A Valley financial planner says the seed of the current U.S. financial crisis was planted by Congress during the Carter administration and that lawmakers ignored requests for regulation ever since.
Congressional failure to regulate mortgage companies to the same extent as banks is the root cause of the current crisis, said Peter C. Stockett, a 30-year veteran of the banking and financial industries and the former vice president of Snyder County Trust Bank.
"They were told many times over the years to do it, and they wouldn't," he said Tuesday. "Both sides of the aisle are equally guilty, and now they're blaming it on everyone else.
"I don't think there are more than five or 10 members of Congress who really understand what's up."
Beginning with the Carter administration, Democrats have controlled both chambers in eight sessions of Congress, including the current 110th.
Republicans controlled the 104th through the 109th Congress, excluding the 107th, when the GOP held a majority in the House, but the Senate was tied 50-50.
Stockett also blames Treasury Secretary Henry Paulson.
"He should never have called it a bailout," Stockett fumed. "That's not what it is. It's really an investment in our economy."
Professor may differ
Bill Gruver, a professor of economics at Bucknell University and a former partner at Goldman Sachs, said Tuesday he wasn't sure a bailout would solve the economy's problem.
"But I'm also concerned that without some response, things might go to a tipping point, to deflation and recession," Gruver said.
If the government spends $700 billion to buy securities and holds them, they will increase in value, Stockett said. When that happens, the government will make a lot of money. The market will recover, Stockett said, but it may take a few years.
If something isn't done soon, things may get a whole lot worse, Stockett said.
"If (Congress doesn't approve the bailout), people will look back in six months and wish they had," Stockett said.
The current situation began 30 years ago, Stockett said, with the congressional passage of the Community Reinvestment Act during the Carter administration.
That forced banks to change the way they did business, while also allowing banks to set themselves up as mortgage brokers.
In Snyder County, he recalled, 87 companies were able to provide mortgages. Only five of those 87-- banks -- had to follow the rules.
"The banks had to make it work, while the others could just get the money and sell the mortgages to others," Stockett said.
The mortgage brokers could go outside the area, even outside the country, to get money for mortgages in the region, while the banks were restricted to using their own capital, he said.
Stockett also blames the media for part of the problem, noting that 14 of 15 mortgages nationwide are being paid, but the media makes a big deal out of the people who default and face foreclosure.
"I saw this whole thing developing, with the problem getting larger and larger, until it blew up," Stockett said.
Gruver, the Bucknell professor, said he spoke last week with the chief financial officer of a major corporation, who told him he was barely able to secure the necessary loans, known as "commercial paper," to the meet the company's payroll and other obligations.
"The money market funds are just not working properly after the failure of Lehman Brothers," Gruver said. "If a company can't fund its operations, it must cut costs, which means they start cutting jobs. That's the tipping point.
"What that means is, if a person doesn't have a job, they won't be able to pay their mortgage."
n E-mail comments to wlaepple@dailyitem.com
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Financial planner blames economic mess on Congress
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