Are we really in a crisis?

Everyone is saying that we are. But I just took a loan and bought a house myself with no worries, and no problems.

Disclaimer: I'm no financial expert. But like many other bloggers, I don't pretend to be. I have looked into what I can in the current "financial crisis" which is being hyped by the media, the President, and Congress. The bottom line seems to be that too many risky loans were made to people who couldn't pay them, and now everyone is losing confidence in the system.

Now the issue on the table is the estimated $700 billion bailout. "Bailout" is the common term, although people should keep in mind that the money would be a loan, not a handout. That point I can't emphasize enough, because most of people's anger over the deal is the misperception that poor people will end up paying for huge CEO salaries. The CEOs might get rich(er), but they still have to pay the government back. Unless they go belly-up again...

For this reason, I can't support the current proposal. Treasury Secretary Henry Paulson is urging immediate action to open the credit markets back up and avoid a nationwide depression. But I can't help thinking that maybe the credit markets should dry up for awhile. Maybe, just maybe, we have too much debt as it is and need to reign it in.

One alternative to the current plan is to allow these companies to fail and die a natural death. Additionally, in a plan which no one is proposing, you can set up a government-run credit bank with a limited 10-year charter to fill in the gaps and keep the money flowing. Otherwise, you are loaning money to the same people that got us in this mess in the first place.

This is election time, so the other issue involved, of course, is the blame game.

So who is to blame for the current mess? Barack Obama and his surrogates in the blogosphere are exclusively blaming the Bush administration and Republicans in Congress.

But subprime lending (the act of charging risky borrowers more to borrow money) has been around in one form or another for centuries. The current form of the practice dates from at least 1993, when the term was coined during the Clinton administration. Investor's Business Daily pretty much gets it right:

The untold story in this whole national crisis is that President Clinton put on steroids the Community Reinvestment Act*, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory."

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

Of course, the current administration and the current Congress, and Wall Street CEOs are not blameless either. But there is one more culprit in the room that no one wants to acknowledge: ordinary borrowers who took out loans that were beyond their means. It's not popular to say it, but many of these folks are entirely to blame for their own actions.



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