Trusted Mortgage Advisors Take on the Mortgage and Financial Bailou

Most of the country woke up to headlines of outrage to the $700B rescue plan. After Bush went live last night, now after a year America was slapped in the face and the outrage based on most newspaper headlines is at extremes. Once again the media played to the mass hysteria and bad news reporting. Can't say it enough, the media is not helping here. Most articles this morning brought in those that have other ideas and are not only opposed to the Treasury's plan but don't have their facts straight. Media has made this a taxpayer bailout of the banks, Wall Street and the rich and powerful at the expense of the little people.

The public has good reason to be angry; no one is as angry and frustrated than I am. Wall Street and greedy investors caused this, aided in no small part by the rating agencies (S&P, Moody's, Fitch). We saw the train roaring down the tracks three years ago as mortgage loans were made to millions that should not have been done. Wall Street asked for the junk and they got it, deals with mortgage lenders to increase the volume of sub prime loans were common; and contrary to what some believe most of the paper was securitized by The Street and not by Fannie and Freddie. The rating agencies stepped up to do their part by issuing AAA ratings on those securities; banks and other investors didn't hesitate to look any farther than AAA ratings although the rates of return were so much higher compared to "normal" investments with the same ratings---a red flag ignored. The overwhelming desire to make bigger profits supplanted logic.

Anger and outrage! Every citizen should be. That said, the rescue plan has to be done. If we don't get it and very quickly, the banking system will come to a halt in terms of lending and the US and global economies will tank, making in hind sight this plan a good deal. Already the delays and debates, which we agree are necessary, have brought the interbank lending to levels not seen since 1999. It is no more apparent than looking at Libor rates, the rates used for bank-to-bank lending and borrowing. On Monday 9/15 the 1 mo Libor rate was 2.49%, the 1 yr 2.99%; last Friday the 1 mo 3.19%; 1 yr 3.46%; today the 1 mo 3.71%, the 1 yr 3.98%. Rapid increase in Libor is clear evidence the financial system is teetering and lending is all but locked up.

The rescue plan is absolutely necessary; in the end taxpayers will benefit in two ways; the economy will not collapse into a prolonged recession, and in a few years when the sub primes are sold back into the markets they will generate a profit----we are confident of it as are most savvy investors. Buffett said yesterday if he could borrow money at the rate the Treasury can, he would do the rescue plan himself, ditto on comments from Bill Gross at PIMCO.