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We're All Homeowners: Nationalization of Fannie, Freddie Unavoidable
Yahoo ^ | 09 July 2008 | Aaron Task

Posted on 07/10/2008 9:33:59 AM PDT by BGHater

Fears about Fannie Mae and Freddie Mac retreated somewhat Tuesday after their federal regulator, OFHEO Director James Lockhart, said new accounting rule changes should make "no difference in the risks of the two firms."

On Monday, Freddie and Fannie shares plummeted after a Lehman Brothers analyst said a new FASB rule could require the two firms to write-down as much as $75 billion.

Rather than the accounting rules, what's really got investors spooked is a growing realization the government will have to nationalize Fannie and Freddie, says Kevin Depew, executive editor of Minyanville.com.

The two mortgage lenders are simply too big to fail and too critical to the housing market, Depew says. Given Fannie and Freddie own or guarantee 50% of all housing debt, according to the WSJ, continued stress on their balance sheets means higher borrowing costs for the firms, and ultimately higher mortgage rates for individuals. It also means another round of write-downs for the battered financial sector generally, which owns a lot of Fannie and Freddie-backed paper.

But nationalizing the firms, each created by an act of Congress, would mean a wipeout for equity holders, who have already seen their holdings decimated in the past year.

(Excerpt) Read more at finance.yahoo.com ...


TOPICS: Business/Economy; Editorial; Government
KEYWORDS: bailout; fannie; fanniemae; freddie; freddiemac; govwatch; homeowner; socialism
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Joy. It's only gonna get worse.
1 posted on 07/10/2008 9:36:02 AM PDT by BGHater
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To: BGHater
The two mortgage lenders are simply too big to fail and too critical to the housing market, Depew says.

Anybody surprised by this, stand on your head.

2 posted on 07/10/2008 9:37:22 AM PDT by Petronski (Scripture & Tradition must be accepted & honored w/equal sentiments of devotion & reverence. CCC 82)
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To: BGHater

Much worse. Because when I’ve thought about this, there is nothing short of a massive de-leveraging operation going on in the markets now. No one wants to loan to anyone else.

Trouble is, putting all of this leverage onto Uncle Sammy’s shoulders would make our deficits and national debt balloon to sizes seen only in nightmare scenarios.

People in high places (eg, inside the Fed, and Poole isn’t the only guy) have been saying for 10 years and FNM/FRE are unsustainable. In 2005, it was clear that their books were a shambles. And Congress’ idea of a “housing bailout” has been to allow Fannie to take on ever-larger “conforming” loans from places where housing is overly inflated.

Right now, the pay-option ARM’s are starting to reset. The foreclosure rate is going up and now we see the effects of reduces tax revenues on states and counties.

All the people who kept saying “Oh, sub-prime is overblown, this is all a media conspiracy” better think hard about what happened to the GOP the last time we went through this. The GOP was out in the cold for an entire generation, until the 50’s.


3 posted on 07/10/2008 9:40:36 AM PDT by NVDave
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To: BGHater
the government will have to nationalize Fannie and Freddie,

Thinking about the rational being given for the above statement (too big and important to the economy to be allowed to fail -- so they will nationalize them and put them in a constant state of failure and taxpayer support). Maxine Waters must be correct about the need to nationalize big oil. How about GM, GE, Wal-Mart, Big Pharmaceuticals, etc.? For that matter, The New York Times has an editorial policy that is so important to the soon to be rulers that it must be guaranteed against failure.

4 posted on 07/10/2008 9:44:00 AM PDT by JimSEA (Kaffur and proud of it.)
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To: BGHater

How accountants change where they post numbers to Income Statements and Balance Sheets makes no difference to the economics of the underlying business.

If the business is the same under new and old accounting methods, then economic value of the business has not changed.

The point is that cash flow is king. Only actual changes to the current and prospective cash flow of the organization change its value.

