Originally written in October 2008:
Update: When I wrote the following newsletter, they were still voting on the bailout plan. That plan did not pass. So, it will probably be back to the drawing board on a new plan. And in the meantime, there will be a short term credit
crunch. Here's the original newsletter...
Update #2: They passed the "rescue plan". Why do I get the distinct feeling that I have been robbed?...
A lot of you may be wondering if this is "it". By "it" I mean the crisis I've been warning ya'll about for the last few years. My answer is Yes and No. Sure... we have a desperate financial crisis on our hands here, but is it caused
by an oil shortage or energy crisis? Partially... but before I explain, let me say that this "bank bailout" that is happening now is not just a United States thing. If the US goes down on the first flush, the rest of the world
will go down on the second!
This whole problem started when mortgage lenders started giving away home loans to people with sub-prime credit. This was actually encouraged by Freddie Mac and Fannie Mae. The Community Reinvestment Act (CRA) was one of the main reasons
for handing out these sub-prime loans. The CRA, originally enacted under President Carter in 1977, required banks to meet the credit needs of their "entire community". Clinton administration rules went into effect in 1995 that
further bolstered and encouraged CRA based sub-prime lending. W. Bush tried in 2003 to propose more oversight of Freddie Mac and Fannie Mae. But Barney Frank and his group of Democrats opposed it thinking it would reduce the availability
of affordable housing. Maybe this explains why Barney was so interested in fixing this problem last week - he was trying to save his own ass because he knows the policies he supported are what caused this whole mess in the first
place. It's amazing to see him and the other Democrats posing as "saviors" when in fact they are just the opposite.
Anyhow... that's just one reason for this mess. The other reason is high prices on consumer goods and services due to high oil prices. Sure, Adjustable Rate Mortgage (ARM) rates went up, but so did the price of everything else in the
past few years. This one, two punch of higher home payments and higher prices on just about everything else is what caused most of the home loan defaults. Like I have been saying, everything, and I mean EVERYTHING you buy is tied
to the price of oil. Just over the past couple of years, we've seen...
Folks... I can guarantee you one thing, the "average line" in the graph below will NEVER point in a downward direction!...
Even though it remains to be seen if this current financial crisis will be averted, I still think things could get a lot worse. The future holds increasing fuel prices and thus increasing prices for almost all products and services
- something the "bailout" can not fix. And this does not even take into consideration a disaster scenario which could put us all in the dark literally overnight (for just one example, see my newsletter on Extreme Solar Flares expected