Fannie Mae and Freddie Mac aren’t the problem- they’re the symptoms.

There are two approaches to medicine in my humble opinion: one tries to prevent illness or fix what’s causing the symptoms, the other- treats the symptoms and could care less about the cause.

Back aches are the best example- often, losing weight, proper shoes, changing mattresses and a lot of pilates/yoga will cure back problems- or there is the other route: drugs, surgery, braces etc.

The current financial crisis will continue until we start working on the core problem- and not treating the symptoms. No matter what you hear out of the “Political leaders” it will be wrong until we cut the apron strings to the banking, financial and insurance industries from the politicians campaign slush funds.

Once that happens, legislation that makes sound financial sense can be passed.

From the AP newswire today- the following talks about the bailout of Fannie Mae and Freddie Mac:

Fannie Mae and Freddie Mac together hold or back half of the nation’s mortgage debt, and have played an increasingly important role in the real estate market since the credit crisis started in August 2007. A government bailout could cost taxpayers around $25 billion, according to the Congressional Budget Office…

At a rally in Colorado Springs, Col., Republican vice presidential nominee Sarah Palin said, “They’ve gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help.”

Democratic nominee Barack Obama, speaking in Terre Haute, Ind., said, “These entities are so big and they’re so tied into the housing market that it is probably true that we have to take steps to make sure they don’t just collapse, because the housing market, which is already weakened, would be in even worse shape if we didn’t take some steps.”

News of the likely government takeover Friday followed a report by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie’s recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount….

On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.

“Any government action must help to strengthen our economy, which is suffering a crisis brought on by the administration’s failure to stop predatory lending,” said Sen. Chris Dodd, D-Conn., who chairs the Senate Committee on Banking, Housing, and Urban Affairs. “Any intervention also must minimize the cost to American taxpayers, and should not put other financial institutions at risk.”

Mobile News Network.

Home mortgages are fundamentally long term debt notes. They are supposed to be one of the safest investments that can be made. Typically, Americans move on average of once every 7 years- however, homeowners are supposed to stay longer- and homes are supposed to maintain or grow in value over time. We’ve unfortunately let bankers and financial markets use these holdings first as collateral for riskier investments- and then flat out deregulated the industry and allowed these long term secured debts to become un-collateralized stocks- that can be traded like monopoly money- instead of as real obligations.

Some people on Wall Street got very rich- siphoning off the cash, and leaving nothing. This isn’t the fault of Fannie Mae or Freddie Mac- this is the fault of unregulated capitalism. I recently heard some well respected pundit say that it wasn’t that we had a broken financial system- but that we now didn’t have one.

Every revolution has started because the gap between the rich and the poor got too big. The fat cats at the top seem to have forgotten this lesson, and now, since they own the politicians with their campaign contributions, don’t seem to be worried about Government stepping in and think they are safe. However, as the system fails, their ill-gotten gains end up not being worth as much as they thought- and soon, they too, will be in the same boat as the rest of us- with no oars, no rudder, no buckets and a bunch of big holes in the hull where sound financial controls could quickly fix, but- as you can see by the quotes above- neither party understands where this all must start.

The first step has to be intervention on credit card rates, fees and policy. With the Fed bailing out banks, the quid pro quo must be to lower rates to consumers to free up the consumer to spend again. At the base of our system, the little people must run fast on the hampster wheel to keep the bigger gears turning. Credit cards can’t syphon the spending ability away with 29% rates.

Second phase must be some sort of homesteading solution in lieu of foreclosure. Empty houses and fire sales on homes by banks stuck with defaulted properties are hurting everyone, including the banks. It is in our best interest to protect these home values.

Third: Wall Street has to get back to investment as a legitimate, long term strategy for wealth creation. It’s not a casino to play for a day and walk off with a bundle. Stocks must be held at least a year, and bonds longer. Secondary markets have been ignored as a major cause of our problems; it’s time to either eliminate them or severely regulate until we have some stability on Wall Street.

Fourth: It’s time to make certain that people actually earn what they make by providing something of value- instead of through greed and cunning. Publicly traded companies should no longer be able to pay executives handsome salaries for running companies into the ground without fear of repercussions. The CEO of Countrywide made off with hundreds of millions for running what has been nothing but a legal ponzi scheme. Same for Enron. Etc. It’s time to start imposing the death penalty for crimes against society as opposed to just crimes against persons. Yes, it’s radical, but, how many people have had to suffer because of their actions? Seriously- John Wayne Gacy or Charlie Dalmer Jeffrey Dahmer didn’t affect near as many people.

I’m sure there are people who will want to crucify me for asking for such radical change. I’m sure people think that being smart enough to “beat the system” is OK and the American Way- however, making five billion on Wall Street in on year isn’t possible uneless the system is severely broken and in desperate need for re-engineering.

Thoughts?

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