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Does Congress Know a Crisis When It Sees One?

EDITORIAL:

Today's vote in the U.S. House of Representatives against the "economic bailout package" shows a flagrant disregard by our elected representatives toward the American public and a total detachment from reality with regard to the fragility of the current world financial environment. The partisan remarks by Congresswoman Nancy Pelosi just prior to the vote were highly inflammatory and reprehensible given the situation, not designed to evoke a positive vote but rather to sabotage it. Likewise, those Republicans who voted against the bill, either due to anger at Pelosi's words or on ideological grounds, apparently consider themselves to be politicians first and Americans second.

The immediate result of this disappointing failure to lead was a 777-point loss in the Dow Jones Industrial Average, the largest point drop in history. This is a scratch on the surface of the potential reaction that is yet to come. Overseas markets are certain to plunge prior to Wall Street's reopening tomorrow morning. A market crash is not out of the question. Such an event will ripple violently throughout world economies with devastating impact.

The "bailout bill" was certainly far from perfect. Its purpose was not to provide a final solution to the problem, but to instill confidence to Wall Streeters and the American public alike that our leaders are willing to act and act decisively to bring stability to financial markets.

For those who do not understand what is happening or why we should be concerned, I offer a greatly simplified explanation. This debacle began as a crisis of confidence incurred by the sudden realization (by professional financiers who should have known) that a considerable quantity of "subprime" home loans had been issued without proper verification of ability to repay. At first considered to be solely a U.S. problem, the situation escalated when several European financial institutions announced that they were carrying large numbers of these risky debt instruments.

With mortgage lenders suddenly unable to resell their existing mortgages, mortgage lending dried up, buyers abandoned the housing market and home prices began to plummet. The situation morphed into a liquidity squeeze as financial institutions stopped lending because assets on borrowers' books could not be valued. With confidence steadily eroding, the financial markets have seized; banks are unwilling to lend money -- period. As financial reserves at less capitalized institutions fall to dangerously low levels, these institutions are becoming insolvent (unable to do business due to lack of capital), resulting in failures and bankruptcies. The crisis has now spread well beyond the mortgage market to involve all credit markets and businesses with good as well as bad balance sheets (because no one is certain who owns what).

Ironically, Congress could have stabilized this situation by abandoning partisan politics and demonstrating a united front. Apparently, our lawmakers are more interested in getting re-elected than in serving the better interests of the American public. The continual bickering by politicians, when they should be standing together to address the problems at hand, could ultimately plunge our Nation and the World into a new Great Depression. For those of you who take what I say to heart, do everything you can as fast as you can to get yourself into a better financial position and preserve capital. For those of you who do not believe, watch -- and worry.

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Posted by: The Spidermaster on Sep 29, 08 | 10:30 pm | Profile

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