My Perspective on the Market, the Media, & the Bailout

by Fulton Sheen

In 1977 Jimmy Carter and Congress passed politically correct Community Reinvestment Act (CRA), which mandated that banks offer sub-prime loans to low income earners.  In 1995 Congress further expanded the process.  In 1999 Fannie & Freddie also expanded all kinds of sub-prime lending.  New accounting rules were imposed by Congress with the Sarbanes/Oxley legislation, which created all kinds of problems, such as calling things liabilities that were never liabilities before.  The "mark to market" rule made it look like a financial institution was insolvent, if they sold everything in a given day, which of course they never would, but that was the result for many institutions.  There was absolutely no fore-thought or consideration for the future effects or ramifications of what these legislative changes and new regulations could do to mortgage lending in the years to come. 

In the second quarter of this year the U.S. economy grew 3%.  We may be having a problem in our credit markets, but other than crimping borrowing, that has nothing to do with the stock market.  American business was holding its own before the media spread fear and mistrust and foolishly misled the American people so that they withdrew from the equity markets, further shrinking available capital and creating additional pressures and problems.

The media, which has no understanding of economics, lumps the equity (stocks), fixed (commercial bonds and government securities), and the cash (money markets, CDs, savings accts) into one and calls it Wall Street.  Thus, they think and say we are bailing out the stock market and big corporations, when in reality we are loaning money and not giving it away; it will be paid back with interest or tangible assets.  The economy is not as bad as the media is portraying it to be. The market will continue to be volatile for a while; but it has also created a lot of bargains in the equity markets.   Warren Buffet said, "The only way you can get hurt on a roller coaster is if you jump off."  That’s about the best all around advice for the moment. 

The unfortunate thing is when you print $700 billion dollars; it further weakens our currency and has inflationary affects.  I also don’t like to see the nationalization of private company’s assets by the federal government, because that is by definition, “Socialism.”  What they should have done was lessen regulatory constraints by raising or lowering the amount of illiquid assets to fixed/cash assets, and gotten rid of the ridiculous accounting changes.  The answer too many of our problems is not more regulation and more government, it’s less.  What America is going through is a result of government sticking its uninformed nose into the free market and unwittingly creating the framework for the excesses we have today.

Fulton J. Sheen
88th District State Representative