None of which is to say that Freddie and Fannie are smart, politically neutral, or low risk. They are probably stupid risky political hacks.

Freddie and Fannie are constantly betting Trillions of your dollars with all the upside privatized to themselves and all the downside socialized to you.

They win, you lose.

Get it?


5 posted on 07/10/2008 9:47:41 AM PDT by Uncle Miltie (McCain / Kerry '08! ************* McCain's Dream Ticket, only the names have been reversed)
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To: BGHater

I’m beginning to think that a big part of our problem is the Lehman Brothers.


6 posted on 07/10/2008 9:55:16 AM PDT by CharlesWayneCT
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To: BGHater

Are we really that stupid? Does anybody not realize that the federal government has NO Constitutional authority to do this? This is not a socialist country for Christ sake!


7 posted on 07/10/2008 9:59:35 AM PDT by djsherin (I'm from the government and I'm here to be retarded.)
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To: Uncle Miltie
Listening to the Barney Frank hearing, heard one Congressman trying to look so intelligent mention that the Taft Hartley Act led to the 30’s depression. Ignorant SOB. The Taft-Hartley Act was not passed until the mid-40s. And it had to do with limiting the right to strike key industries without some kind of cooling off period. It is no wonder that the financial condition of this country has deteriorated to the point of catastrophe with such numb-skulls running the country. These political hacks have less understanding of economics than Karl Marx.
8 posted on 07/10/2008 10:01:10 AM PDT by brydic1
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To: brydic1

Obviously meant Smoot-Hawley


9 posted on 07/10/2008 10:11:32 AM PDT by Dick Holmes
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To: NVDave

“No one wants to loan to anyone else.”

Thats been going since fall of last year when banks started hording cash and raised rates on jumbo loans.

FRE/FNM might of survived, but they became the final destination dumping ground for all the toxic waste that banks were looking to unload. Its finally catching up with the system.


10 posted on 07/10/2008 10:13:03 AM PDT by Proud_USA_Republican (We're going to take things away from you on behalf of the common good. - Hillary Clinton)
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To: BGHater

The moral of this morass: eliminate the mortgage interest deduction once and for all.


11 posted on 07/10/2008 10:17:44 AM PDT by montag813
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To: Dick Holmes
Sure, but as a congressman, he should have known the difference. The questions from the House Panel exposed their ignorance time and time again. And I was not impressed with the answers of the Fed Chairman or Treas Secretary. They have no answers to the developing problems. And I am not at all sure there is an answer that the American people would willingly live with.

It would have been so refreshing if everyone could have admitted that government at all levels has messed up big-time. They have allowed the expanding of the credit to unheard of limits in order to give us a false prosperity and get themselves reelected time and time again. The debt has now come home to roost.

12 posted on 07/10/2008 11:01:19 AM PDT by brydic1
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To: BGHater
“Fears about Fannie Mae and Freddie Mac retreated somewhat Tuesday after their federal regulator, OFHEO Director James Lockhart, said new accounting rule changes should make “no difference in the risks of the two firms.”

More to do with the likelihood Congress will come up with a bailout plan to go with the takeover of bad paper.
Fannie and Freddie are great lobbyists so soon something will be done short of an outright “nationalization”.

13 posted on 07/10/2008 11:13:13 AM PDT by count-your-change (you don't have to be brilliant, not being stupid is enough.)
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To: BGHater

socialized housing, owned by the masses for the masses, how nice. :)


14 posted on 07/10/2008 11:33:50 AM PDT by traviskicks (http://www.neoperspectives.com/Ron_Paul_2008.htm)
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To: traviskicks
>>socialized housing, owned by the
>>masses for the masses, how nice. :)
 

Socialism


15 posted on 07/10/2008 12:32:34 PM PDT by LomanBill (A bird flies because the right wing opposes the left.)
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To: BGHater

Everyone on FR should be reading Minyanville daily, it’s the best financial site on the net.


