No Confidence in Congrees

Harry Golub, former chairman and CEO of American Express writes in the WSJ today. He says, "He's worried and pessimistic about the prospects for our financial markets and our economy, members both Democrats and Republicans of Congress, will continue to meddle in matters beyond their knowledge.

He says the bubble burst was inevitable. Housing prices rise and fall and this time when they fell they caught people buying homes on speculation, never having ever lived in them; many bought them without them having any verification of their capacity to repay; some did so fraudulently; and other had "no skin" in the game (known as a down payment)or with negatively amortized mortgages. Imagine if I sold you $10,000 worth of stock with no money down, a low interest rate for the next five years, and you could walk away at any time with my only recourse being to take back the the stock. Of course I wouldn't worry because I securitized the loan and sold it to Fannie or some other financial organization. That's exactly, in substance, what people did.

Why did institutions make these bad loans? They were poor at judging risks and encouraged by Congress and regulators to make these loans, at the same time Congress was encouraging Fannie and Freddie to to buy these loans".

The unfortunate people who saved up and made a downpayment on houses that were overpriced because of the stupidity, many uneducated, greedy financial institutions,
speculators and Congress, mainly Democrats like Dodd, Frank, Schumer and Rangel, were now stuck with these homes whose value was becoming less than the mortgage.

Barnes asks "How can we tell if Congress begins to understand its role in causing the problem and what it must do to help solve it? Here are some signs:

If Congress passes a stimulus package that simply give people money--like this year's $168 million stimulus, which was mostly rebates--they don't get it. Rebates will not stimulate the economy and will not solve the underlying problem.

If Congress tries to "help" the people who cannot afford the house they are in, be assured that we are wasting money and delaying the recovery. (Banks can decide better whether to foreclose or make a deal far better than government entity).

If Congress forces the Treasury to provide cheap equity to companies that are solvent, or automobile companies because of debt owed unions in a politically motivated spending, all of us will suffer a long and deep recession.

If Congress raises marginal tax rates and erects trade barriers, and makes it easier for unions to organize without secret ballots through "card check" legislation, then the recession will be longer and deeper.

It is my belief that comparisons between the current crisis and the Great Depression are generally overblown. However, if Congress does indeed do these things and meddles where it shouldn't we could find ourselves back in the 30's."

We'll see.