The U.S. on the Precipice

September 7, 2008, the 10^th anniversary of the Federal Reserve arranged bailout of the infamous hedge fund Long-Term Capital, is now a more infamous date. This is the day that our government chose socialism over free market capitalism. Our elected leaders increased the national debt from $9.6 trillion to $15 trillion, a 56% increase in one weekend.

Hank Paulson, the U.S. Treasury Secretary, seems to have a penchant for committing U.S. taxpayer dollars on weekends. He previously arranged for the bailout of Bear Stearns (BSC) on a weekend and convinced Congress and the President on a weekend to give him a blank check regarding the future of Fannie Mae (FNM) and Freddie Mac (FRE). He spearheaded the takeover of two of the worst run financial institutions on the planet. They hold or guarantee $5.4 trillion of mortgages. James Grant, a keen financial mind, described what we are experiencing today, back in early 2007. “Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich.”

Skullduggery, Corruption, and Fraud

Fannie Mae was created during the Great Depression in 1938 as part of Roosevelt’s New Deal. Its purpose was to provide liquidity to the mortgage market. For the next 30 years it operated as a government agency, with a monopoly on the secondary mortgage market. In 1968, in the midst of another fiscal budget crisis, Fannie Mae’s activity and debt were removed from the annual balance sheet of the Federal Government and the agency was privatized.

To provide some competition in the secondary mortgage market, Congress chartered Freddie Mac as a private corporation in 1970. This relationship with the Federal Government gave rise to the concept of an implicit guarantee from the government regarding their debt. This allowed these two companies to borrow at much lower rates than the average financial institution.

It wasn’t enough for these two institutions to reap the benefits of their implicit guarantee. They spent $175 million between 1998 and 2008 on lobbyists to influence Congressmen and Senators so that their housing agenda was pushed forward and expanded. These two institutions have bred a culture of corruption, combined with awful internal and accounting controls. Both companies were unable to file legitimate financial statements with the SEC for two years. Fannie Mae has a history of being a playground for former Democratic insiders such as Franklin Raines, James Johnson, and Jamie Gorelick. Franklin Raines, the Director of the U.S. Office of Management and Budget in the Clinton administration, became the first black man to head a Fortune 500 company when he assumed the CEO position of Fannie Mae in 1998.

When Raines assumed command in 1998, he set a goal to double Earnings Per Share in five years. Raines and his top executives reaped huge bonuses by meeting these goals. During his reign between 1998 and 2004, Mr. Raines raked in $90 million. His top lieutenant, Jamie Gorelick, took home $24 million in a four-year period. The only problem with the EPS that was reported is that they were fraudulent. According to an investigative report by OFHEA, “Those achievements were illusions deliberately and systematically created by Fannie Mae’s senior management with the aid of inappropriate accounting and improper earnings management”.

During the investigation Raines lobbied his cronies in Congress to open an investigation of OFHEA and cut off their funding. Ultimately, it was determined that Fannie Mae had overstated earnings by $10.6 billion. In a settlement with OFHEA and the SEC, Fannie Mae paid a civil fine of $400 million for these misdeeds. Raines somehow walked away with a slap on the wrist, sacrificing less than $5 million of his immense wealth.

In 2003, Freddie Mac revealed that it had understated earnings by almost $5 billion, one of the largest corporate restatements in U.S. history. As a result, in November, it was fined $125 million. A 200-page report issued by the Office of Federal Housing Enterprise Oversight indicated that the company's records were manipulated to meet Wall Street earnings expectations. The firm signed a consent order promising to improve internal controls and corporate governance.

On April 18, 2006 Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Much of the illegal fund raising benefited members of the House Financial Services Committee, a panel whose decisions affect Freddie Mac. Notably, Freddie Mac held more than 40 fundraisers for House Financial Services Chairman Michael Oxley, R-Ohio.

Homeowner Bailout Boondoggle

Nicholas Taleb while writing his book, The Black Swan in 2006, foreshadowed what was to come for Fannie Mae and Freddie Mac.

Banks are now more vulnerable to the Black Swan than ever before with ‘scientists’ among their staff taking care of exposures. The government sponsored institution Fanny Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events ‘unlikely’.

Democratic Representative Barney Frank, Chairman of the House Financial Services Committee, chose to blame short-sellers for Fannie and Freddie’s problems  when he made the following statement on April 25, 2008. Between 1989 and 2008, Fannie & Freddie contributed $42,350 to Mr. Frank’s re-election campaigns.

