Confidence
Often, we’re unconsciously aware of a problem well before it rises to conscious recognition. Even then, most people are very tolerant. We recognize the problem as such but are not motivated to do anything about it at first… we allow the problem to grow until it reaches a higher pain threshold… and THEN they do something about it. Interestingly, when something bothersome rises to the level of action, we often look at other things that are bothering us… and are more motivated to do something about those at the same time we’re handling the original problem.
In other words, people are typically sort of lazy until a problem grows quite a bit… and then we get busy taking care of that problem as well as any others that suddenly rise to the top of our minds… and then we get complacent again. Rest… action… rest.
The recent events in our country demonstrate how this phenomenon manifests itself. Most of us were just going about our daily business vaguely aware of “bigger” things going on until:
- One large financial company became insolvent. People began to examine why.
- It became apparent that many companies held large amounts of securities backed by mortgages that were not being repaid as expected. To be clear, most of the loans were fine… people were making their mortgage payments… but a higher-than-expected percentage of them were not. Confidence in financial companies began to weaken… people began to look at them more closely.
- Many big companies suddenly became shaky… certain investments were financial instruments so complex that they could not determine their basic value… the question of exactly how many of the underlying loans were not paying could not be answered. Confidence in these securities was compromised.
- The realization began to set in that, via FNMA and FHLMC, the federal government was “the backer” of the loans that made up most all of the suspect securities. Confidence in these Government Sponsored Entities (GSE) cracked.
- Although alarms had been raised years before, no action had been taken to control the GSE’s. Upon closer examination, it became apparently that they were guilty of very poor accounting and management practices. Investor confidence plummeted.
- People wondered how the GSE’s could get away with doing things that would wreck any “normal” company… even send managers to jail for fraud… and suddenly Congress was in the spotlight: they had oversight responsibility of these GSE’s. Several members of Congress had been strong proponents of the GSE’s and successfully subverted prior attempts by other Congressional members to bring the GSE’s under tighter control. Confidence in Congress was already low and this became yet another example of our elected representatives being the SOURCE of a problem rather than a solution.
- The integrity of many large financial companies was compromised by the “bad” mortgage-backed securities and the government, it was decided, needed to rescue them. While some financial companies were in good condition, confidence in the entire sector diminished.
- Inter-company credit practices began to be questioned. Traditional very-short-term loans (often overnight or just a few days) between companies were shut off… the lender become concerned about the repayment of that money… or it being “tied up” out of their control when the government stepped in to “help” a borrower.
- Back at the root of the problem, people began to investigate why a higher than expected number of the mortgages were not being repaid according to the loan agreements. While many in the industry knew what had been going on for years, it became public knowledge that many, many loans were extended without the borrower having to go through traditional qualification practices: credit check, income proof, and down payment. Confidence in mortgage-backed securities collapsed.
- In addition to extending loans to unqualified borrowers, it was revealed that many companies in the mortgage industry were aggressively “playing the system”, pushing the “sub-prime” loans very hard in the marketplace… actually seeking out unqualified borrowers in order to “do more business”. Why? They knew the loans could be sold (back to FNMA and such)… THEY would not be holding the “bad paper”. There was a “greater fool” out there ready to buy these “investments”.
- On top of aggressive lender activity, it surfaced that there were/are aggressive “social action” groups whose mission it is to help people who cannot afford homes, to obtain a home loan. Top among them is a group called Acorn, who had been successful for years on two fronts: working in communities to “encourage” banks to lend to minorities and working in Washington to lobby Congress for legislative support to do exactly the same thing (”encourage” lenders to extend loans to minorities).
- More of us became aware that Congress had long ago bought in to the ideals of Acorn an, indeed, manipulated the financial system. It was not the “idea” of lenders to overlook REAL qualification standards when considering whether to approve a loan or not… it was the pressure of Congress in conjunction with the ability to sell”unqualified loans” to others (instead of holding them in their own investment portfolio).
- Yet another classic example of unintended consequences - our elected leaders wanted to help minorities buy homes, noble in and of itself, but the means taken to accomplish that put others on the hook for the bill. With their actions, Congress essentially transferred the cost of “bad debt” (unpaid subprime mortgage loans) to investors and the government (US!). Some companies have gone out of business. Some individual retirement plans which held certain securities lost value. The government “rescue plan” is footing more of the bill… which means tax PAYERS are actually footing the bill.
- To add insult to injury, it now has become public that Acorn… that “noble” community activist organization… is ALSO involved in highly questionable voter registration activities. Confidence in our election process is declining.
- All of these events lead Congress to solve the problem (that they, themselves, created!), and the “rescue plan” … called by some a “bailout plan”… has serious aspects of socialism within it. WE, the people, express our dismay loudly… as reported in the media. Public confidence in our free enterprise society is tarnished.
It is a sorry sequence of events, showing WHY citizens of this great nation are VERY CONCERNED about the future of our country. Our confidence in Congress is at its lowest point ever. Confidence in the financial system is tarnished. Confidence in the process that allows us to replace members of Congress (and elect our President!) is shaken. Confidence in our economy and free enterprise system becomes suspect.
WHY?
Not due to any inherent weakness in these systems. The problem is due to abuse OF the system. For all TOO LONG, our elected representatives have been more interested in their own personal goals or the goals of their political party and, as a result, have meddled with our Constitution, our legislative process, our elections, our economic system. OR, they have listened only to those on the outside who do not hold our country in high regard… people who WANT to change it.
Historically, such criteria have been the basis of revolutions.
Our country has battled around the world to retain our freedoms (and to help others gain more freedom). But the REAL ENEMY, as has been said, will come from within.
