The Most Important Blog Entry I've Ever Made

I implore you to read everything I am about to type very thoroughly before heading back out into the Blogosphere. In fact I would really appreciate it if you take this entry with you to either make a blog post of your own or just to link up to us. Honest to God it is not for the sheer sake of increasing the number of visitors here. The reason is that quite frankly, I am very worried. I'll even admit that we (our family) are scared. The reason (and don't wander away just yet)? The impending government bailout of Wall Street.

This is NOT a political post intended to bash one party or the other. Clearly both sides share some of the blame, nay ALL of it, for where we are at the moment. But the time to point fingers passed us by long ago. Again, don't go away just yet. The meat and potatoes are about to be served.

When President Bush spoke last week I got the very same impression that I did when he laid out his reasons for invading Iraq. I felt and still feel he used fear to seduce the American public into supporting his actions. I get the very same impression in regards to this 700 billion dollar mess we are fixing to inherit. Obviously senators and congressmen of his own party along with many Democrats feel the same since no deal has been made.

Yesterday over lunch, I told Joan why I am dead set against any sort of bailout. Honestly it is very difficult to articulate all of my reasoning. That is why I was thrilled that she sent me a copy of a letter written by her company's CEO, a long-time banking executive, that was sent to every elected official on Capitol Hill just two days ago.

I feel very strongly that each and every American with a voice, or better yet a blog, start some sort of action TODAY. Blog it! Call your representatives! E-mail them! Send this letter to all of your family, friends, enemies, anybody and everybody. Even though this is exactly my feelings, they are the words of Mr. John Allison and precisely the words our president, our representatives, the media, all of us need to hear (or read).

Again please read this and forward it as soon as you can!

Dear Senator/Congressman/Representative:

BB&T is a $136 billion multi-state banking company. We have 1,500 branches throughout the mid-Atlantic and southeast states. While we have been impacted by the real estate markets, we continue to have healthy profitability and a strong capital position.

We think it is important that Congress hear from the well run financial institutions as most of the concerns have been focused on the problem companies. It is inappropriate that the debate is largely being shaped by the financial institutions who made very poor decisions.

Attached are the issues that we believe are relevant from the perspective of healthy banks. Your consideration of these issues is greatly appreciated.

Key Points on "Rescue" Plan From a Healthy Bank's Perspective

1. Freddie Mac and Fannie Mae are the primary cause of the mortgage crisis. These government supported enterprises distorted normal market risk mechanisms. While individual private financial institutions have made serious mistakes, the problems in the financial system have been caused by government policies including, affordable housing (now sub-prime), combined with the market disruptions caused by the Federal Reserve holding interest rates too low and then raising interest rates too high.
2. There is no panic on Main Street and in sound financial institutions. The problems are in high-risk financial institutions and on Wall Street.
3. While all financial intermediaries are being impacted by liquidity issues, this is primarily a bailout of poorly run financial institutions. It is extremely important that the bailout not damage well run companies.
4. Corrections are not all bad. The market correction process eliminates irrational competitors. There were a number of poorly managed institutions and poorly made financial decisions during the real estate boom. It is important that any rules post "rescue" punish the poorly run institutions and not punish the well run companies.
5. A significant and immediate tax credit for purchasing homes would be a far less expensive and more effective cure for the mortgage market and financial system than the proposed "rescue" plan.
6. This is a housing value crisis. It does not make economic sense to purchase credit card loans, automobile loans, etc. The government should directly purchase housing assets, not real estate bonds. This would include lots and houses under construction.
7. The guaranty of money funds by the U.S. Treasury creates enormous risk for the banking industry. Banks have been paying into the FDIC insurance fund since 1933. The fund has a limit of $100,000 per client. An arbitrary, "out of the blue" guarantee of money funds creates risk for the taxpayers and significantly distorts financial markets.
8. Protecting the banking system, which is fundamentally controlled by the Federal Reserve, is an established government function. It is completely unclear why the government needs to or should bail out insurance companies, investment banks, hedge funds and foreign companies.
9. It is extremely unclear how the government will price the problem real estate assets. Priced too low, the real estate markets will be worse off than if the bail out did not exist. Priced too high, the taxpayers will take huge losses. Without a market price, how can you rationally determine value?
10. The proposed bankruptcy "cram down" will severely negatively impact mortgage markets and will damage well run institutions. This will provide an incentive for homeowners who are able to pay their mortgages, but have a loss in their house, to take bankruptcy and force losses on banks. (Banks would not have received the gains had the houses appreciated.) This will substantially increase the risk in mortgage lending and make mortgage pricing much higher in the future.
11. Fair Value accounting should be changed immediately. It does not work when there are no market prices. If we had Fair Value accounting, as interpreted today, in the early 1990's the United States financial system would have crashed. Accounting should not drive economic activity, it should reflect it.
12. The proposed new merger accounting rules should be deferred for at least five years. The new merger accounting rules are creating uncertainty for high quality companies who might potentially purchase weaker companies.
13. The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley. The Treasury has a number of smart individuals, including Hank Paulson. However, Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore, they can not be relied on to objectively assess all the implications of government policy on all financial intermediaries. The decision to protect the money funds is a clear example of a material lack of insight into the risk to the total financial system.
14. Arbitrary limits on executive compensation will be self defeating. With these limits, only the failing financial institutions will participate in the "rescue," effectively making this plan a massive subsidy for incompetence. Also, how will companies attract the leadership talent to manage their business effectively with irrational compensation limits

More from blogs.

Here is a pdf version for e-mail.

A link to find your representatives.

A CNN quote from Republican Ted Poe, representative from Texas: Rep. Ted Poe of Texas said the "politics of fear" permeate the issue. "We've been asked to rush to judgment on this," he said. "The politics of fear seem to be everywhere in the capital this week: 'We have to get this done by a deadline.' I think not. I don't think that the American taxpayer should have a financial gun put to their head."

CNN iReports overwhelmingly say NO to the bailout!

Update 1: My God, the congressional democrats are wanting to add "pork" to the bailout plan! Like I said, both parties are trying to kill America's middle-class.

Update 2: Icing on the cake: my representative Rep. Bob Inglis cuts me off during a conference call after I sat and listened to his garbage for two hours. I've met him before - he just proves again what an asshat he is. Hey Bob's staff (who should read this), you might want to look for gainful employment soon. Bob will be out the door next time he comes up for election. Since you work for a douche bag for the moment you might want to put that on the resume'.

Update 3: Wanna know who to blame - besides our elected officials?

And Craig Ferguson has more excellent advice about the election.