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Remember that the current financial crisis began as a housing crisis. Homeowners became overleveraged and defaulted. They became overleveraged because they thought housing prices would rise forever. They didn’t realize that the Feds had goosed the demand for housing with unnaturally low interest rates. When the Feds raised interest rates, demand fell along with prices.p>The common thread running through all booms and busts like what we have experienced recently with housing is the Fed. The Fed giveth with low interest rates. Then, when prices rise, the Fed taketh away by raising interest rates. Blessed be the name of the Fed for giving us this current financial crisis. br> — Roger D. McKinney br> Broken Arrow, Oklahoma /p>
I would have to agree with Philip Klein’s assessment of Buffett’s warning concerning derivatives. The only additional point I would like to interject is the role the Federal Government played in all of this. The mortgage giants Freddie Mac and Fannie Mae are quasi public/private mortgage institutions. They carry over $5 trillion of mortgages, and are just as susceptible to political pressures as they are market pressures. If there ever is a reason to balk at future calls for public-private “partnerships,” these 2 institutions should be evidence enough. Two weeks ago as Freddie and Fannie were going into receivership, Barney Frank (D-Mass.) defended Freddie and Fannie, and balked at any mention of selling off their assets and dissolving them completely.
The other organization (or actually person) that comes up for scrutiny is the former Fed Chairman Alan Greenspan. By cutting short-term interest rates to 2% in the wake of 9/11 and keeping them low for so long, he created the conditions for the housing bubble. Banks and financial institutions borrowed at 2% and charged anywhere from 6% (mortgages) to 30% (credit cards). Firms like AIG, Bear Stearns, and Morgan Stanley used the mortgage backed securities bundles to spread the risk (from high risk borrowers underwritten by Fannie Mae/Freddie Mac), while pulling down high margins. The inflated real estate valuations were a direct result of low short-term interest rates set in place by Greenspan. He set in place the expansion of money and credit totally tied to real estate. Consumers who saw their home equities double in a space of a few years borrowed against the inflated assets (usually through equity loans) and went on a spending spree. With real estate values now plunging many of these consumers are walking away from both their original mortgages and home equity lines of credit leaving firms like Bear Stearns and AIG footing the bill.p>Yes, Buffett was correct — but only half correct. I wonder if the old wizard today still believes in that old liberal canard of public/private partnership? br> — JP br> Indiana /p>
Liberal Democrat vulture capitalists like Warren Buffett, George Soros and Democrat hedge fund managers are part of the problem. These men make their money by destroying economies and people’s lives then they have the effrontery to tell us we need to have our taxes raised while they protect their wealth from the tax man by donating to one another’s liberal non-profits. Who cares what a supporter of Obama thinks when like his political allies his one motive is helping himself and to hell with the country? Buffett’s advice will wreck the economy and make the Great Depression look tame, but that’s exactly what Warren Buffett wants, because it makes him and other liberal carrion richer. Despite the current financial troubles, thanks to supply economics, low taxes and a pro-business administration, America will weather the current correction and come out ok. Had Buffett’s buffoons been in charge he’d be getting richer while the rest of us would be in the poor house.
Simply Freddie Mac and Fannie Mae are in trouble, because they’ve been run since the 1990’s by corrupt Democrats more interested in getting undisclosed bonuses and personal perks than fulfilling their fiduciary responsibilities. President Bush suggested reforms, but the Democrat darlings of Buffett and Wall Street blocked him, because it benefited them and their financial patrons.