Obama’s election, hopefully will seal wounds existing for hundreds of years; the USA’s cruelest war with the largest casualty count ever, was a civil war fought over race.
However, investors know that whoever was elected would confront an almost impossible task to resolve the sub-prime mortgage mess. So we should be wary and not expect too much or get lost in the hype; particularly when neither candidate has great credentials in respect of this mortgage mess.
Extract from recent article on the sub-prime.
….“It would be heartening to believe that either Senator Obama or Senator McCain have been candid when discussing their own roles in helping to create, or at least confront, the now gaping hole in the heart of the US economy. It would also be heartening if either of them had presented a credible plan for how to mend the wound. But neither has been candid or credible on the subject.
If either man had told the truth, this is what they would have told you: For the past 20 years, the guard rails of the US mortgage system were either weakened or dismantled, by both parties, for ideological reasons. The Republicans were part of the process because of their obsession with deregulation and market forces. The Democrats contributed because of their ideological obsession with race.
A root cause of the mayhem was social engineering. Greed then completed the process. Borrowers with meagre financial resources received loans to buy property or refinance their mortgages; many of them in low-income, predominantly African-American neighbourhoods.
A majority of borrowers had a troubled financial past before they received mortgages. Nearly a quarter of successful loan recipients had previously filed for bankruptcy.
But financial institutions, real estate agents, mortgage brokers and appraisers raked in upfront fees before the risky loans were packaged and onsold to Wall Street.
In 1999 a prominent Democrat, Howell Raines, chairman and chief executive of Fannie Mae, began a program which eased credit requirements for lower-income borrowers, especially "minority" applicants. Raines is African-American. In 2006, the Government filed suit against Raines to recover some of the $US90 million in income he had made at Fannie Mae based on overstated company earnings. The suit was settled this year and Raines fined about $US1 million.
Although he is now regarded as a culprit in the credit scandal, Raines is an adviser to Senator Obama. His predecessor as chief executive at Fannie Mae, James Johnson, is also an adviser to Obama's advisory team. After arriving in Congress, Senator Obama received $US126,349 in campaign contributions from Fannie Mae and Freddie Mac, the second-highest amount given to anyone in Congress.”