I believe Fannie and Freddie are better off than the market thinks. Over the long term the market is a very rational distributor of resources, but in the short term it can fall prey to hysteria. Sometimes you need to deal with that. Part of the problem is rumor mongering by short-sellers. Our hope is that just by making U.S. financial support available, we'll quiet the fears and eliminate any need for that support.

Democratic Senator Christopher Dodd, former candidate for President, revealed his grasp of the situation on July 11, 2008 when he strongly defended the financial condition of Fannie & Freddie. Between 1989 and 2008, Fannie & Freddie contributed $165,400 to Mr. Dodd’s re-election campaigns.

"This is not a time to be panicking about this. These are viable, strong institutions," Sen. Christopher Dodd, D-Conn., said at a Capitol Hill press conference. "The economics are fine in these institutions and people need to know that," Dodd said. There's no reason "to talk about failure," he added. "These two institutions are fundamentally, fundamentally strong," Dodd said. "There's no reason for the kind of reaction we're getting."               

Mr. Dodd’s analysis proved to be somewhat deficient. President Bush signed the Housing Recovery bill on July 30, 2008. This bill gave the Treasury authority to put the U.S. taxpayer on the hook for all of Fannie Mae and Freddie Mac’s bad decisions.

It appears that our political leaders believe in capitalism when there are obscene profits that benefit their hand picked cronies, but prefer socialism when it comes to sharing the losses with taxpayers. The Congressional Budget Office estimated that the American taxpayer would end up paying $25 billion for their mistakes, with a 5% chance that it would reach $100 billion.

The major problem with the bill was that it gave the Treasury the ability to provide an open ended guarantee. In July, former Fed governor William Poole said that Fannie Mae was technically insolvent. Their shareholder equity was $35.8 billion at the end of 2007. It plunged by $23.6 billion to $12.2 billion as of March 31, 2008. If their balance sheet had been marked to market as of June 30, 2008, they would have been insolvent. Congress passed this plan but provided absolutely no mechanism to pay for these future commitments.

At the end of the day, two public companies that had lost a combined $13 billion in the last 9 months were given a blank check to lose billions more. The CEOs of these two institutions “earned” a tremendous amount of compensation while their companies have plummeted to worthlessness. Daniel Mudd, CEO of Fannie Mae, took home $46.7 million in compensation between 2003 and 2007. Richard Syron, CEO of Freddie Mac, took home $58.1 million over the same time frame. In the last year, stockholders of these “fine” institutions lost $98 billion. They should be appreciative of the tax loss carry forwards they can use for decades. 

Representative Ron Paul voted against the $325 billion homeowner bailout bill. His view of this bill hits at the heart of the issue:

It is neither morally right nor fiscally wise to socialize private losses in this way. The solution is for government to stop micromanaging the economy and let the market adjust, as painful as that will be for some. We should not force taxpayers, including renters and more frugal homeowners, to switch places with the speculators and take on those same risks that bankrupted them. It is a terrible idea to spread the financial crisis any wider or deeper than it already is, and to prolong the agony years into the future. Socializing the losses now will only create more unintended consequences that will give new excuses for further government interventions in the future. This is how government grows – by claiming to correct the mistakes it earlier created, all the while constantly shaking down the taxpayer. The market needs a chance to correct itself, and Congress needs to avoid making the situation worse by pretending to ride to the rescue.

Wall Street Got Drunk

At a recent closed-door fundraiser in Texas, where he thought it was safe to tell the truth, President Bush summed up the financial crisis in his usual understated way:

There’s no question about it, Wall Street got drunk, that’s one of the reasons I asked you to turn off the TV cameras. It got drunk and now it’s got a hangover.

This is an excellent analogy of what developed in the last few years. The sad part is that the American taxpayer is left to clean up the mess after the party. Meanwhile, George Bush will depart for his Texas ranch on January 20, 2009 knowing that his “no financial regulation” agenda has resulted in the greatest financial catastrophe in the United States since the Great Depression. Luckily, he should be able to muddle through on his $10 million net worth and the millions he will rake in writing his memoirs and making inspiring speeches.

Secretary Paulson failed to mention how much this would cost the American taxpayer during his speech announcing the takeover of Fannie Mae and Freddie Mac. Two distinguished financial analysts, who have been correct on this issue for the last two years, Dr. John Hussman and former Federal Reserve governor William Poole, have concluded that the tax bill will be $250 billion to $300 billion on the existing $5.4 trillion debt portfolio.

This fails to account for the $20 billion per month of new loans that these awful institutions will be making. Count on at least $1 billion of losses per month on these loans.

