How The Fedora Chronicles (Almost) Bought Office Space in The AIG eadquarters In Down-Town Manhattan...  

By Eric Renderking Fisk - September 23rd - 30th, 2008 Bookmark and Share

I bet you didn't know this, but I've invested in a handful of companies that are involved in insurance, real estate, and in primary and secondary mortgage holders. How this came about is a long story, part of which you've already heard about in the news...

Some of these companies have run into some trouble recently, due to mismanagement and not listening to conventional wisdom from people like Jim Cramer on CNBC's "Mad Money" and Rick Shaffer on WTKK 96.9FM Talk, and even here on our forum. Everyone (with the exception of the people actually in charge of the banks and mortgage companies, and the government) said that this day would come and the sub-prime mortgage lending practices would lead to the sub-prime mortgage crisis, which would eventually cause some companies to go bankrupt. The writing was on the wall, and due to the failure of those who needed to read it but didn't, we're asked to pay for it. Since when was it the American Way to ask some one to pay for someone else's mistakes?

After the announcement of Fanny May's and Freddy Mac's imminent demise, other announcements have been released about other institutions like Morgan Stanley, Goldman Sachs, Merrill Lynch, Lehman Brothers and Bear Sterns with troubles of their own. (I can't type this fast enough, other banks are failing faster then I can publish this rant, Washington Mutual just raised a white flag and surrendered to JP Morgan Chase.)

The failure of these once invincible institutions have their genesis in reckless abandonment of history and common sense. This country has forgotten it's own history and failed to learn the lessons of The Great Stock Market Crash of 1929 and The Great Depression: You can't buy on credit and hope to make a profit on what you bought on credit since there's no insurance that the value will continue to increase. Obviously I'm over simplifying and over-stating the obvious, but if you take the over-inflated bond market of the 1920's with the over-inflated stock market shares in mortgage companies of the 1990's and 2000's - you'll discover it's essentially the same thing.

AIG Building 1

Also similar is the profit taking - known as executive compensation - during the collapse of some of these organizations. While listening to as much radio on this as possible, I've heard from sources as vast as conservative talk radio to liberal National Public Radio about the large sums of money many high ranking officials were paid shortly before they announced bankruptcy. I'm now struggling to track down the article I read earlier about one company in particular set aside 2 billion dollars in assets and liquidated them to pay out "golden parachutes" to there executives before announcing they were pursuing Chapter 11 coverage. There are so many news stories along this theme, that just one guy (meaning me) can't sort them all out.

How many stories have you read about executives getting multi-million dollar bonuses before the company collapsed?

It's one ugly aspect of my favorite period coming back: The Robber Barons of the 1930's reincarnated in the 2000's.

We've forgotten or choose to ignore our own recent history. I've even forgotten my own lessons of my own past... I forgot how hard I worked and how for years. While working on this rant I sat back and thought about how hard my life was and how hard I worked to make my life better and reach a point where I met a woman I wanted to spend the rest of my life with, she became my girl friend, my best friend, wife, mother of my kids and most importantly, my muse.

What matters in regards to this rant is that we bought a home, did all the right things by controlling our debt and not spending too much money on things we really didn't need. We didn't listen to the crazy ads about how we could take money out of our home and go on the dream vacation. We didn't tap the equity to install a have lavish bathrooms or extravagant entertainment centers. We didn't make a ton of money in the stock market, we didn't make some great investments and get a wind-fall profit or retire at the age of 35. .

I simply thought that we could throttle back and feel secure since for so many years everything was fine since nothing "bad" had happened recently, not remembering that just because there hasn't been a crisis doesn't mean that one isn't going to happen - it might mean that we're past due. I allowed myself, and my family to get soft and not take more steps to insure our financial future, taking it on faith that since everything was good now and nobody seemed to be worried about this problem that was just beyond the horizion.

Meanwhile, many other Americans were buying homes that were more then their needs and beyond their means through "sub-prime" mortgages. There were many home buyers who weren't looking for a primary residence to live in, these clowns treated their homes as short-term investments.  Buying a house for a couple of years with an low introductory rate which would become an "adjustable rate mortgage" (ARM) after the introduction period was over... that's not a sound investment plan, that's a scheme for personal disaster and destruction. Robert Kiyosaki said it plainly in "Rich Dad - Poor Dad," - your primary residence is not an asset. Name another asset that you only pay into and doesn't give you back any stream of income during the time you actually own it. Your house is NOT an asset. Your house is a financial liability. A happy, Home Sweet Liability Home.

