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September 12, 2008


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This is in response to "flyover state's" comments plus a few of my own. There is a totally misplaced focus on this "government bailout". The focus in the short run is not who the villians were in getting us into this mess, the fact is we are in it for a lot of reasons. The focus shoud be on stasbilizing the financial system in the short run and reforming what's wrong with in the long run. Go ahead and jail the villians if you want, and we probably should. That list would be long and include a gaggle of politicians who also got politically rich on Fannie and Freddie.

The first real issue of stabililzing the financial system is being properly addressed by Paulson. Bear Sterns could not be allowed to collapse nor could Freddie and Fannie. The world's financial system depends on some level of confidence in the survivability of critical institutions. At some point, an institution becomes too large to fail--the repurcussions for the financial markets would be unacceptable. There would be a catastrophic rolling blackout as one after another of the world's major financial instituions collapsed and the system imploded. If institutions of this size were simply allowed to fail, say goodbye to your net worth. Your pension fund would collapse, your 401k would be worthless, your home would be worthless because you couldn't sell it to anyone, businesses of all sizes would fall into bankruptcy because their credit lines would not be available nor would there be any access to the world's capital markets. Anyone who positions what Paulson and the feds are doing as some sort of bailout for Wall Street and the "fat cats" is simply wrong.

The second and more complex issue is reform, that is fixing what it is that allowed us to get into this mess. I am going to assign some blame here and much of it falls on the icon, Alan Greenspan. The Fed, as regulators of the banking system, needed to step up years ago when the sub-prime craziness got started. Greenspan was so taken by his image as the scion of the world's financial markets that he complete abrogated his broader responsibilities. By taking a hard line on financial qualifications for mortgages, which the Fed could do, much of this mess could have been averted. And, that is exactly what needs to happen now. Sensible mortgage lending criteria can be established, as is happening now. The Fed can enforce them in its role as the banking regulator. That will solve 90% of the problem, the rest is manageable.

Here I go again. Don't understand much of what you wrote but the bottom line should be...If you have the money, you can buy a house. If you don't, you can't. Same goes for everything else. If the government starts to underwrite everything then I'm going to get to pay higher taxes. My small business will get to pay higher taxes. I view all of this financing as a big shill game that, in the end, will screw the average guy. And who is making the big bucks? The people that are figuring out all of these ins and outs. By giving the Frannie and Freddie execs those huge packages, our government is thumbing their nose at those of us in the trenches.

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