Posted By: John Handforth  on Friday, November 28, 2008

A little history... Will it happen again?

Hoover gets bashed because he was our President when the stock market crashed in 1929.  The market crashed for reasons very similar to what we have today.  There were millions of small investors working the market in 1929, with more than half of them buying stock on margin.  In other words, they were buying stock with money that they didn't have.  That worked well when the stock value was rising.  You'd pledge to buy 100 shares at a dollar, planning to sell when it reached two dollars.  When it did reach your goal, you'd pay the $100 that you owed, plus a $5 margin fee and still make $95 using money that you never had.

When the stocks began to tumble, the stockbrokers put out margin calls demanding that the stocks be paid for.  No one had the money and it all collapsed like a house of cards.

Banking regulations and the SEC were created and/or expanded in the 1930's to keep the same thing from happening again.  Most of those regulations were created under FDR.  Other industries came under Federal oversight during the Truman, Eisenhower and Kennedy administrations.

Then we were stabilized until Carter took office.

Carter had no malice in his heart.  He thought that deregulaion would lower prices by increasing competition.  It actually worked when he deregulated the airline industry, so he then required lending institutions to lower their standards somewhat to allow people with somewhat bad credit history to obtain mortgages.  That was a noble idea, and actually did work in many cases.  Many of the people that obtained these loans were so grateful that they paid their mortgage before they put food on the table.  The banks did get a pleasant surprise on that one, but those people did have jobs and only needed a jumpstart with their credit history.

I changed homes after my job transfer and got stuck with a mortgage at almost 12%.  All other home buyers were subsidizing the risky loans.  Do you remember those times?  They guaranteed Reagan's election.

Reagan didn't fight deregulation.  He expanded it, just as Daddy Bush did after him.  It was Clinton, though, who wanted more minority home owners, so he deregulated the lending industry and removed most of the oversight.  He rerscinded the Banking Act of 1933.

Anyone with bad credit could now buy a home as long as they could show earnings for a few consecutive weeks.

With little or no regulation, lenders created new financial schemes, such as ARM's and sub-prime mortgages.  Initially people were able to pay their mortgages.  They might have struggled, but most of them managed it.  Then their rates went up.  Eventually, many of them had to refinance.  That wasn't a problem in a rising market.  It was just like the stock market in 1929.

Bush Junior has made a lot of mistakes, but deregulation was not one of them.  There was practically nothing left to deregulate by the time that he took office.  He even tried to put some control on Fannie Mae and Freddie Mac in his first term, but Barney Frank stated the Fannie and Freddie were in good shape and providing a service to the poor.  Bush's effort was squashed.

With the markets falling as they are, people are unable to refinance.  My own kid wouldn't listen and has refinanced twice.  I don't know what they will do if the real estate market doesn't recover.

I don't see that happening for quite some time because unemployment is a lot higher than the published figures.  My benefits ran out several years ago and I have been draining my savings since then.  I filed for Social Security ten days before my 62nd birthday.  Due to my age, and a poor local economy, I am unable to find anything except part time seasonal work.  I don't count as unemployed and there are thousands more like me.

Both candidates voted for the bailout.  I think that they agreed to do that, so as not to create another campaign issue.  Were they wrong? Only history will say for sure, but it never worked for Roosevelt.  He was saved by World War Two.  We will always wonder if we totally ignored military intelligence prior to Pearl Harbor, but a million soldiers out of the work force sure cured the unemployment problem.

I hope that President Obama can bring the troops home from the Middle East, HONORABLY, and put the troops to work closer to home.

If you ran your home, or business, like the government has been run for the last eighty years, you'd be thrown in jail.

Let's not go there...