Murky Dangerous Future

To put $250 billion of losses in perspective, the tax bill of every household in America just increased by $2,300. You will not get a bill from the IRS because our politician leaders find it easier to choose the immoral route of shifting this burden to our children and grandchildren. The U.S. Government is broke. The $250 billion will be borrowed from China, Japan and the Middle East, with an annual interest charge of at least $10 billion.

This is $250 billion that will not be spent on education, infrastructure, or energy independence. It is the cost of financial recklessness of banks, greedy CEOs, governmental incompetence, Alan Greenspan’s loose policies and average Americans who thought they deserved something for nothing. Future generations will pay a steep price of this greed and malfeasance. 

The following passage from Nicholas Taleb’s brilliant book, The Black Swan, describes the potentially dire situation that we are facing at this moment in time:

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ….I shiver at the thought.

The recent actions by our politician “leaders” will not solve this financial crisis. They are a weak attempt to keep this finance Ponzi scheme going until they are re-elected in November. These actions have propped up essentially insolvent financial institutions.

The question is, how many more financial firms can be bailed out or fail before the entire system collapses? Lehman Brothers (LEH) goes bankrupt this weekend, Merrill Lynch (MER) bought by Bank of America (BAC) before its collapse, AIG (AIG) barely alive, Washington Mutual (WM) about to wipe-out the FDIC fund, Wachovia (WB), and many more in the future.

The economic situation has gotten worse. There are 4.7 million homes for sale representing an 11.2 month supply, the highest in history. Home prices have fallen 16% in the last year according to the Case Shiller Index. Prices are expected to fall through 2011 according to John Burns, a real estate analyst who has been correct for the last five years. Foreclosures totaled 1.2 million in the 1^st 6 months of 2008, a 100% increase over the prior year, and are accelerating at the fastest pace in three decades. Option ARM mortgage and Alt A mortgage delinquencies will be accelerating in 2009 based upon their date of issuance. This will lead to more foreclosures and much lower prices. Unemployment is accelerating and will not peak until 2009, probably north of 7%. People without jobs can’t make mortgage payments or buy HDTVs at Best Buy (BBY).

We have entered a recession that is being driven by consumers with vast amounts of debt. This recession will be deep and long. The greatest debt bubble in history does not pop without making a huge mess. Credit is getting to be scarce. Forced consumer spending reductions will bankrupt overleveraged retailers, mall developers, and commercial developers. A slow soft depression is a distinct possibility.

The continued bailout of the reckless financial firms by the taxpayers, while their top management received titanic pay packages borders on immorality. The average American has the right to ask for a similar response. If you are in danger of losing your house to foreclosure, can’t meet your monthly obligations, or make the minimum payment on your credit card, just call Hank Paulson at 1-800-BAILOUT.

Disclosure: I have no position in any of the stocks mentioned in the article.

Comments

[E.D. Hart:]

“Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich.”

This is at the heart of the follies of the last eight years.

Please pay my student loans and mortgage for me, Bushies.

Thanks!
(oops, that wont work, I'm not rich)

2008 Sep 15 04:08 AM

[chaliebrown:]

The biggest problem is that the vast majority of our fellow citizens have no idea about what is really happening. They do not understand basic ecnomics and they have blind faith in their leaders.

The readers of this website, cnbc, marketwatch, etc., are all highly educated higly motivated individuals (exactly the opposite profile of the alt-a / subprime / blind faith in leaders - Americans).

When you get this type of disparity you get greed and corruption of a few preying on the masses and calling it "capitalism".

As Americans we have oursleves to blame. We'd rather have our celebrity culture and our 15 minutes of fame and not do the hard work of studiying and taking accountability for our own lives.

The slowdown will be hard. But the slowdown will be well deserved. We have inflicted this on ourselves due to our own selfish lack of accountability.

While the slowdown will not be the end of the world, let's hope that it acts as a wake-up call to our fellow Americans.

2008 Sep 15 04:17 AM

[turkeyeyes:]

Thanks, Einhorn for causing a run on the banks.

2008 Sep 15 04:52 AM

[venividivici:]

Well said User 154216. America spends hundred of millions of dollars on the process of electing a President and you end up with someone like George Bush, an amiable dill who apparently has an MBA from some fancy university but freely admits that "economicks" is not his strong suit. His 8 year tenure has been an unmitigated disaster for America but it looks like he is going to be replaced by another Republican. I guess you get the politicians you deserve.

2008 Sep 15 06:00 AM

[Hopefully:]

If America goes down the drain, at least there'll be less wars in the world, but we have to try to survive economically. The evil empire seems to have us caught either way.