16 posted on 07/10/2008 1:29:01 PM PDT by gura (R-MO)
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To: brydic1

http://en.wikipedia.org/wiki/Smoot-Hawley_Tariff_Act


17 posted on 07/10/2008 1:59:08 PM PDT by traviskicks (http://www.neoperspectives.com/Ron_Paul_2008.htm)
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To: BGHater

I’m still waiting for Franklin Raines to be perp walked. Notice that no one is talking about the greedy CEO during the period when this company went bad.

Wouldn’t have to do with Raines being a Clinton insider?

No difference between him and Ken Lay. Both profited greatly for leading their organizations to disaster.


18 posted on 07/10/2008 2:41:19 PM PDT by LRoggy (Peter's Son's Business)
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To: Petronski

So, now we shall have a socialized Real Estate Industry!


19 posted on 07/10/2008 3:34:35 PM PDT by upcountryhorseman (An old fashioned conservative)
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To: BGHater; ex-Texan
Funny.

This was predicted numerous places some time ago.

20 posted on 07/10/2008 3:59:28 PM PDT by redgolum ("God is dead" -- Nietzsche. "Nietzsche is dead" -- God.)
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To: BGHater

Alexander Hamilton, the first U.S. Treasurer comes to mind. He knew and stated when government and banks collude American would wake up homeless and penniless. He knew this because after the Revolution, our American currency was worth little when it was backed by little. He had to conduct controlled experiments and came to this conclusion by 1790. Our culture did not learn from the Great Depression but I sure did because I love history. My grandmother who passed five years ago gave me a simple but powerful thing to remember: “Never trust bankers, they love foreclosures”.

Socialist ‘fairness policies’ promoted by cheap money by ‘too big to fail’ banks in real-estate was the same cause of the Great Depression. Now here we are again, the socialists are going to bail us out just like the Great Depression right? Thank Emporer Hirohito and Adolph Hitler for ending the Great Depression.

But the good news is by the end of it all in 1946, the Roaring Twenties crowd (my grandmother was one of them!) had become the Greatest Generation and we had 50 years of wonderful leadership.

Doesn’t mean I look forward to rebuilding and especially knowing the top 1% of the nations selfish got to fleece us, force us to do the heavy lifting while chuckling in there indoor tennis courts, but it does mean we get to throw the bums out and start a new era of prosperity.

Running a business to try and make a living these days and seeing this repeat of history is like Chinese water torture. Let’s get this over with, stop trying to fund the inevitable U.S. government and get the hell out of the way for the innovators and responsible to step up!!!! As a sidenote, as a data guy I am keeping some historical names and law passage/repeals, money guys and others directly involved in this fleecing, so they get know where to run and hide globally to avoid culpability by the stupid masses with short memories.


21 posted on 07/10/2008 4:21:17 PM PDT by quant5
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To: NVDave

You know what’s up. Glad there are others with a knowledge of history. The tax rate is going to go through the roof in a couple of years, crushing the already wobbly economy. The 97% of Americans without a golden parachute will have some nice food stamps and a one room EFFICIENT apartment, just like the socialists wanted for us. But in truth, we won’t take it lying down, now will we? Oh no, not this time. Some of us have resources and we will use them so we don’t have to wait for Emperor Hirohito to make his revived debut.


22 posted on 07/10/2008 4:24:58 PM PDT by quant5
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To: Uncle Miltie

Not much different with credit swaps and derivatives on real estate from the i-Banks where a few became ‘too big to fail’ while co-mingling ordinary citizens deposits into there business.

Rumor has it, an i-Bank threatened the Fed Chairman that if the party stops, this i-Bank would offshore there entire operation making 200,000 depositers the responsibility of the FDIC. Great leadership these days, isn’t it? I will not name names, but you can probably guess who this was. If not, suffice to say it’s time to let the forest fire burn down the rotten trees and begin reseeding.

