Tuesday, July 10, 2012

Has America gone to the dogs?

 
My dog Susie says

"The Sky is Falling"


Chicken Little is famed for proclaiming, after being hit on the head with an acorn, that the sky was falling. Her friends, hen, duck, and goose, helped sound the alarm to all the animals when they heard the news. Mr. Fox, however, didn't really believe it. Instead he used their fears to lure them to his inviting safe den where he enjoyed a great feast of fowl. There's a lesson to be learned here I reckon.

My Big Mommy and Daddy have been watching the news and there always seems to be somebody on TV telling us that the sky is falling. I know things are bad, but are they as bad as World War II? Or World War One? Or Viet Nam? The Cold War? How about the 10 year Depression in the 30's? I don't think so!

One advantage to being a dog instead of a human is that we sort of keep things in perspective. And since we don't live very long compared to people, we sort of keep things more positive. We don't sweat the small things and try to stay ahead of the pack by watching what's around us at all times. You never know when you might run into a bear or mountain lion in the woods. So, let's look at the facts and see if it's fixable.

This current economic downturn began in 2006 according to most experts. But it really began in 1996. That year mortgage companies started giving generous discounts on mortgages to congressmen and women. Over the years, these representatives stated that they only received the same benefits as anyone else and only a few special mortgages were actually utilized. Oh really? CNN reported today that House and Senate members received lower mortgage rates and no up-front fees. Can the average person get this? Also, over a ten year period from 1996-2006, about 17,000 of these special mortgages were given out to our elected officials and other selected individuals. That works out to over 1700 mortgages a year for a total of 100 Senate and 435 House members. So a bunch of their staff and worker-bees must have received these discounted mortgages as well. What about the Presidents office? Hummmm.

Then in 1999 another interesting thing happened. The repeal of a major finance law called Glass-Steagall which was implemented after the bank failures in 1933. The collapse of the banking system is regarded as the main reason for the Great Depression. This law had worked perfectly since then and kept the banks from risking their depositors' money. So why change a good thing? Was the fox getting into the hen house?

Congress smelled a golden opportunity to use the banks to not only loan money directly to homeowners, but to allow banks to "securitize" these loans into bundles that the banks could sell and own for themselves. This meant that an unlimited amount of money was now available to purchase homes by virtually anyone. Next, Congress decided to dramatically reduce the qualifications and down-payment requirements to purchase a home. Through Freddie Mac and Fannie Mae, the two largest mortgage companies in America, pressure was brought again by "well-meaning" Congresspeople to make it easy to buy as many homes as you wished. Everyone, including undocumented people, jumped on the bandwagon. How could we lose?

The Stock Market went up to its highest level and peaked in 2007. Much of it was the result of an exploding real estate market. Coincidentally, it was recently acknowledged that all Congresspeople can do something that the average person can't. In fact, if you do this, you might go straight to jail for a long time.

Unbelievably, these same Congressmen and women can trade on "inside information" for their own stock accounts. In other words, when they decide to do something that might affect an individual company or industry, they can buy stock way before the average citizen knows anything. So let's summarize:

Starting in 1996, our elected officials could buy a home on special terms. Next, in 1999 a powerful but simple law, Glass-Steagall, which many believe would have prevented our current "Great Recession" was repealed. Wall Street was encouraged to make available trillions of new credit available via the bundling of these "easy" mortgages. The result was a explosion in home values and stock prices. I wonder how many elected officials became millionaires during this time as a result of their actions. This period in history reminds me of a children's game where you run around chairs until there aren't enough to sit down and everyone loses but one. Are we the losers and Washington officials the "one"? Maybe Chicken Little was right!

Eventually, the whole financial domino game imploded. My Daddy frequently follows a premise in all his business dealings. "If it ain't broke, don't fix it." Where would we all be, if Washington had followed this?

Catch you later,

Sandy and Susie

P.S. I had a lot of help with this as my Big Mommy and Big Daddy are business people. However, being a Border Collie I'm smarter than you think. How smart? Well, I know which city has the most people making over $200,000 a year. Is it New York, Dallas, Chicago, Los Angeles, Philadelphia, San Francisco, Houston? Nope. It's Washington D,C. There you go!

To read a few more "Susie says" barks: http://sandy-steele.blogspot.com

More info on Sandy Steele: http://sandysteele.com