2008 Sep 15 06:29 AM

[rdr4:]

"we have met the enemy and it is us.." Pogo

2008 Sep 15 08:15 AM

[ValueHunter:]

We can all thank Ronald Regan for what's about to happen.

2008 Sep 15 08:21 AM

[tginomorebush:]

THE KING GEORGE BUSH III LEGACY

NO mccain and NO MORE OF HIS TWIN .... KING GEORGE III BUSH

2008 Sep 15 08:45 AM

[huangjin:]

We can thank the creators of the Fed and Hoover/FDR for giving us socialism, and we can blame every President since for not abolishing the New Deal and the Federal Reserve. Programs such as Social Security and Medicare underly the whole system and encourage people not to save. The problem goes far deeper than one President; both parties are offering more socialism, just in different forms. There's a long way to go before the bottom is reached.

2008 Sep 15 08:48 AM

[TonyCinTX:]

huangjin: Programs such as Social Security and Medicare do exactly the opposite of what you claim, they force people TO "save". Yes, I know they are not actually saving and their contributions are redistributed to the elderly. But historically, the problem was that *nobody* saved for retirement. If they did anything, they relied on lifelong employers to fund their retirement, and when those all went under in the Depression everybody was screwed.

We have already tried the alternative to SS, it fails miserably and creates poverty, disease, homelessness and crime. When it comes to planning for retirement, people are no smarter now than they were a century ago. They won't do it! They ignore their financial future and bet on schemes and wild chances and lose all their money! If you completely eliminate their taxes they will bet and lose that, too.

Politicians and corporations are just as bad as individuals, short term thinking is inherent human nature. There is absolutely no evidence that people are "discouraged" from saving by SS, in fact among people under 35 that firmly believe SS will be gone before they retire and they will have to fund their own retirement, they still do not save or invest anywhere close to what that would cost. Education is not the answer either, this same thing holds true for professors and college graduates. THEY JUST DON'T CARE ENOUGH to sacrifice this year's comfort for their future comfort, and NEVER WILL.

Some sort of mandatory, inescapable long term investment combined with a social safety net is the answer, and SS and Medicare taxes are the closest we can come. The big problem with SS and Medicare is they are managed by appointees and politicians that never have to face any consequences for their own short term thinking. But something must be done and this is as close as we get.

2008 Sep 15 09:26 AM

[CloroxCowboy:]

Thank you for an article that is not afraid to be blunt and piss some people off!

2008 Sep 15 09:40 AM

[sloane:]

I feel like I don't have enough background in economics to have a sense of what sort of disaster might ensue if a bailout didn't happen....(Maybe a similar crisis, but sooner?) Trickle down economics are in play, unfortunately, when things are going badly. James Surowiecki wrote a piece in the New Yorker back in March, questioning the high value that Americans place on home ownership.

Dr. Tantillo ('the marketing doctor - <a href="blog.marketingdoctor.t...") did a post naming Freddie & Frannie this week's 'brand loser(s)' and calling for what he terms a "brandover," arguing that marketing will need to play a key role if F&F are too be successful in the future--and that they'll need a new name.

Here's a link to Tanillo's full post

2008 Sep 15 09:42 AM

[sloane:]

I feel like I don't have enough background in economics to have a sense of what sort of disaster might ensue if a bailout didn't happen....(Maybe a similar crisis, but sooner?) Trickle down economics are in play, unfortunately, when things are going badly. James Surowiecki wrote a piece in the New Yorker back in March, questioning the high value that Americans place on home ownership.

Dr. Tantillo ('the marketing doctor - <a href="blog.marketingdoctor.t...") did a post naming Freddie & Frannie this week's 'brand loser(s)' and calling for what he terms a "brandover," arguing that marketing will need to play a key role if F&F are too be successful in the future--and that they'll need a new name.

Here's a link to Tanillo's full post

2008 Sep 15 09:42 AM

[sloane:]

I feel like I don't have enough background in economics to have a sense of what sort of disaster might ensue if a bailout didn't happen....(Maybe a similar crisis, but sooner?) Trickle down economics are in play, unfortunately, when things are going badly. James Surowiecki wrote a piece in the New Yorker back in March, questioning the high value that Americans place on home ownership. www.newyorker.com/talk...

Dr. Tantillo ('the marketing doctor - blog.marketingdoctor.t... ) did a post naming Freddie & Frannie this week's 'brand loser(s)' and calling for what he terms a "brandover," arguing that marketing will need to play a key role if F&F are too be successful in the future--and that they'll need a new name.

Tanillo's full post: blog.marketingdoctor.t...

2008 Sep 15 09:44 AM

[notsosmart:]

you get what you pay for.this guy was reelected.forget wall st.lets concentrate n abortion & creatianism.(also book banning).now thats important.

