Tonight the Senate of the United States passed a bloated bailout bill. Yes, I know they called it a rescue bill but that was just a very crude attempt to put lip stick on the pig. No, I am not talking about Governor Palin in any shape, manner or form.

Yet, they tucked crap in there like forcing insurance companies to treat mental health treatment the same way they treat illnesses. I am not going to argue whether that is a good idea or not. But, it has absolutely no damn business in a financial bailout bill!

Both of the senators from my state voted for it, and both are Republicans.

I’m done. I am finished with the whole damn mess.

When I vote this year, I will choose every single Libertarian choice on the ballot with one exception. John Linder is my representative in the House and I will vote for him unless he votes to pass this abomination the Senate passed tonight. If he does, Fair Tax support or no, I will not vote for him either. No, I would not want Bob Barr to be President, but he has zero chance anyway. Who knows? Maybe, John Linder will become a Libertarian. That would be a very good thing.

So, you might be asking why I would “waste” my vote on the Libertarians. Well, it isn’t a waste to help them become viable. Neither the Republicans nor the Democrats have this country’s best interest at heart. Neither of them accurately align with the interests and issues I see as important.

So there you have it, I am tired of picking the lesser of two evils. Especially when there isn’t a damn bit of substantive difference between them.

Here’s a list of the senators who voted NO on the bailout. I salute them, I just wish my senators had this kind of courage.

Allard (R)
Barasso  (R)
Brownback  (R)
Bunning (R)
Cantwell (D)
Cochran (R)
Crapo (R)
DeMint (R)
Dole (R)
Dorgan (D)
Enzi (R)
Feingold (D)
Inhofe (R)
Johnson (D)
Landrieu (D)
Nelson (FL) (D)
Roberts (R)
Sanders (I)
Sessions (R)
Shelby (R)
Stabenow (D)
Tester (D)
Vitter (R)
Wicker (R)
Wyden (D)

The United States Senate

May 25, 2006- John McCain

Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory 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.

I urge my colleagues to support swift action on this GSE reform legislation.

Yes, actually I am being facetious.

After the House failed to pass the bailout yesterday the DOW took a 777 point tumble. Today, it regained 485 points. Yes, it is still down…

But, the world financial markets did not crash.

Many argue the market is “holding on” because everyone knows a bill will be passed later this week.

Probably. To the holding on bit, it is a given a bill will get passed later this week.

I am still hoping against hope everything stays all balled up and nothing gets passed until the markets have a chance to actually work things out and Secretary Paulson and the Federal Reserve take the steps needed to free up the credit markets.

Suspend the mark-to-market rules that are causing unwarranted markdowns due to CDOs. This morning, Field Guide members read about how CDOs and the mark-to-market situation has caused the credit markets to seize up to point where lenders aren’t even lending to other lenders!

Reinstate the uptick rule relating to stock short selling.

Be the arbiter between lenders to establish valuations on assets.

In this way we can free the markets to do what they need to do and that is establish a real bottom in asset value.

Yes, I know the consensus is “something” has to be done. Yes, I know the dire scare tactics being used. Yes, I know it has the support of the democrats, many republicans and the President. Yes, I know it is probably a given that it will pass and be signed into law.

BUT IT SHOULDN’T BE!

What should happen is the government should step back and think about how it caused the crisis we are in.

No, I have not started believing the Alex Jones conspiranoids.

The way to solve this problem is for government to get out of the way. The Great Depression of the late 1930’s was not caused by the stock market crash of 1929. It was not caused by the bank failures. It was caused by the actions of the Hoover administration and the Congress to try to contain the crisis.

I’m sure it might come as much of a surprise to many as it apparently is Senator Joe Biden, but Herbert Hoover was in the Whitehouse until Roosevelt was elected in 1932.

All of the various power grabs and feel good legislation is turning a six month crisis into a multi-decade chronic disease.

Let the markets shake off the dead weight holding it down. Let those who made bad decisions reap the results of those decisions.

Alas, the best we can do as investors is to make sure we are prepared to adapt as Congress and the President fiddle with the markets.

You know what? At this point, just go ahead and nationalize the damn things. We are no longer a representative republic anyway. It’s time for our politicians to embrace the socialism that is this country now.

Wait a minute! What am I saying?!? They already have! Look at the proposals from both Mcbama and Ocain, they differ only in the speed at which we slide further into a socialist nanny state.

Financial strife is always stressful. No matter how much you prepare and plan unexpected events will always lead to unexpected results. You can’t plan for every contingency… or more to the point every market change.

