November 5, 2008

Suttmeier Says
--Commentary from ValuEngine Chief Market Strategist Richard Suttmeier

 Failed Policies of the Bush Administration – 2008 Edition!

The Bush Administration has totally mismanaged the economy.  Listed below are just a few of their blunders.

1.      $165 billion Economic  Stimulus  – Was supposed to create  500,000 new jobs. Instead the economy has lost jobs during every month of 2008.  The unemployment rate has increased from 4.7% to 6.1%. 

2.      $200 billion Backstop for Fannie &  Freddie  – The GSEs are using this money to buy toxic mortgage-backed securities.  This waste of money is causing Fannie Mae debentures to record wide spreads versus US Treasuries for its reference notes. The conservatorship of the GSEs is a  total failure.
  
3.      The Housing Bill – including $300  billion for HUD to Help Homeowners – This part of the Housing Bill became effective October 1.  To qualify, the homeowner had to have his mortgage originated between January 2005 and June  2007.  I do not belief that this $300 billion has been tapped yet, so it’s not too late to use this funding elsewhere. 

4.      $700 billion Rescue of the Capital Markets  – Buying toxic mortgages is a waste of money.  I liked the idea of  “TARP-Protected” banks, but the Treasury made a mockery of this program by  providing funding to every bank holding out a tin cup.  Some of the helped banks receiving aide will certainly fail in the years ahead.

Recommendations for the Obama Administration

  The economic challenges facing President Obama are numerous.  However, the most critical issue is to end “The Great Credit Crunch.”  The failure of the credit markets has been totally mismanaged by the Bush Administration, Congress, and regulators--such as the US Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC).

STEP ONE – Send Fed Chief Ben Bernanke on his helicopter back to Princeton and CHANGE the leadership of our Central  Bank to a competent individual worthy of your trust.   Appoint your advisor-- and former Fed Chairman-- Paul  Volcker as the interim leader of our Central Bank.

STEP TWO – Bring in a Treasury Secretary who can REFORM our economic policies and address the failures of Bush Administration.  Finding a qualified person who is against these programs may be difficult, but we must CHANGE direction to avoid the imposition of trillions of dollars in additional losses to the taxpayer..

STEP THREE  – Appoint a Chairman of the FDIC  that understands that “The Great Credit  Crunch” is not temporary, and that we need to RESTRUCTURE the banking  system.  The original intent of the “Troubled Asset Relief Program” (TARP)  was to buy up toxic mortgage-backed securities.  I am against this plan and was relieved when the US Treasury announced that TARP would take equity  positions in major and healthy US banking institutions. This could  have been the cornerstone for a move to a smaller-- and stronger-- consolidated banking  system.

STEP FOUR  – Institute a “Mortgage Mulligan” to ADJUST the terms of mortgages that are defaulting, causing foreclosures, and clogging the arteries of the Credit Markets  worldwide.   Fund this program to encourage first time home buyers via tax-free early withdrawals from retirement accounts. The “Mortgage Mulligan” should be open to  all citizens with a mortgage. Giving taxpayers more money in their pockets every month will provide a natural fiscal stimulus--and we won’t have to rev up the Fed helicopter.

To read ValuEngine's Quarterly FDIC Report by Chief Market Strategist Richard Suttmeier--which includes a complete report on "The Great Credit Crunch" as well as his lists of problem banks both "too big to fail" and likely to fail as well as proprietary ValuEngine model data for more than 65 tickers--go to ValuEngine.com.

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Steve Hach
Senior Analyst
ValuEngine Inc.