2008 Sep 15 10:10 AM

[Kelly Liebe...:]

The dominos are falling, each one one gathering speed. Read your history books and prepare for the next few years of fallout.
Prepare yourself because the writing is on the wall. Do not be duped into thinking the Fed will be bailing you out.
What would you have done if you knew the Great Depression was coming in 6-12 months? How would you have positioned your family to survive it? You have the ability to make decisions now that can make yor life a little easier in the time to come. Get out there and get prepared or you will regret it.

2008 Sep 15 10:16 AM

[Virgilio:]

It is axiomatic, that an organization too big to fail, i.e., Frannie, has become too big to exist as it is. I'm amazed by a previous post that opines SS is mandatory for those who are too profligate to save for themselves but what has been set up, SS, probably won't be there when needed. And that's a good thing?

2008 Sep 15 10:28 AM

[nym:]

Brilliant summary and analysis: you have a start on your book. Keep writing - I hope you'll be able to keep up with events during the next few busy weeks, dare I say years.

2008 Sep 15 11:13 AM

[carey_jim:]

At least we can be thankful that the American political system is still in place. Unfortunately and ironically, however, it is one of the least democratic in the free world.

Consider the electoral college: Instead of presidential candidates being elected by a majority, they are elected by majorities in contested states.

That means that candidates completely ignore states where they are heavily favored to win or lose and in fact MUST concentrate all their efforts on states that are under contention. This impoverishes the political debate.

Also, senators from Nevada, Wyoming, Vermont and other very sparsely populated states have disproportional power in the Senate, at least with their power to defeat bills that would help the majority of the population.

When you add to these (and other antiquated aspects of the United States Constitution) the power of Corporate lobbyists over practical politics and elections, you get a knockout punch to the chin of the American electorate.

That leaves the corporate plutocracy alone in the ring.

The American population seems to be morally complicit in this takeover of everything by the plutocracy: For example, the idea of equality of opportunity as embodied in public education is jettisoned and our children dream instead of becoming famous actors, singers, athletes, financial moguls and not of becoming engineers, doctors and scientists. They all want to become part of the plutocracy and not rise in the world with hard work and idealism.

We need to revive our civic spirit and stop thinking that good government is synonymous with socialism or we will lose it completely to the real threat: The octopus of corporate plutocratic socialism which is corporate America.

2008 Sep 15 11:18 AM

[Jimbo:]

Many of the responders to this post seem eager to blame all of this mess on "King George". You need to go back and read it again. Note carefully the names Raines, Gorelick, Dodd, and Frank. These folks are no fans of "King George" but will be tight with Obama! and his friends. Both political parties are deeply morally compromised. I have sadly concluded that Bush 41 and Bush 43 are both RINOS.

2008 Sep 15 11:21 AM

[the gugg:]

I wonder who is going to bail out the US Government.

Our leadership is to close to the end of their lives to be making sound decisions for the greater good. Most of them are looking at the end game. Succession planning!!!

2008 Sep 15 11:42 AM

[xsuddensam:]

Jimbo:

There's no difference between a Republican and a Democrat. They both spend what's not their's and they both enrich their friends in high places. The "two party" system is the all time great con game. Americans have swallowed it hook, line and sinker. Now we are choking on it.

2008 Sep 15 11:52 AM

[mdmrjsds:]

TonyC-SA wrote:
...Yes, I know they are not actually saving and their contributions are redistributed to the elderly. ...

This is another way of describing a ponzi scheme. If you have any mathematics at all, you know what happens to a monotonically increasing series - it tends to infinity. That is why ponzi schemes are illegal, they are guaranteed to reach a collapse point.

So I agree with huangjin on this. They should have been abolished by someone with insight a long time ago. Currently they have put us on the hook for 54 trillion dollars in unfunded liabilities. What is going to happen when those liabilities aren't met? Will it be worse than what would have happened if all those people got to keep the ponzi payments they made to others and spent them in the economy?

SS and medicare looked like they worked for a long time. But all they were doing was making the eventual collapse more severe. A ponzi scheme is a ponzi scheme, whether it is run by the government or a private entity. No net good can come of it.

As far as people not taking responsibility for their lives, well, that is what they were promised; life, liberty and the pursuit of happiness. And you exaggerate. Many people *do* think to the future, and *do* provide for themselves in old age. Under the current system, they pay not only for themselves, but for the irresponsible too. Kind of like the way the responsible are paying for the speculators in the mortgage meltdown with the federal bailouts. Of course, the death of SS and medicare would be the death of unbridled consumerism as well.