Human nature is cyclical as is history. Nothing is new under the sun in that regard, but on the same token, we must be prepared to help our neighbors because the remedy to this behavior is always painful and requires self-sacrifice.

We are the nation of the Boston Tea Party. The twin city empire of Washington and NYC have forgotten that recently. The left has done wonders in education cirriculum to change History that teaches real lessons on human behavor and protecting oneself from tyranny to Social Studies to teach people to be ‘sensitive’ to those poor misunderstood Palestinians. The house of cards always collapses and rebuilds based on how we are created which is survival of the fittest, you reap what you sow and the law of cause and effect.


23 posted on 07/10/2008 4:36:04 PM PDT by quant5
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To: Proud_USA_Republican

“FRE/FNM might of survived, but they became the final destination dumping ground for all the toxic waste that banks were looking to unload. Its finally catching up with the system.”

Right, in other words the taxpayer has becoming the huge dumping ground to unload the risk and financial ruination whom of course had no say on this laws or repeals of safeguards. Calling it taxation without representation is an understatement. Meanwhile the reward went to the 1% of our populations wealthiest for there ‘financial innovations’. These types had best invest in security and fencing companies although many have already left the country to go invest in fertile grounds of emerging markets to continue to play in because the golden goose is now laying rotten eggs, being fleeced to the core. How sad indeed the joke of the devil is on the American people. But I assign some blame to the dumbed down masses as well, too lazy to bother to use that computer to Google something else besides Brittany Spears or stock charts.


24 posted on 07/10/2008 4:44:14 PM PDT by quant5
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To: traviskicks

Socialized banking owned by the masses by the masses
Socialized agriculture own by the masses by the masses

Perhaps it won’t be so bad for the next four years. I can stop working 14 hour days in my small business, smoke weed all day, bang some chicks without protection and eat Captain Crunch in my one bedroom flat. The government will fully endorse my behavior and continue taxing the responsible. It could be true progress after all taking place.

Cuba I hear is a nice place to live. You only put in 4 hours of production and take siestas the other 4. The scenery is beautiful and the Castro’s benevolent. Seems our Democratic leadership love the likes of the Castro and Chavez, such an easy working plan to adopt if you run the government and you get all the perks and glory from the serfs!

I guess it doesn’t occur to them our military won’t go along with this like in those nations but the Dems will sure try anyway! Guess they don’t realize you have to throw a bone to your military and speak kindly of them once in awhile to accomplish a communist agenda.


25 posted on 07/10/2008 4:52:33 PM PDT by quant5
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To: Proud_USA_Republican; NVDave
"No one wants to loan to anyone else."

The sky is not falling in everyone's world.

Thankfully, people go about there business and stuff still gets done.

26 posted on 07/10/2008 6:21:20 PM PDT by the invisib1e hand (please consider the environment when purchasing the New York Times)
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To: JimSEA

“Too big to fail” applies uniquely to financial concerns because of the threat of system failure. When a large financial firm collapses its assets get dumped on the market all at once, driving down asset values at other banks. This can have a cascading effect and bring down firms that would otherwise be stable.

In the early 30s a full one third of American banks collapsed and it was this, not the stock market collapse, that did the real damage of the Depression. Fed and Treasury officials have this in mind. No one knows if we could have a repeat of the Great Depression, but no one wants to sit back and find out.


27 posted on 07/10/2008 7:44:16 PM PDT by Pelham (Press 1 for English)
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To: quant5

“Not much different with credit swaps and derivatives on real estate from the i-Banks where a few became ‘too big to fail’ while co-mingling ordinary citizens deposits into there business.”

The Glass-Steagall Act was being dismantled during the Clinton years. Now we are rediscovering why it was passed in the first place.


28 posted on 07/10/2008 7:52:44 PM PDT by Pelham (Press 1 for English)
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To: quant5; Abathar; Abcdefg; Abram; Abundy; akatel; albertp; AlexandriaDuke; Alexander Rubin; ...
..what's really got investors spooked is a growing realization the government will have to nationalize Fannie and Freddie..

