Joel Goodman for Congress - Issues detail Page

Putting political philosophical objections aside, I am opposed to the bailout because it does nothing to stimulate the economy. It does extremely little to help the struggling homeowner. Not every struggling homeowner was a stupid buyer, but he did buy into a system that was more interested in bundling the mortgage that was given rather than making sure that there was adequate value in the mortgaged property; which there wasn't because of an intentionally pumped market only looking to bundle mortgages.

The larger problem is at the top where assets were leveraged many times, and therefore financial institutions became insolvent incredibly quickly as their financial house of cards began to crumble.

There are banks that have the capital to loan money; but I ask - "To whom and for what are they going to make a loan? - For another Burger King, - To an auto manufacturer who has no customers? - To a home builder who has no buyers?" The fed is saying that the banks need to clear their books of bad debt so they can begin to loan out money again. Isn't this easy credit exactly what started this problem that we have? In fact it is only a small part of the problem, as I will touch upon below. We are beginning a cycle of massive unemployment and have a dwindling manufacturing sector.

In a more pure system the markets should and would regulate themselves.

But our economy has long since stopped being a free market economy. Far from being pure Capitalism, our economy is more correctly described as being State Capitalism in a controlled market. The Federal Government is intrinsically tied to the market, and the market is intrinsically tied to the Government.

To not see this paradigm is to fool oneself into believing a fairy tale.

I am suspicious because I have seen no specific accounting of where 700 billion dollars are going.

Above all, I am opposed to the bailout because I suspect that there is much more that will be traded off than "bad mortgages." I am suspicious of the phrase, “Toxic paper.” It may seem to be a general term, but it undoubtedly refers to some very specific assets that big money wants to be rid of at our expense.

- Some basics –

I suspect that fat-cat speculators and loosely regulated hedge funds, and generally over-leveraged financial institutions are responsible for much of the current liquidity problem in the money system.

Hedge funds are usually only available to certain professional or wealthy investors.

In many jurisdiction this structure exempts them from regulations governing short selling, derivative contracts, leverage, fee structures and liquidity of the investments in the fund. A hedge fund will usually still limit the range of its activities through contractual arrangements with its investors. This gives the investors some idea as to what they are investing into.

Managed hedge fund assets can reach billions of dollars. These actual assets are commonly multiplied by leverage. The amount created by way of the leveraging gives a fund substantial influence in a market.

The recent credit crunch was produced by the same pump and dump tactic that gave us the S&L Junk Bond fiasco and the Dot com bubble crash. Assets were pumped, traded and then deflated, leaving investors holding the bag.

Well, this time two things were done, actually three.

The Fed gave the banks easy money. Lenders leant on cookie cutter homes, built and financed as quickly as could be done. Wall Street hucksters bundled and sold these cookie cutter mortgages. Property backed securities were being categorized like cattle to the slaughterhouse and sold as commodities.

Once the trap was full, the Fed raised interest rates, and those cheap mortgages skyrocketed, causing massive defaults foreclosures.

At the same time Banks were offering attractive credit cards with low introductory rates. Struggling homeowners leaned on their cheap credit cards.

The banks then raised their credit card rates and being unregulated, they were free to raise rates for any reason up to almost 30%, well above what most people considered usury only a generation ago.

The struggling homeowner, with both partners working, might have managed one debt, but found it impossible to manage both.

The cost of the two phony wars added to the national debt, driving the dollar down on a daily basis, lowering the purchasing power of the dollar. Hidden inflation came out of the closet and the few disposable dollars that struggling homeowners had, didn’t stretch very far. Job losses and unemployment grew, and more homes went into default and more bankruptcies were filed.

An early solution might have been for the banks to lower the interest rates on their credit cards and to readjust the mortgages downward, leaving the consumer with the ability to pay something on both debts and keep them in their homes.