If society wants these benefits, make it explicit. Put in place a death tax of 100% and use the proceeds to fund programs like social security and medicare. That fixes the level of funding. No ponzi scheme, no guarantees. Everyone knows that whatever they leave behind when they die goes to support other people at the end of their lives, and that the only support they can expect is what those who die leave behind.

2008 Sep 15 12:26 PM

[Jason Rines...:]

Well written James. In terms of politics, if the American people knew more about economics, then Mitt Romney would have won the nomination and perhaps he would have chosen someone like Ron Paul as VP. As it stands, both Presidential candidates no diddly about economics or how to fix much of anything. And this House will retain much of the corrupt politicians selling that the GSE's bailout is good for the economy. As the tax bills mounts for the American consumer via inflation on food and energy by the end of next year or flat on increased taxation or both, you'll see voter revolt in 2012.

2008 Sep 15 01:06 PM

[specks:]

Life is like a teeter-totter....alway... has been....always will be! And that includes you and ME!

2008 Sep 15 01:24 PM

[Kinabalu:]

"Fannie Mae was technically insolvent. Their shareholder equity was $35.8 billion at the end of 2007. It plunged by $23.6 billion to $12.2 billion as of March 31, 2008"

This seems like a pretty good article but it needed some serious fact checking. The shareholder equity numbers shown above bear no relationship to FNMs filings with the SEC, which showed $44 billion, $39 billion and $41 billion for December, 2007, March & June 2008, respectively. Also the use of the term "technically insolvent" is "technically" incorrect as FNM announced shortly before the federal takeover that it had over $100 billion in cash.

Makes me wonder about all the other numbers the author has thrown out. I have never owned any FNM stock, but I was seriously considering buying it because in so many articles on this website the authors make up the "facts" to go along with their opinions.

User 154216
"The readers of this website, cnbc, marketwatch, etc., are all highly educated higly motivated individuals"

2008 Sep 15 01:53 PM

[James Quinn:]

Kinabalu

Check out page 102 of the 10K for their fair value balance sheet to see the real numbers. I wonder why they bury it on page 102. They were insolvent when the numbers were counted the way an average person has to account for their household balance sheet.

You should have bought the stock. You could have some nice tax loss carryforwards. You're mistrusting the wrong people. It is the CEO's of these crooked institutions that you shouldn't trust.

2008 Sep 15 02:08 PM

[wantedtoret...:]

Well said. I have read Taleb's Fooled By Randomness and thought of him this morning. Whereever he is, he is making a fortune on options calls that were deemed unlikely to ever hit their strike price - but the black swan even has happened - and only 10 years after the geniuses at Long Term Capital thought it was impossible as well. We have gotten the government and economy we deserve - 15 years of free market fundamentalism and Republican hands off attitude towards regulation has trashed our financial system. First, the Iraq War, then Katrina, and now this. That's really an impressive record.

2008 Sep 15 02:41 PM

[Chris B:]

We can point fingers at the dumb, corrupt politicians all we want, but at the end of the day, responsibility falls upon votors to elect competent people and demand the changes that are necessary. Why were voters unconcerned with the GSE's in 2000? Why aren't voters concerned about the national debt today? Why do we think that bribery (cash lobbying) is even acceptable? Why should we expect politicians to care about issues that we don't care about?

In fact, you hear voters getting worked up over "lipstick" comments and TV "personality" rather than policy. The source of the stupidity has been located! Most voters are politically vapid and just do what they're told by whatever herd they run with (media, churches, identity politics, etc.).

That said, I agree with Churchill, who said that democracy is the worst form of government ever tried, except all the others. Our government is a reflection of our intellect, and there is a certain fairness in that.

Then again, maybe not for smart people.

2008 Sep 15 03:06 PM

[xsuddensam:]

Chris B,

You are absolutely correct; our government is a reflection of our intellect. It is also a manifestation of our thinking, of our desires and of our ethics and morality. We have no one to blame but ourselves because we, as a group, have created the government and therefore we deserve everything we get.

2008 Sep 15 03:47 PM

[huangjin:]

TonyC-SA: what you say is a fallacy. SS does not force savings, it takes money from one person and gives it to another. It is actually a system of forced consumption which contributed to our current problem. To compare the poverty of the Depression and earlier periods of American history is not applicable to today's situation. I don't think we need forced savings, SS as welfare could work because the vast majority of people would save, and would earn far better returns than SS pays. But if we have forced savings, it should be in IRAs and 401ks, not a transfer program.