Libertarian ping! To be added or removed freepmail me or post a message here.
29 posted on 07/10/2008 8:44:15 PM PDT by traviskicks (http://www.neoperspectives.com/Ron_Paul_2008.htm)
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To: quant5

lol, too true.


30 posted on 07/10/2008 8:45:21 PM PDT by traviskicks (http://www.neoperspectives.com/Ron_Paul_2008.htm)
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To: NVDave
No one wants to loan to anyone else.

You couldn't prove that by the number of commercials on TV for various and sundry companies offering mortgage loans. They may have more stringent rules than they did two years ago, but they certainly ARE lending money to folks who want to buy homes, or pull equity, if they have any, out of the one they own now.

31 posted on 07/10/2008 9:38:57 PM PDT by SuziQ
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To: quant5
But the good news is by the end of it all in 1946, the Roaring Twenties crowd (my grandmother was one of them!) had become the Greatest Generation and we had 50 years of wonderful leadership.

Thats funny. What generation do you suppose broke the piggy bank? What generation was in power when they voted ever larger government pork? Take a guess.....
32 posted on 07/10/2008 9:49:37 PM PDT by Kozak (Anti Shahada: There is no god named Allah, and Muhammed is a false prophet)
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To: djsherin
Does anybody not realize that the federal government has NO Constitutional authority to do this?

Where is the authority in the constitution for welfare, social security, medicare, section 8 housing, LIHEAP, etc?

33 posted on 07/10/2008 9:59:24 PM PDT by Straight Vermonter (Posting from deep behind the Maple Curtain)
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To: Uncle Miltie
Freddie and Fannie are constantly betting Trillions of your dollars with all the upside privatized to themselves and all the downside socialized to you.

They win, you lose.

Get it?

This is now The American Way!

Being responsible is an irrational path... And now that the incentives have been set for people to act irresponsibly, is it any wonder we are in decline?

Pay your employees outrageous salaries and give into outrageous union demands...if your business fails, the governmentAmerican taxpayers will bail you out.

Buy a big house...if you can't afford the mortgage, the governmentAmerican taxpayers will bail you out.

Make lots of overleveraged investments...if you can't cover them, the governmentAmerican taxpayers will bail you out.

Have lots of babies...if you can't afford them, the governmentAmerican taxpayers will bail you out.

Build in a floodplain...if it floods, the governmentAmerican taxpayers will bail you out.

etc.

I'm sick of paying for others.

34 posted on 07/10/2008 9:59:33 PM PDT by Gondring (I'll give up my right to die when hell freezes over my dead body!)
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To: djsherin

Constitution? Do we have one of those?


35 posted on 07/10/2008 10:00:15 PM PDT by Gondring (I'll give up my right to die when hell freezes over my dead body!)
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To: Kozak
What generation do you suppose broke the piggy bank? What generation was in power when they voted ever larger government pork? Take a guess.....

The Axis didn't win...but we sure lost, too.

36 posted on 07/10/2008 10:01:45 PM PDT by Gondring (I'll give up my right to die when hell freezes over my dead body!)
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To: montag813
The moral of this morass: eliminate the mortgage interest deduction once and for all.

Why, that would be like ending the levy of a fine on anyone who doesn't do what the government wants! How dare you suggest the Constitution doesn't have a Social Engineering section!

Next you'll be going off the deep end and suggesting that infertile couples not be penalized and taxed at a higher rate than a couple with the same income who makes the choice (and is able) to have a kid!

Why, you sound like you want to take us back to days of sanity!

37 posted on 07/10/2008 10:07:38 PM PDT by Gondring (I'll give up my right to die when hell freezes over my dead body!)
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To: traviskicks

Yes comrade, it warms, how you say....cockles of heart.