The big but here was that the banks were greedy and had the backing of Congress who passed legislation making it near impossible to declare bankruptcy and get out from under the credit card debt. So, the banks made no effort to work with their beleaguered customers, knowing that they now had indentured servants, perpetually indebted to them.

The investment houses who sold the bundled mortgages, also refused to adjust the mortgage rates in the packages downward, standing behind the premise that their investors controlled the bundled mortgages, and it was “impossible to negotiate any changes in the terms of the mortgages.

Now the Government steps in and asks for money to help those fat cats who “suffered” because of their intransigence and greed. CEOs, hedge fund managers, and other financial executives making million of dollars a year had little interest in helping those from whom they had prospered.

While I oppose bailing out those who created this mess, the pump and dump, boom and bust artists, I can make an alternate proposal.

Assuming that there will be some aid in some form, I suggest that the help be given to those who pay the mortgages. If the base of the problem is the bad mortgages, it would seem logical that supporting the mortgages solves the problem; if the problem is what we are being told it is, of which I am somewhat suspicious.

The government could set up a program to help the home owners pay the mortgages with a low rate or at no rate, taking in return a lien on the property. This would firm up the base of the problem. Also, the money would allow the economy to continue and the cash outlay would be metered, rather than a massive paper dump of dollar value deflating paper on the economy.

I am in principle opposed to the proposed bailout of Wall Street, which, all else aside, is exactly what the bailout is.

If there were to be some sort of government program to stabilize the economy, it should be a program of guaranteed low interest loans to help mortgagees maintain their mortgages. I say this because if the crisis has its roots in the loss of mortgage payment income to lending institutions as a result of mortgage defaults, then supporting these mortgages should eliminate the problem. Obviously there is more to the situation and the bailout than what is being publicly disseminated.

Supporting the mortgages, by giving or guaranteeing the homeowner a low rate loan, is in essence refinancing the homeowner's property. I have heard estimates that if all of the "bad" mortgages were actually paid off and bought, the cost would be somewhere between 95 billion dollars on the low side and 350 billion dollars on the very high side. This is quite a spread, but I have no access to better information.

A complete buyout of the mortgages from the homeowners would create immediate income for the lending institutions or those investors holding the mortgages. Were the government to guarantee a low interest loan, this would give the government income over the life of the loan. While I do not support socialized housing by way of government subsidized loans, this is definitely preferential to bailing out the fat cats. Either way, proceeds from pay-offs or guaranteed mortgage payments would be infused into the market.

Metering the amount to be paid over time by guaranteeing the mortgage payments rather than one massive outlay would lessen the shock to the value of the dollar.

Any type of assistance must be accompanied by major structural reform in Washington to drastically reduce the size of the Federal Spending Institutions and the way in which tax revenue is collected. There is no magic pill.

Look at some additional financial practices that created the problem that we have today

Hedge funds dominate certain specialty markets such as trading within derivatives with high-yield ratings and distressed debt.

Hedge funds risk investing in certain types of hedge fund can be (but is not necessarily) a riskier proposition than investing in a regulated fund, despite a "hedge" being a means of reducing the risk of a bet or investment. The following are some of the primary reasons for the increased risk in hedge funds as an industry, though by no means all hedge funds have all of these characteristics, and some have none.

Leverage - in addition to money invested into the fund by investors, a hedge fund will typically borrow money, with certain funds borrowing sums many times greater than the initial investment.

If a hedge fund borrows $9 for every $1 received from investors, a loss of only 10% of the value of the investments of the hedge fund will wipe out 100% of the value of the investor's stake in the fund, once the creditors have called in their loans. In September 1998, shortly before its collapse, For example, Long Term Capital Management company had $125 billion of assets on a base of $4 billion of investors' money, a leverage of over 30 times. It also had off-balance sheet positions with a notional value of approximately $1 trillion.