2008 Sep 15 04:43 PM

[Rabbito:]

Huanglin: What you say is a fallacy "your point about not having SS will promote people to save" this is what Tony was trying to point out and then you just go on a tangent. Keep drinking the kool-aid!!LOL!!

2008 Sep 15 05:18 PM

[Rabbito:]

I hear a lot of people blaming the people and the voters. Its not there fault, everthing they read in the newspapers and see on TV is slanted towards corporate interests. As such the real stories are never told. You can't expect average people to scavenge the internet looking for the "TRUTH".

TAKE THE CORPORATE SLANT OUT OF THE MEDIA AND YOU FIX THE COUNTRY.

2008 Sep 15 05:22 PM

[henarl:]

How can you possibly "take the corporate slant out of the medea" when it's corporate advertising that supports the medea? Get real!

2008 Sep 15 07:00 PM

[hswalj:]

I will never, ever vote for an incumbent for any office.

2008 Sep 15 07:46 PM

[300mph:]

xsuddensam, yes, there is a difference between the Republicans and the Democrats, it's the advertising.

2008 Sep 15 08:06 PM

[WSBowles:]

I can't believe you people. Fannie Mae and Freddie Mac created by Democrats, run by Democrats, fudging books and manipulating the system, and it's Bush's fault!? Barney Frank has been using his committee position to protect the corruption. Chris Dodd, who gets favorable mortgage treatment, and Barack Obama are the biggest beneficiaries of Fannie Mae political contributions. Talk about your "culture of corruption."

2008 Sep 15 08:23 PM

[Jason Tillberg:]

Why is Ron Paul not going to be the next president? Only one with a clue.

2008 Sep 15 09:10 PM

[nukldrager:]

Yeah but( carey jim) the electoral college is there to protect us from the tyranny of the masses. At least that part of the democratic process is working. We sure wouldn't want to have a majority of Americans in control.

2008 Sep 15 09:26 PM

[David in D:]

WSBowles, it is frankly amazing to me that after eight years of a Bush-led White House - with Congress in tow - people like you want to assert that it is not the fault of the President and his party. Without a doubt Democrats in Congress own some of the blame but your assertion that Obama has anything to do with this frankly makes you look like an idiot.

I ask you. Which era did normal Americans do better 1992-2000 (Clinton) or 2000-2008 (Bush). I'm sure you'll assert the latter. Talk about blinded by politics. Vote Obama, he gives America a better chance than Grampa McSame and Falin.

2008 Sep 15 10:02 PM

[Dr Bee:]

I wonder what the middle class is now? When the workers and employers can barely afford medical care, housing is bust, gas is vaporizing our wallets, maybe the working poor middle class would do well to qualify for all the social amenities that now are guaranteed to the non working class for medicaid, food stamps, housing subsidy, electric subsidy and by the way gas payments to go to their doctors.

If we could do so well to be guaranteed, but the working middle class has not guarantee. So much for justice and freedom.

All were created equal, except for the working middle class!

2008 Sep 15 10:39 PM

[Jason Rines...:]

The Middle Class is getting slaughtered. That was happening starting in August of 2007 and the blood began running in Feb of 2008. The Middle Class are the pillars of the platform holding up the elite class. When those pillars cave so does the platform, although this was not the entire problem of todays sad events of course.


On Sep 15 10:39 PM Dr Bee wrote:

> I wonder what the middle class is now? When the workers and employers
> can barely afford medical care, housing is bust, gas is vaporizing
> our wallets, maybe the working poor middle class would do well to
> qualify for all the social amenities that now are guaranteed to the
> non working class for medicaid, food stamps, housing subsidy, electric
> subsidy and by the way gas payments to go to their doctors.
>
> If we could do so well to be guaranteed, but the working middle class
> has not guarantee. So much for justice and freedom.
>
> All were created equal, except for the working middle class!

2008 Sep 16 12:15 AM

[Kinabalu:]

JGQ

Trying to pass off a fair value balance sheet as a certified one with all the explanatory footnotes is about as misleading as you can get. Why don't you just say: "OOPs, I screwed up."

2008 Sep 16 02:03 AM

[O-B-WON:]

Precipice ....for sure.... what happens when the Iran situation rears it's ugly head.. maybe a catalyst for economic disaster...

2008 Sep 16 02:58 AM

[James Quinn:]

Kinabalu

OOPs. I was quoting William Poole, if you can read. The numbers quoted tie to the fair value balance sheet. You said they were made up. They are in an SEC document. The final outcome says it all. If their balance sheet was so strong, why is the U.S. taxpayer on the hook for all of their losses now?

