Thursday, February 5, 2009

President Clinton and Banks' Market Cap

I'm still amazed that President Clinton has taken not a single shot (that I'm aware of) for his part in the sub-prime mortgage debacle and subsequent credit meltdown. Wasn't Reagan the Teflon president, or was it Clinton? I think they both have that property. I tag Clinton with a lot of the blame for the sub-prime situation. He pushed aggressively for the Carter-era CRA to be strengthened and extended. This is noted elsewhere, including my first entry on this blog.

Also, the cosy, corrupt (IMO), and ultimately very damaging relationship between congressional democrats and Fannie Mae and Freddie Mac was extended and deepened through the Clinton years. And this component of the debacle ultimately makes sense. If a lot lousy mortgages are being created, then some party needs to buy 'em so still more can be created. Only after all this was in motion, did Wall Street firms create the derivatives, swaps, and other instruments that spread the bad-mortgage disease around the world. If President Clinton didn't want the relationship and doings at the GSEs to continue, they wouldn't have.

President Bush knew about it and tried to stop it on a few occasions in his first term. But instead he's tagged with blame in the mortgage problem, to my complete bewilderment. Republicans can be blamed for feeble and ineffective communication - of that I'm sure.

A net result of all this was discussed today on CNBC. What's really the market cap of the big banks affected by this? Some say it's essentially zero. It's certainly only a fraction of what it was. Where did it go and who owns the spoils? To the degree that the bad loans created a non-wealth bubble, this "bad air" was sucked into the banks and canceled out value. Thanks for the market distortion, President Clinton. Now we public (taxpayers) own a sizable chunk of the banks' remaining market cap.

The entire issue is a cause of serious concern for anyone who cares about undistorted, free markets. I'm angry. Remember Earl Pitts? "Why I'm so angry, I could......"

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