Bailout: the people won round 1...

Congratulations, we did it!

I was surprised when the bailout of financial institutions was voted down yesterday; I feared the fix was in.

But stay tuned...they are gearing up for round 2, and it'll be a battle.

Something amazing is happening, openly, right before our eyes: our elites have joined hands and are making common cause, against us, the people. You saw it today, if you watched the news: both candidates for president are almost shoulder-to-shoulder on this. The crowd in Washington were sure they could muscle this through Congress, and they were stunned when it was voted down. But be clear what's happening right now--they are figuring out how to muscle the 12 or so members of the House they need to switch. They realize they didn't bring big enough guns the last time; they are preparing to hit them hard, with whatever threats and or blandishments they think it will take to peel off enough votes.

There is another lesson here: did you notice that those who voted this down are Congressmen facing competitive races this fall? I.e., it matters to them that the people are so strongly against this. They fear being defeated! But who was happy to go along? Those Congressmen who either have secure districts--or who aren't running again.

Now consider this: what if we had term limits? A certain chunk of these folks would be term-limited, and thus free from fear of their constituents wrath. How do you think they'd have voted then? This is why I am oppose to term limits.

Meanwhile, keep steady. I realize folks are worried about the markets, and the economy, and I am as well. There are steps Congress can take that would help that doesn't need to involve buying up vast amounts of mortgages that we're told (please note this): aren't valued by anyone else, so they can't be sold, but the taxpayers have to do it; and, we're told, this transaction will end up making us money! Now, this can be true--but it makes me, and it should make you, very concerned. Above all, it's the stampede: now, now, don't think, don't question, just give us the money and the power, NOW!

Yes, the Dow went down a lot of points yesterday--that's scary. "The worst drop ever"--in raw numbers; but nowhere near as a percentage of the total. Remember the Depression of 1987? The Market dropped 25% in one day! The economy did fine, the markets recovered. And, note, today, the Dow picked up a third of that, which surprised many, but not me.

No, I'm not saying there's nothing to worry about. I think there are real problems. But if you go to the doctor because you're sick, you need him to find the real problem and treat that--and the worse your illness, the more you need him to get it right. Congress is not, in my judgment, getting at the source of the sickness, and therefore I have no confidence in the so-called solution.

What is the source of this problem? It's very plain: the government made it policy, starting many years ago, to push banks to offer loans to high-risk borrowers, to the point that they would be punished by the government if they didn't. This is what they call "sub prime" loans. Why did the government do this? Because it wanted to encourage lots more people to become homeowners, who for various reasons hadn't become homeowners. Now, some of those was because of racism and discrimination. But a lot of it was because, well, they had bad credit--they were bad risks. This started in the 1970s, and the years go by, the more this push continued, it only stands to reason the next group to be brought in would be more and more high-risk.

This is what the government-created corporations, Fannie Mae and Freddie Mac, were created to help do; and they took these mortgages and packaged them as "securities" and remarketed them; and as long as the prices of real estate kept rising, you could keep it going. If a bank lends you the entire amount to buy a house (remember those "no money down" deals being promoted in TV infomercials?), and you have lousy credit, you can pull it off pretty easily, if you can count on selling that house a year or two later--or even less--for 10% more.

But what happens when real estate prices stop rising--and worse--start dropping? It only takes a little slippage to cause a real problem. And that's where we are.

So here's the question: when did Congress propose doing anything about this government policy of pushing loans to uncreditworthy people? When did they rein in Freddie Mac and Fannie Mae? None of that was in the bailout.

There's more to be said, but others are saying it better than I am. I just want to renew my insistence that you be heard by your representatives and senators, and do it now!