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The 3 a.m. Call

Senator McCain "metaphorically" answered his phone call regarding the financial meltdown and said "It has become clear that no consensus has developed to support the administration's proposal. I do not believe that the plan on the table will pass as it currently stands and we are running out of time." He then again puts country first and puts a halt to his campaign and travels to Washington D.C.

The "chosen one" answered his phone and said to everyone "They will call me if they need me" and went back to sleep dreaming of his "Ascension."

An overview of how this debacle started:
One of the most frequently asked questions by our members is how did the government get so deeply involved in the housing market? According to Investors Business Daily, the answer is President Clinton wanted it that way. "After entering office in 1993, he extensively rewrote Fannie's and Freddie's rules. In so doing, he turned the two quasi-private mortgage funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs, and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse. Congress was about to change hands, from Democrats to Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin's Treasury Department to rewrite the rules in 1995. It made getting a good CRA rating harder, banks were given strict new numerical quotas and measures for the level of "diversity" in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another. Loans started being made on the basis of race, and often little else. Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investment vs. 10% for banks. Since they could borrow at lower rates than banks due to implicit government guarantees for their debt, the government-sponsored enterprises boomed. With incentives in place, banks poured billions of dollars into poor communities, often "no doc" and "no income" loans that required no money down and no verification of income. Worse still was the cronyism! Fannie and Freddie became home to out-of-work politicians, mostly Clinton Democrats. Did it work? Well, if measured by the goal of putting more poor people into homes, the answer would have to be yes. From 1995 to 2005, a Harvard study shows minorities made up 49% of the 12.5 million new home owners. The problem is that many of the loans have now gone bad and minority homeownership rates are shrinking fast, and are a failed legacy of the Clinton era."

2/17/2005- House Financial Service Committee chairman Greenspan said "By enabling these institutions to increase in size…We are placing the total financial system of the future at a substantial risk"

4/6/2005-Senate Banking Committee hearing- Sen. Charles Schumer(D) N.Y.-"I think Fannie and Freddie have done an incredibly good job and are an intrinsic part of making America the best housed people in the world: if you look over the last 20 of whatever years, they've done a very, very good job."

5/25/2006-Senate floor, Senator John McCain "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac…And the sheer magnitude of those companies and the role they play in the housing market…the GSE's need to be reformed without delay"

5/26/2006-Senator McCain statement as co-sponsorship of Federal Housing Enterprise Regulatory Reform Act of 2005 " I join as co-sponsor of the Federal Housing Reform Act of 2005 S-190 to underscore my support for quick passage of GSE Regulatory Reform Legislation. If Congress does not act…American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. "

The first thing to understand is that this bailout plan does not have to cost the taxpayers anywhere close to "700 billion", as long that it has an excellent design. This outrageous figure is an estimate of how much the government would spend to buy deteriorating assets not held by banks. Eventually the government will turn around and sell these assets for a price which will be greater than zero.

Philosophically, we at United Small Business, are against government bailouts. But, we feel the other options would be far more risky. We believe that the taxpayers should get more than just the avoidance of the apocalypse for their risk. They have to get stock or warrants on the receiving end. The government would eventually sell the stock at a profit when conditions improve. An approach like this was used in Sweden in the early 1990's when its' financial systems also melted down. We believe that this agreement must have rigorous and independent oversight, strong executive-compensation standards and protection for the taxpayers. We need quick, bold action.

Malcolm Lunn
Chairman of the Board

United Small Business
Proclaiming Liberty to America's Small Business
P O Box 3132 St. Charles, IL 60174 - unitedsmallbus1@comcast.net
Phone 877-791-7705 Fax 630-475-3844


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