Short selling - due to the nature of short selling, the losses that can be incurred on a losing bet are theoretically limitless, unless the short position directly hedges a corresponding long position. Therefore, where a hedge fund uses short selling as an investment strategy rather than as a hedging strategy it can suffer very high losses if the market turns against it. Ordinary funds very rarely use short selling in this way.

Appetite for risk - hedge funds are culturally more likely than other types of funds to take on underlying investments that carry high degrees of risk, such as high yield bonds, distressed securities and collateralized debt obligations based on sub-prime mortgages.

Lack of transparency - hedge funds are secretive entities with few public disclosure requirements. It can therefore be difficult for an investor to assess trading strategies, diversification of the portfolio and other factors relevant to an investment decision.

Lack of regulation - hedge funds are not subject to as much oversight from financial regulators as regulated funds, and therefore some may carry undisclosed structural risks.

Investors in hedge funds are, in most countries, required to be sophisticated investors who will be aware of the risk implications of these factors. They are willing to take these risks because of the corresponding rewards: leverage amplifies profits as well as losses; short selling opens up new investment opportunities; riskier investments typically provide higher returns; secrecy helps to prevent imitation by competitors; and being unregulated reduces costs and allows the investment manager more freedom to make decisions on a purely commercial basis.

Some news and media commentary blame the financial woes of the 2007 credit crunch on the complexity of CDO products, and the failure of risk and recovery models used by credit rating agencies to value these products.

We can be sure of one thing. The current financial - liquidity "crisis" didn't start yesterday. One should not overlook the fact that up until a week before the supposedly "crisis" began the White House was saying that the economy was fundamentally strong.

Collateralized debt obligations (CDOs) are an unregulated type of asset-backed security and structured credit product. CDOs are constructed from a portfolio of fixed-income assets. These assets are divided by the ratings firms that assess their value into different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). Losses are applied in reverse order of seniority and so junior tranches offer higher coupons (interest rates) to compensate for the added default risk. Since 1987, CDOs have become an important funding vehicle for fixed-income assets.

Some institutions buying CDOs lacked the competency to monitor credit performance and/or estimate expected cash flows. On the other hand, some academics maintain that because the products are not priced by an open market, the risk associated with the securities is not priced into its cost and is not indicative of the extent of the risk to potential purchasers. As many CDO products are held on a mark to market basis, the paralysis in the credit markets and the collapse of liquidity in these products led to substantial write-downs in 2007. Major loss of confidence occurred in the validity of the process used by ratings agencies to assign credit ratings to CDO tranches and this loss of confidence persists into 2008.

To further understand what financial shenanigans have caused the problem we are being asked to ameliorate, you must know that in 1999 under the Clinton administration the Glass-Steagall Act was repealed. The Glass-Steagall Act was passed by Congress in 1933; it prohibited commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities. Investopedia Says:" The Glass-Steagall Act was enacted during the Great Depression. It protected bank depositors from the additional risks associated with security transactions. The Act was dismantled in 1999. Consequently, the distinction between commercial banks and brokerage firms has blurred; many banks own brokerage firms and provide investment services."

And the value of our momey?

Be aware that there is no free lunch. Every additional dollar printed without equivalent backing in some tangible form (gold, lack of debt, sufficient GNP, etc.) directly reduces the value and therefore the buying power of every other power. Inflation is an incorrect term. In fact what is referred to as inflation is the deflation of the value of the monetary unit that is used. In the United States it is the dollar. When the Dollar is worth less it merely takes more Dollars to buy the same thing. Every dollar of debt is accompanied by interest; which someone is able to deposit into their bank account. The Federal Reserve earns interest over money it does not have; merely by printing money. In effect the Fed reduces the value of your money at their pleasure and earns interest off the devaluation. - Nice work if you can get it! And they have it.

Both Presidents Jefferson and Jackson refused to renew the charter of the then central bank, saying it was dangerous. We now have that same central bank they both feared - The Federal Reserve - which is neither Federal nor has a reserve.

Your paper money is issued by a private bank