I am going to talk about investors in two general categories. The first is real estate investors. No, not the speculators who are trying to wholesale or flip or any other short term type gambit. I am talking about real estate investors. The ones who have a long term approach. They look for value when they purchase. They know their real asset is the people who pay the rent, not the physical building itself. Long term money to support these types of investments is getting tighter. The underwriting requirements are increasing and the small investor is going to have an increasingly difficult time in securing this type of financing on very favorable terms.

The speculators however are in for an increasingly rude surprise. Many operate with hefty lines of credit they use routinely to keep the process flowing for them. Those lines are credit are in jeopardy. Many are already under review and many more have already been reduced or canceled out right. These speculators still represent the most risky segment of the real estate market and as more and more scrutiny is focused on the lending community their risk tolerance is shrinking fast. As a result, short term money is disappearing.

For the real estate investor who has varied funding sources, and those sources are stable, they are going to continue to find great deals to add to their long term holdings or turn for a modest profit.

We are moving back to a time when businesses did not rely on the local banker for the money to do business.

For real estate investors and speculators, private money is no longer an alternative to “traditional” funding sources. For the real estate investors who not just survive, but thrive over the next four to five years, private money will be central to their strategy.

We are at an interesting convergence of events that not only make private money a necessity but is actually increasing the potential pool of private money.

In 2006 and 2007 I wrote about the recession I was convinced was looming on the financial horizon. I was certain either the first two quarters of 2008 or the second and third quarters would be recessionary.

It didn’t happen.

What is interesting however, many of the signs and symptoms at the periphery of a recession DID happen. Investors who positioned themselves with cash leading into 2008 have done very well in all asset markets. Those who were over leveraged found themselves in difficult and confusing times.

The economy never slid into a recession and regardless of the shrillness of the doom and gloomers out there we are not headed for a depression.

However, we are going to see an interesting phenomena in all asset markets over the next 2 to 5 years. Right now, we are seeing most commercial real estate pulling back. But, an interesting divergence is happening in things like apartments. There is upward rent pressure but a glut of poorly run and massively undervalued apartment properties. This is a savvy investor’s dream! If the property can be purchased and turned around the value increase is fast, stable, provable and most of all REAL.

Most markets are not seeing much if any upward rent pressure in single family homes. Part of the is the demographic that prefers homes to apartments but much of it is emotional. People who have been forced out of their homes typically fall back to apartments.

This divergence in the residential housing is going to continue for some time.

Consumers are nervous and they should be. They are carrying an incredible amount of debt and are stretched almost to the collective limits.

The real question is how does this relate to economies of the past?

Obviously, there was much less consumer debt carried on the collective books. But, day to day, how close to the edge was the average consumer? Interestingly, about the same as we are now. Many say, but there is a difference. They say without the huge debt loads of the past if they lost their jobs they could cut back and severely reduce their expenses until the next job came along. They say, if that happens today, they still have all those debt payments to make every month.

Not really. When people lose their jobs for example, they may keep the payments up for a while but sooner or later they stop paying on their unsecured debt. Sure there are consequences to their credit and collections calls, until they notify the collectors to stop calling, and the creditor might sue to try to collect the debt owed. But, if that happens, they can always declare bankruptcy as a last resort.

These are still great times for investors but speculators are going to have an increasingly difficult time. I don’t think speculators will be widely rewarded until at least after the 2012 elections.

I could be wrong…

I have been before…

Just reread the title of this post.

Yesterday, I received several calls, emails and instant messages with the same theme…

The markets are crashing around us! Should we liquidate? The media (and Obama) are exclaiming this to be the worst catastrophe since the Great Depression! How will we ever survive this mess?

I reminded them if their stop loss settings kicked in and a position was sold, it would be fine because they could get back in if it made sense over the next few days or weeks. I also reminded them if they didn’t get stopped out, that was fine too. Unless you were holding Lehman stock there was absolutely no reason to sell in a panic and if you were holding Lehman stock the damage was already done. Just sell at market, take the hit and move on.

Some actually looked at it rationally, some didn’t. But, now, on the morning after, we can look at the reality of yesterday.

The DOW dropped over 500 points by the close of the trading day. That is the largest single day point drop since 2001. It is a big news story. It has personal drama as the market lurches back and forth to deal with the mentality of the trading herd.

Yet, no one seemed to stop and actually think about the drop. If you go back to all of the news stories about yesterday and the statements from the politicians and you replace “500 points” with “4%” it just doesn’t have the same emotional impact. Yet, that 500 points was just a 4% drop in the market.

But, the media and politicians can’t let facts get in the way of a good story. So, they hype the 500 points and count on no one pointing out it was just 4% of the market cap.

On Black Monday in 1987, the drop was also about 500 points, 508 actually. But, that was a 22% drop in the market. The financial world did not end then and it is not ending now.