Dow Slides 777 points

McCain suspended his campaign and nearly the debate to go to Washington to work on the bailout plan. I thought that his postponement was a sham, political pandering at the highest level. He keeps making reference to "putting his campaign on hold" it makes me thing that what he is really saying translates to: "Hey Look at me, see, Look what I'm doing." He saw this moment as a time to possible get a campaign boost. Thats how I see it and how a lot of others see it too. At a campaign stop today he had another "look at me" moment when he told people, "Put my campaign on hold for a couple days last week to fight for a rescue plan that put you and your economic security first.'' Pander, pander, pander. I have serious issues with McCain, among these are the fact that his campaign manager is none other than Rick Davis, a Newsweek article highlights some of the finer points. Granted, I wouldn't have a problem with him being so for this bailout plan if not for his statement issued in March of 2008:

"I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers."

While it is not a horrible statement, it does show a little bit of hypocrisy.

In a campaign stop in Iowa, McCain stated:"Our leaders are expected to leave partisanship at the door and come to the table to solve our problems. Senator Obama and his allies in Congress infused unnecessary partisanship in the process.'' He can think that, but when you look at the votes cast today in the house, 140 of the 235 (60%) Democrats voted for the bill, while only 65 of the 199 (33%) Republicans voted for it. And McCain blames Obama and the Democrats for the bill not passing? Simply sounds like more partisan politics to me.

I've done some research on this whole "sub-prime lending" issue and through my research, I've come to a conclusion. The banks do not, under any circumstance, deserve this bailout. Essentially, it is the government rewarding these banks for horrible lending practices. A video I watched on youtube stated that it was Clinton's fault for loosening the regulation due to the Community Reinvestment Act (CRA). However, after reading the bill, there is a little more to it than just the loosening regulation. Basically, the meat of the bill was to require mortgage lenders to grant a percentage of their loans to low income people, loans in low income areas, and to minorities, think of it as a mortgage lenders version of affirmative action. The only requirement was they had to give the loans to a percentage of people. However, these areas often required them to approve loans for people with poor credit, so, Fannie Mae, Freddie Mac, and others, would buy these loans from the lenders essentially guaranteeing them, even if the borrower defaulted on the loan. What I find horrible, is that lenders would give loans to people with "teaser" rates, these were given in what were called "2-28 loans," "3-27 loans" or "5-25 loans." These loans would give the "teaser" rate for a fixed term of 2, 3 or 5 years, and then for the remainder the loan the interest rate would go up for the remaining time of the loan. Like my previous blog stated, referencing the couple in the USA Today article, a large percentage of people were unable to afford these loans after the interest rate went up. This practice was not required by the CRA, it was a method invented by the lenders themselves to get people in, here's another example:

Ana Cecillia Marin, a 36-year-old single mother of three, owns a 20-year-old ranch house on a dusty, garbage-strewn acre in Palmdale, Calif. She says she earns $34,000 a year managing flower sales at a Los Angeles food store and selling clothes on the side. She bought her house in 2005 for $385,000. By taking out a first and second mortgage, she was able to buy it for no money down.

There are two almost obvious problems with this:

1) If Ana Cecillia Marin had gotten a normal 30 year fixed mortgage at 6% on $385,000, her monthly payment would have been $2,308 [ref].

2) If you make $34,000 per year, you are only making $2,833 per month (ignoring taxes, FICA, etc.)

It doesn't take a genius to figure out that there is no way she can afford this. However, these lenders would grant the "teaser rates" for a period of 2, 3, or 5 years at a much lower interest rate of usually 4%. After the initial term would expired, the borrower could then refinance into another loan, resetting the "teaser rate" and it would then be good for another 2, 3, or 5 years. As one article I read says: "This is a great idea for people to get houses they can't realistically afford until:

a) housing prices start falling instead of rising, or… b) interest rates go up, or…

c) the excesses get to be so great that regulators finally start sniffing around (followed by the press), or, in the worst case…

d) all of the above.

Take a guess at which one happened? Millions and millions of these subprime mortgages were given out. If you multiply the 4 million people who were behind on their mortgages or in foreclosure by the average cost of a home in 2006, which was a staggering $305,900, you come up with a figure of $1.2 trillion, which this bailout would not cover, double it would but I would agree with that even less. The problem is, we are talking about a huge number of mortgages granted between 1996 until the present that could very well be subprime mortgages. We still don't know the extend of it as there are more and more foreclosures every day. My verdict is it is the lenders fault, through lax regulation, and predatory lending practices, we have driven this industry and this country into the ground. People were given loans that they shouldn't even have considered. The most guilty party in this is by far the lenders, instead of putting people in houses they could afford they put them in a very expensive house where they would make a ton of profit, simply because by selling these loans to Freddie Mac or Fannie Mae, they loans were guaranteed.

The Dow plummeted today losing nearly 800 points, nearly 7%, NASDAQ lost nearly 10%, the New York Stock Exchange lost almost 9%, and the S&P 500 lost almost 9%. For people who aren't familiar with the stock market, those are huge drops, the largest in a long time. Here's the real kicker, I am currently in a position, where I don't really care. Let them fail. It's the banks fault, and I don't feel sorry for them at all. This is simply more proof, just like Enron, WorldCom, Tyco, and others that there is need for regulation, better regulation than there is right now. Businesses cannot keep screwing investors and consumers, and relying on the government to bail them out. Yes, the stock market is going to suffer, and there is going to be a lot of people who are hurt by this. I believe the government should really stay out of it.