DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears | Cavuto on Business | Forbes on Fox | Cashin' In
Bulls & Bears
This week Brenda Buttner was joined by Gary B. Smith, Tobin Smith, Eric Bolling, Pat Dorsey and Richard Goodstein.
Dems' Financial Fix Leaves Out Government Lenders Fannie, Freddie
Gary B. Smith, TheChartman.com: This would be akin to the oil disaster in the Gulf, and the government saying that BP doesn't have anything to worry about, and not holding them to any degree of accountability. It's absurd. Fannie and Freddie aren't affected at all by financial reform. Executives at Fannie and Freddie were pushed by the government to expand into the subprime housing market. They tried to fight back, that they would be exposed to delinquent payments, but ultimately the government's desire to expand housing won out.
Richard Goodstein, Democratic strategist: There's no doubt there were excesses associated with Fannie and Freddie. The good news we've had since 2008 is that the Federal Housing Finance Agency has been granted oversight and regulatory ability to better monitor the two companies. Fannie and Freddie might not have been dealt with in this bill, but this legislation has addressed the notion of "too big to fail" and dealing with abusive lending practices. If you're on Main Street, you want to make sure big banks can be winded down, and derivates come out from the shadows. I think Fannie and Freddie will be dealt with next year.
Tobin Smith, NBT Media: There should be a special place in hell for people who created the legislation that forced trillions of dollars of bad loans onto Fannie and Freddie's books. Then Congress decides to implement financial reforms that don't even address these issues. And it's a major problem that the two companies have taken on 95 percent of mortgage loans over the last 12 months. If you take them and the Federal Housing Authority out of the equation, there is very little private lending going on in this country. This issue is going to bite us a hell of a lot harder than some credit card company charging someone a 13 percent interest rate instead of 12 percent.
Pat Dorsey, Morningstar.com: Fannie and Freddie are already in wind-down mode. There's some nasty stuff on their books. But the loans they've recently took in are at much higher credit levels, so that less of a problem. Though there are still major problems with the two companies that need to be fixed. I don't know why this isn't in the bill. I think a major problem down the road is the Federal Housing Authority. It's going to be the next Fannie. They're giving out 3.5 percent down loans to very shaky borrowers. The FHA represents 25 percent of mortgage loan volume right now, and many of the loans are crap.
Eric Bolling, Fox Business Network: You can't ignore Fannie and Freddie. Before the crisis, Fannie and Freddie backed about half of all mortgages in the U.S. Last year, that number grew to about 70 percent. They have about $5 trillion of loans outstanding. Part of the reason it's not being addressed in this financial reform legislation is that it's just too big and scary. If new regulations take Fannie and Freddie down even further, that could bring the whole system down. So it's gotten moved aside in favor of everything else. Yet it's the real source of the housing crisis.
Would Investor Tax to Pay for Spending Hurt Jobs?
Eric Bolling: This will be a job killer. The government is trying to create economic relief and is going to tax the people creating jobs. Washington seems to be the only place that doesn't realize when you raises taxes you drop business confidence. When confidence drops, businesses and people stop spending, economic activity goes away, and so do the jobs. And the economy as a whole goes right down with it.
Tobin Smith: We have to care about this because of jobs. The bureau of economic analysis has said that since 1985, over 40 percent of all high paying jobs, people making $75,000 or over, were created by companies that started with venture capital--Google, Apple, Cisco, etc. This bill would raise taxes on venture and entrepreneurial capital companies by 157 percent. You're telling me that if someone raised your taxes 157 percent it wouldn't change your behavior? As a result, we won't raise as much money, or manage as much money, and won't create as many new high-tech companies.
Richard Goodstein: I would say if you looked at two groups not suffering in the economic downturn, it'd be hedge fund managers and oil companies. That's where potential tax revenue is. I think there's a general feeling that maybe these guys could do with a little less than the billions and billions they're making every quarter. The fact of the matter is the chief economist from Standard & Poor's, and Moody's, said the Obama economic plan is working better than projected. We have to spend more because unemployment is at 9.9 percent.
Gary B. Smith: It has been unionized government workers that have suffered the least in this economic downturn. Government workers have the lowest unemployment rate of any sector. This is robbing Peter to pay Paul. In this bill, they've got provisions like expanding unemployment benefits, or helping states pay for Medicaid. Yeah, that's going to protect jobs. My favorite is the billion dollars to create summer work programs for young people. But again, the government is just taking money away from businesses and people succeeding.
Pat Dorsey: Jobs will come back when businesses start hiring. It always happens more slowly than you want it to, but the market comes back and businesses start hiring. There's obviously an incentive for the government to do something, but the best thing to do is wait it out.
Treasury Forgives $1.6 Billion Chrysler Loan; Union Handout?
Gary B. Smith: This is just another union payoff. There is a big conflict in this country--the bailout of Wall Street. But Wall Street has been painted as evil and mean. Take out Wall Street and substitute auto workers and you have the same scenario only worse because most of the financial companies actually paid back their loans. In this instance, the government is forgiving loans. The same union that got GM and Chrysler in trouble wants their old benefits back. Sure, GM made a profit last quarter, but they'd have to have that same profit margin for the next 14 consecutive years to pay off the $50 billion they received from the government.
Richard Goodstein: Let's not forget the auto company bailouts were the original idea of the Bush administration. So this is hardly some payoff to the unions, considering George Bush wasn't exactly their best friend. The alternative here is that the auto companies would go belly up if some of these loans weren't forgiven. As a result, millions could potentially lose their jobs by a cascading effect. The administration determined that Chrysler would not be able to adequately compete in the market if it didn't have some of these loans forgiven.
Tobin Smith: Chrysler originally should have just gone out of business because they were making a lousy product. Fiat has come in and taken over the company for dollar. Remember, this money is a small amount compared to the $34 billion government auditors say are going to be lost as a result of the auto bailouts. We just keep duplicating stupid behavior.