38 posted on 07/10/2008 10:28:44 PM PDT by Xenophon450 (I guess I'll never know, some things under the sun can never be understood...)
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To: BGHater
too big to fail Too big to save (someone else thought of that)
39 posted on 07/10/2008 10:34:12 PM PDT by steve86 (Acerbic by nature, not nurtureĀ™)
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To: SuziQ

I’m referring to loans between investment banks, hedge funds, etc. Loans used for leverage on trading/investing operations.


40 posted on 07/10/2008 11:37:33 PM PDT by NVDave
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To: NVDave

At this point I’d rather loan money to the local crack head than hedge fund.


41 posted on 07/10/2008 11:48:19 PM PDT by durasell (!)
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To: montag813; Gondring

I’d add to both of your suggestions: abolish public education, with the result that property taxes would be significantly lower, which would probably be the equivalent of the mortgage deduction.


42 posted on 07/11/2008 12:25:34 AM PDT by happygrl
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To: NVDave

dittos


43 posted on 07/11/2008 12:31:42 AM PDT by dennisw
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To: quant5
The bank is something more than men, I tell you. It's the monster. Men made it, but they can't control it.

Grapes of Wrath by John Steinbeck

44 posted on 07/11/2008 12:44:10 AM PDT by happygrl
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To: traviskicks

Welfare for the well connected. Aargh!

Where are the Republicans that understand Milton Friedman?


45 posted on 07/11/2008 8:46:37 AM PDT by secretagent
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To: steve86

“Too big to fail... Too big to bail” is how I’ve heard it put.


46 posted on 07/11/2008 8:49:29 AM PDT by ex 98C MI Dude (All of my hate cannot be found, I will not be drowned by your constant scheming)
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To: happygrl
...abolish public education, with the result that property taxes would be significantly lower, which would probably be the equivalent of the mortgage deduction.

An even greater benefit: it would destroy a powerful obedience-conditioning tool for the governuts.

47 posted on 07/11/2008 8:51:22 AM PDT by secretagent
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To: CharlesWayneCT

Please explain.


48 posted on 07/11/2008 3:35:28 PM PDT by Jacquerie (The current tax code is a daily mugging - Ronaldus Magnus)
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To: Pelham
In the early 30s a full one third of American banks collapsed and it was this, not the stock market collapse, that did the real damage of the Depression.

Good point. My mother, who was a very young girl at that time, told me that she remembered overhearing her mother and father talking about how the banks were “collapsing”. When she went with her parents to the bank to see if they could get their savings out, she couldn’t understand why the building was still standing. She took “collapse” to mean a literal one and expected to see a big pile of rubble where the bank once stood with people rummaging through the fallen bricks to find their money.

Back then folks like my working class grandparents typically didn’t have anything invested in the stock market. And back then I don’t tnk there were pension plans or life insurance vehicles heavily invested in the stock market like there are now and there were no 401ks and such. A lot of people didn’t even have checking accounts and paid cash for all their purchases but many did have savings accounts, sometimes their entire life savings in banks that before federal insurance were completely wiped out if their bank went under.
49 posted on 07/11/2008 4:30:04 PM PDT by Caramelgal (Just a lump of organized protoplasm - braying at the stars :),)
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To: Caramelgal

“Back then folks like my working class grandparents typically didn’t have anything invested in the stock market.”

Quite so. Whereas bank savings accounts were widespread. The thousands of banks that collapsed were largely rural banks, which devastated small town America. Joseph Schumpeter wrote that the Depression was much more severe in the US than in Europe, and this was due to a peculiarity in American banking law that prevented interstate branch banking.

In Europe large money-center banks could have branches in rural towns. If there was a run on a bank, the rural bank could get help from its larger parent. In America a run on a small town bank would collapse it. Which led to a greater panic on the part of the public. The panic fed on itself. FDR’s speech “we have nothing to fear but fear itself” was in fact about this very issue, and not the war.


50 posted on 07/11/2008 7:23:28 PM PDT by Pelham (Press 1 for English)
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