2008 Sep 16 08:05 AM

[Mcgyver:]

It has been said "the people get the type of Government they deserve". A survey of the US Congress bears this out as it is filled with a group of mostly ignorant and self-serving group of individuals. Partisan and personal agendas have taken the place of serving the people. The notion that a President can save the economy or destroy the economy is absurd. The US Congress makes our laws and controls our spending. This was true during the Clinton years and it is true during the Bush years. The President must have the approval of Congress. The lawmakers that control the spending of the largest Governmental capital budget in the world have no clue how economics work, especially the Federal Banking Committee. A number of commentators mentioned SS. Come on there is no SS, the government stole that during the Lyndon Johnson administration when the trust fund was made part of the general fund. A review of SS accounts receivable will reveal a pile of junk bonds, congressional IOU's that will never be paid. Our Government put people like Boesky and Milliken in jail for doing exactly what the Congress has been doing for decades.
The US Congress definition of a balanced budget means they took in enough money to pay SS benefits for that year, the trillions that already been stolen, which they label the "National Debt", is some nebulous number to them that really does not matter. The alleged being in the black that occurred during the Clinton administration was based on projected tax revenues that actually did not materialize as the NAZDAQ tanked.
There is much to fear as the Government bails out failed Institutions with money that does not exist and must be borrowed. They have not asked the permission of the people of America who will now be burdened with the bill for generations for a massive mis-management on a global scale.
Ultimately, as I alluded to, it is the American Voter who bears responsibility for not taking the time to look closely at candidates and put responsible people in Congress. Government at the local level is the most important decision but most people only vote in Presidential years and then along party lines. I believe we are in the most serious economic crisis in our history we do not have the right people in place that can manage this crisis.

2008 Sep 16 11:50 AM

[Rabbito:]

Richard Dean Anderson

2008 Sep 16 05:18 PM

[carey_jim:]

Hey knuckle dragger, I don't mind people like you and me and the other posters here "running" the country (not that any group really CAN run this place.)

Just saying ....

2008 Sep 17 12:27 AM

[Kinabalu:]

JCQ

"You said they were made up"

I hope your quote of William Poole wasn't as loose as your quote of me. There's a reason quotes are usually surrounded by those funny little punctuation marks. It's to indicate exactly what someone said. Without those the "quote" can be presumed to run to the end of the sentence... or the paragraph... or the article.

Just to make it clear here's my actual quote:

"Trying to pass off a fair value balance sheet as a certified one with all the explanatory footnotes is about as misleading as you can get"

2008 Sep 17 01:36 AM

[James Quinn:]

By the quote below, you were not insinuating that I made up the "facts"?

"Makes me wonder about all the other numbers the author has thrown out. I have never owned any FNM stock, but I was seriously considering buying it because in so many articles on this website the authors make up the "facts" to go along with their opinions."

2008 Sep 17 08:37 AM

[Jason Rines...:]

That is exactly the problem. Iran could care less about zionism or the mullahs really caring about Islam. It is about energy independence and to Iran and Russia, Israel is a strategic barrier to the GCC countries. Russia is the main power player to watch here. They are after the international monetary peg the USA has enjoyed for almost 50 years. Energy means control of money these days. Dominating the region and having the security (military) could mean Russia walks away with one mighty big prize for a short time. And the real issue is, such conflicts would not be contained to just a region.


On Sep 16 02:58 AM O-B-WON wrote:

> Precipice ....for sure.... what happens when the Iran situation rears
> it's ugly head.. maybe a catalyst for economic disaster...

2008 Sep 17 10:44 AM

[nukldrager:]

Agree carey jim. I was attempting some absurdist humor to describe the absurdly un-funny times we find ourselves in. I guess that makes me an optimist. Pessimism is no fun, and realism is too confusing these days.

2008 Sep 17 12:37 PM

[Kinabalu:]

JCQ

"you were not insinuating that I made up the "facts"?"

There is a difference between wondering about something and saying you made it up. That difference is probably better captured by your current term, "insinuating". My comment ("Makes me wonder about all the other numbers the author has thrown out.") could be read as insinuating that you possibly made up the facts. You should realize that the use of "fair value balance sheet" numbers without that "fair value" qualifier is misleading and led me to my, apparently wrong, conclusion.

Now that I know where those numbers came from, I apologize for that improper insinuation. My actual intention with that sentence was to set up a slam at "Seeking Alpha" for the poor quality of many of the articles that appear here. I liked your article.

2008 Sep 17 07:33 PM

[James Quinn:]

The hatchet is buried. I wish this crisis wasn't happening. The greed and mismanagement of these companies infuriates me.

2008 Sep 17 07:39 PM