I think that we’ve certainly gotten ourselves into a mess at one point. But, are we really in the deep trouble that we are being told?
A few points:
1. The economy has been riding on a fake bubble of real-estate values for quite a while, at least since after the 9/11 attacks. Fueled by political correctness and well-intentioned desires to see underprivileged families be able to afford purchasing a home. – More about this in a later blog. I’ll try to put together a basic timeline as I see it.
2. At some point in time, there had to be a correction, at least in the value of real-estate that was artificially inflated because credit was too easy to get. If someone will loan you $500,000 on a house that could actually be worth $400,000, why not take advantage of it? Well – eventually the time comes to pay the piper.
3. When the financial services companies that were leveraging the loans tens and hundreds of times over by securitizing a bundle of marginal loans into an investment instrument, began to need actual cash coming in the door, the house of cards begins to come down. Also – people who really could not afford the loans, finally were out of options to re-finance their mortgage again and began to default.
4. The Reserve Fund, always one of the most conservative of Money Market Mutual Funds, had changed philosophies 15-18 months ago and had decided that some exposure to “High Quality” corporate debt could be mixed into its normal T-
Bills and Notes. The “High Quality” in their case just happened to be Lehman Brothers, which crashed and was allowed to burn by the powers that be. This caused the Reserve Fund, which had tens of billions of dollars under management to actually drop below a 1.00 to 1.00 value, called “Breaking a Buck”
5. Now – we don’t know who or how or what, but soon after, on September 18th, 2008, large institutional investors began to withdraw huge sums of money from Money Market Mutual Funds and could have essentially bankrupted the financial backbone of the country in a matter of hours. As a result the “crisis” became real and if you remember, John McCain had to rush back to Washington and suspend his campaign, to help solve the now very real crisis. The treasury needed to get additional real money to help stabilize the markets or it really would have been a crisis.
6. The Democratic strategy at this point couldn’t have been easier to formulate: Since the war in Iraq was not a winning issue due to the success of the surge, and people were not buying the fake energy policy attempts of the summer congressional sessions, the opportunity of this run on money market mutual funds was too much to pass up. Without actually discussing what happened and without going into detail about why these “assets” were suddenly “toxic”, The Democratic machine hung the entire crisis on the neck of George W. Bush and the Republicans.
7. George W. Bush, as he had demonstrated several times before in times of crisis, valued solution over political capital and rolled into action with a bailout plan that was unpopular mainly because no one would discuss what was actually going on. The Republicans, neutered by the presence of a “Maverick Moderate” running for President, did not, would not, or somehow could not actually bring out the honest facts that the entire crisis could be laid at the feet of overly zealous do gooders, fed by overly greedy lenders, and helped out by all of us who just thought it was great that a bank or mortgage company thought our houses were worth so much! So – the Republicans stood by and acted like it was a crisis, with no blame to be told except to seemingly agree with the Democrats that it must be George Bush’s fault.
8. The crisis caused the credit markets effectively to seize up as companies needing real cash had trouble getting it. As a result, the natural retrenching and careful fiscal conservatism that comes in time of crisis took hold in corporations and small businesses all over the economy. So – now we had a real recession on our hands, with no conservative voice to bring perspective and leadership. President Bush’s political capital was long spent, John McCain didn’t want to be a conservative, with all of its messy non-accommodation, and the RNC was too busy trying to figure out if it needed a big tent or any tent at all. So – the crisis deepened and people actually got laid off and what do you know? The Democrats had their failing country! Instead of a war to blame, they had an even better malaise to discuss – a bad economy! What better opportunity to accomplish great things in the name of recovery!
9. When BHO was elected president, Rahm Emmanuel was found saying “… a crisis is a good thing…you can accomplish alot of things you may not have been able to accomplish without it…”
10. So – instead of just a recession over the past month of the Obama administration, we’ve had “The worst economic crisis since…..” fill in the blanks. Whatever seems to fit is what it has been. This allowed us to all go along with a sweeping piece of legislation to solve the problem – The Spending Act I of the Obama administration.
11. What we do know so far is that more than likely, the economy will eventually correct itself and will come back, which of course will be due to the fantastic leadership of the Democrats. What they don’t know is whether the spending spree they just went on will actually keep things supressed for long enough for them to lose seats in the 2010 elections.