, you're really starting to earn that title. Keep up the good work!

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