28th Amendment to the Constitution of the United States

Friday, September 19, 2008

Let me see if I've got this straight:

The federal government, in its infinite wisdom, stepped in and monkeyed with the supply/demand dynamics in the home mortgage markets.

This tinkering, all done with good intentions, sparked a massive profit-fueled home buying bubble.

Billions up billions of dollars became available for home loans to anyone that could "fog-a-mirror." Companies made loans they should not have made and people took out loans they could not afford.

Much to the surprise of no one, prices went up. And up. And up. And up. And up. In fact, they went up so much, people stopped buying so many. At the same time the lenders were seeing big jumps in foreclosures on some of these loans so interest rates crept up and lending requirements stiffened. Buying slowed dramatically.

Economics lesson – when supply exceeds demand, prices fall.

Home prices are falling all over the place. This, in turn, has led to even more foreclosures as more and more people have home loans they cannot pay and that far exceed the value of the home and their payments, which are tied to an interest rate, increase. This further increases downward pressure on home prices. The loan companies that made bad loans and the people that took out loans they could not afford are paying for their bad decisions - the lenders with huge losses and bankruptcies and falling stock prices; the buyers with home foreclosures and ruined credit. The 'market' is doing exactly what is should do – 'punish' people for bad decisions.

But wait – the federal government, in its infinite wisdom, has decided that something must be done. Their solution – monkey with the supply/demand dynamics again! It appears that Congress, with the help of the Federal Reserve, is going to step in and, somehow, let the lenders unload all of those bad loans and avoid being punished for their bad decisions. I would wager a substantial amount of money that a similar program is already in the works to do the same for the people that took out loans they could not afford. I just read a brief summary of what is known so far – the first cost estimate: $1 trillion dollars.

So, if that figure holds, we can add that $1 trillion to the $5 trillion for bailing out Fannie Mae and Freddie Mac coming to about $6 trillion (in less that three months) to add to our already $9 trillion in debt for a total of about $15 trillion dollars. I am certainly not an expert on international finance, but I know two things for certain: 1) this country is already in debt up to its eyeballs and doesn't have $15 trillion in cash sitting in a vault somewhere and 2) we will have to issue bonds to raise that money and foreign governments have been gobbling them up.

We are in the midst of the greatest transfer of wealth in the history of mankind. The United States is sending billions and billions of U.S. dollars to China, Japan, and the Mid-East as we buy cheap products, oil, cheap labor, etc. And they are loaning OUR money back to us at interest.

I do not have many answers but I do know that, just like the borrowing frenzy that sparked the housing bubble and subsequent crash, this is an imbalance that cannot exist in perpetuity. Sooner or later the U.S. government borrowing bubble is going to burst.

As an aside, I wonder if Obama is still out campaigning on tax cuts for 95% of working families? If he is, I want some of what he's smoking. It's probably the same stuff that Larry Langford and his Olympic Committee have been smoking for the last few months.

At this point all I can see to do is just go ahead and amend the Constitution to get rid of even pretending that we are what we were. So, here is my proposal:

Amendment 28 to The Constitution of the United States:
Henceforth, it shall be the duty of Congress to enact such laws as deemed necessary to ensure that all persons and respective businesses are not held accountable for their decisions should those decisions produce results inconvenient to the decision makers.

And, with that, I am off to Rehoboth Beach to sit in the sun, enjoy a cocktail or five, catch up on some reading, watch college football and have some good times with great people and try not to think about the disaster unfolding all around us.