Many home buyers (who are partly responsible for this crisis we're in) purchased homes for no other reason then to make a quick profit by selling before the sub-prime introductory period was over, gambling that the housing market would continue to sky-rocket. With people unable to sell these homes before the sub-prime period was over and then suddenly hit with an astronomically high payments, they eventually defaulted.

Meanwhile, there was a class of home buyer who had no business having credit cards or putting a down-payment on a trailer park mobile home, much less a real home on an actual street. The banks were told by our government to take these bad loans and bundle them into "mortgage-backed securities" and sell those back to Fanny May or Freddie Mac. The government didn't care. People like Congressman Barnie Frank fought new regulations for these organizations as far back as September 2003 (as chronicled in this New York Times story.) The profits being made on Wall Street would cover the loss caused by Washington.

Many of the companies who own these houses via the "mortgage-backed securities" such as "mega-banks" and insurance companies who used the margins from these securities... many (or all of them by the time I finally finish writing this) have failed and stated that they will be going bankrupt and need a bail out...

Time To Call Their Bluff?

While I've been working on this rant, the country has been in an uproar over the proposal for a $700 billion bail out to prevent the economy from collapsing, meaning that every living American- man, woman and child- would have to shell out around $3,000 a piece in taxes. Much of that outrage has been covered on our forum...

Since I started this rant, there have been news stories about how this bail-out was supposed to have particular riders - congressmen were putting "ornaments" on this "Christmas tree." There was the breaking news item last week about John McCain was suspending his campaign to go back to Washington DC to work on this "bail-out package."

During all the conversations that I've had this week, I've never talked to anyone who was for this bail out action. Nobody believes that this is the correct course of action, since these companies got themselves into this problem (and banks were forced by the government to give loans to many people who were unable or willing to pay them back) then it's up to someone else besides the tax payers to bail everyone else out.

Then this weekend President George Bush made this statement about this very unpopular deal during his weekly radio address...

“I know many of you listening this morning are frustrated with the situation. You make sacrifices every day to meet your mortgage payments and keep up with your bills. When the government asks you to pay for mistakes on Wall Street, it does not seem fair. And I understand that. And if it were possible to let every irresponsible firm on Wall Street fail without affecting you and your family, I would do it. But that is not possible. The failure of the financial system would mean financial hardship for many of you.

The failure of the financial system would cause banks to stop lending money to one another and to businesses and consumers. That would make it harder for you to take out a loan or borrow money to expand a business. The result would be less economic growth and more American jobs lost. And that would put our economy on the path toward a deep and painful recession.”

Know what? I think it's about time to call this bluff. How about someone other then those in Washington D.C. and Wall Street explain to us why this is necessary? I've yet to hear a convincing argument that a bail out will benefit any one of us. Explain to all of us in language we can all understand how this bail-out will guarantee we will not go into a recession. Promise us that after this bail-out goes through we'll still be able to use our ATM cards at the bank and at the check out counter and business will go on as usual.

Wait, nobody can guarantee this will not prevent a recession. Nobody can place their hand on a Bible and swear to God that when this goes through people will hot have any problems accessing their money. Explain to us, the tax payers why the government who should have been watching Wall Street closer but didn't is going to take money from us to give to the Wall Street firms that mismanaged the money they were given by investors. Does that make sense?

Maybe what we really need is to have the Federal Government confiscate the executive compensation packages that were awarded to those who oversaw these failing institutions and profited from that. What's needed is to take the assets from them and re-infuse the market with that capitol. No bail-out deal will ever be complete and be accepted by people if something like this written in. No punitive action, no punishment or regaining what was taken by the 21st Century Robber-Barons...

Many people have asked this before, starting with Boston's own Jay Severin... when all of these businesses were doing well and making a large profit quarter after quarter - did we all get a profit sharing check? Did they ever wire us the dividend funds? Did someone from these companies knock on your door and say "Hey, we're doing really great - here's a pile of cabbage for you and your family to do something nice for each other. God Bless and have a nice day?"

When they're doing great, they get to keep what they earn. But when things are going bad, we have to kick in and help? Someone reminded all of us of what a former President of The United States said about this type of phenomenon...

“Gentlemen, I have had men watching you for a long time, and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.”

Andrew Jackson, 1832 to a Delegation of Bankers

Thank you to our staff member, Mr. AreoDillo. for providing this quote.

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