In my list in the first post setting up the 30 Days – 30 Issues series, I called this one “GSEs and Fannie Mae/Freddie Mac specifically – What should we do?”

My view – The major issue to the world’s economic balance is currently tight credit.  The world’s investors, or the vast majority of them, can’t decide what the risk/reward ratios are for real estate investments right now.  The result is they are not investing.  By pulling their money from the real estate market, or not making it available, they have cut off the supply of blood to the body and it is starting to shrivel.  Next, larger consumer loans, like the type most folks need to buy a car or a hot tub or a boat or RV, have become almost unavailable because lenders have no clue as to the value of the underlying asset, the car or boat.  I would not be surprised if credit card companies started tightening up on credit limits and terms.  If the U.S. government were to pass a law today that removed all tax on capital gains for all capital assets purchased in 2008 and 2009 and held for 12 months or more, capital would flood back into the market.  Housing values would stabilize.  Large amounts of real estate would again be saleable, if at initially bargain pricing.  The loss of tax revenue (sure to be a major complaint of this plan, especially by the tax-and-spend congress) would be spread over the many years that the capital investments were sold.  In fact, the stop in the fall of the economy would likely save more tax dollars than this loss of capital gains tax would every cause.  This would buy us the time to fix the $700 billion dollar “fix” which in my view is almost as worthless as the “Give-money-to-every-citizen” economic stimulus plan of earlier this year (it worked great, didn’t it?)

Mr. Obama and Mr. McCain have both failed their first test as President, in my humble view.   Initially, Mr. McCain had it right.  Suspend the campaigning and get to work to fix this.  He then felt the political pressure and went back to politicking about the issue like Mr. Obama did throughout. 

Mr. Obama has proposed a “financial stability fee” to be imposed on all financial institutions to repay the taxpayer for all potential losses.  Is that just a knee jerk reation of a liberal?  Does every event pose an opportunity to impose a new tax?  Why does he think the fee won’t be passed on and eventually paid by the same people he says he is doing this for?  Is it just me or does he either have the worst economic advisors (Raines, Johnson – wow!) or is it just impossible for him to pass up this opportunity to buy more votes?

Mr. McCain voted for the bill even though he hated the pork added to the final package.  What kind of leadership is that?

Grades

Mr. Obama gets an F.  Not only did he show zero leadership on the issue, he proposed a way to make things even worse when he couldn’t pass up wanting to add another tax.

Mr. McCain gets a D.  It is a charitable “D” since he, like Mr. Obama failed his first test as potential President.  Mr. McCain showed initial leadership then did not have the courage of his convictions.  At least he didn’t try to pile on more taxes.

Advertisements