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October 2, 2008

Congress and The Rattlesnake Part 2

Kevin E. Dayhoff

For several weeks the nation and the world have been watching the financial news emanating from Washington and Wall Street with that “deer in headlights” look as everyone holds their breath in disbelief and worries another shoe will drop.


It seems that not a day passes when we were not greeted first thing in the morning with headlines that screamed the fate of yet another banking conglomerate that has been sold, forced to merge with another giant in the industry, or was “nationalized.”


Just last Sunday we were greeted on our way to church with the news that the European financial giant Fortis was partially nationalized as the negative economic contagion continued its rounds worldwide. The sub-headline blared alarmingly that three governments had “to pour 11.2 billion Euros ($16.4 billion) into the bank.”


However, it was “Black Thursday,” September 18, that really got the attention of the Department of the Treasury, Wall Street, economists and economically-savvy elected officials, as the credit market seized-up and a run began on money market accounts, considered by many to be the workhorse of the financial markets.


If the Democrats and the elite media are to be believed, this is all the fault of the capitalist free market, President George W. Bush and Arizona Sen. John McCain, the Republican presidential nominee.


For the first six years of President Bush’s administration, his approval rating was the stuff of cognitive dissonance. As the opposition party and the elite media ranted, raved, and foamed at the mouth with Bush Derangement Syndrome, the unemployment rate hovered around 4.5 percent, the price of gasoline bounced around the $2 mark, the Dow Jones Industrial Stock Average soared to 14,000, and consumer confidence remained high.


Yet, on September 29, House Speaker Nancy Pelosi remarked: “This week the crisis on Wall Street has hit fever pitch, but families all over the country have been struggling for months. 84,000 Americans lost their jobs last month and the number of unemployed Americans is the highest it has been since 1992. The economy has lost jobs for eight straight months, with 605,000 American jobs lost this year.”


What the heck happened?


Some partisan pundits point to the November 2006 elections, when Congress was put in charge of the Democrats, as the beginning of our current malaise. Maybe – maybe not.


Anyone who attempts to make any sense of the current economic panic is quickly greeted by overwhelming bewilderment and a massive headache. For those with a working knowledge of the financial markets, it was painfully obvious that matters were spiraling out of control, and that most politicians and pundits armed with politically expedient solutions – had not a clue.


For those who fancy themselves economic historians, one afternoon of reading through the various news accounts and factoids quickly conjures up visions of yearning for the simpler days of studying history, when we were younger, and we knew all the answers, everything was date memorization, and all cause and effect was black and white.


No such safety exists in any study of the current examination of the subprime mortgage meltdown and the foreseen and unforeseen consequences.


Yet at times like this, the last thing that will give the American public confidence is watching the nation’s parents fighting while the house is burning down. Nevertheless, there seems to be an overwhelming need for national leaders to weave political gains over our nation’s misfortune.


Yet, playing roulette with our country’s financial health is exactly what Congress has done…


One overlooked example occurred last June 12. The Wall Street Journal carried a headline: “Crisis Deepens as Big Bank Fails.” The demise of what was at the time the “third-largest bank failure in U.S. history, IndyMac Bank, a Pasadena, CA, thrift with about $32 billion in assets was blamed by the director of the Office of Thrift Supervision, John Reich; “on comments made…” by Sen. (Charles) Schumer (D., NY).”


Senator Schumer had sent a letter to the regulator raising concerns about the bank's solvency. In the following 11 days, spooked depositors withdrew a total of $1.3 billion. Mr. Reich said “Sen. Schumer gave the bank a ‘heart attack.’”


Gee, I guess that wasn’t very helpful.


On September 15, House Speaker Pelosi said: “Sen. John McCain has a history of looking the other way when financial institutions play fast and loose with rules designed to protect investors and taxpayers. Under the leadership of President Bush, Senator McCain, and the Republican Congress, Wall Street gamed the system and American families and businesses paid the price.”


In a September 16 article in The Hill, Klause Marre reported that Speaker Pelosi, “when asked Tuesday whether Democrats bear some of the responsibility regarding the current crisis on Wall Street, had a one-word answer: “No… John McCain said that this is a result of overregulation by the Democrats in Congress… Either he doesn’t know what he's talking about, or he’s misrepresenting the facts as he knows them. But it’s simply not true.”


Nevertheless, Senator Schumer, chairman of the Joint Economic Committee, released a “Subprime Mortgage Market Crisis Timeline” on July, 10, which says the current crisis can be traced back to: “December 28 (2006): Ownit Mortgage Solutions files for bankruptcy.” released a timeline September 21, which says: “Hints of turmoil in the subprime mortgage market began to surface less than 2 years ago…”


According to CNN, the current mess began on February 7, 2007: “HSBC announces it will see larger than anticipated losses from rising defaults of subprime mortgages in the United States, the first major bank to make an announcement about rising losses in the sector. While the announcement (got) little attention at the time, subprime mortgages soon become a watch word along Wall Street and in financial news.”


Of course, all of the above events took place after the Democrats took over Congress.


But wait – it gets better. Tomorrow, in the final installment, we’ll examine the rest of the story.


Kevin Dayhoff writes from Westminster: E-mail him at:


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