An Open Letter to Congress

Dear Representatives:

You are faced with a decision to expand the powers of the Treasury in unprecedented ways, to bring a critical component of the global economy under US government control.

Two things brought us to this point:

  • Foolhardy investors at the helm of giant institutions (sovereign wealth funds, domestic and foreign investment banks, and hedge funds), greedy for superior returns, poured money into assets whose true value they did not understand.
  • Simultaneously, assets of questionable value were produced by Fannie Mae, Freddie Mac, and other institutions. These institutions apparently looked the other way while their suppliers, predatory lenders, fed off American home buyers and speculators.

The market should be allowed to punish these institutions just as it frequently punishes every other irresponsible speculator in every other market.

You have heard predictions of doom and gloom if more of these institutions are allowed to go bankrupt.  Please use your own common sense when you consider what will happen under that circumstance.

The economic forces that will dominate are very simple:  Loans will continue being made.  However, lenders will simply start considering carefully what their money will be used for, and how a purchased asset will yield a return.  This is what they should have been doing in the first place.

Yes, some money will temporarily flow out of the housing market, but not all the money that is there currently belongs there.

Yes, large-scale institutional investors will suffer losses, but they will start demanding transparency of asset values and shift their remaining money into fundamentally sound sectors of the global economy.

The bailouts of these institutions will serve only to enlarge and extend the housing bubble by artificially increasing the value of bad loans.  It will create an enormous tax burden, either on our children or on Americans who were sensible enough to stay out of bad debt.

It would be a tragic hypocrisy if we punished oil speculators or short sellers while rewarding larger scale and more extreme speculation in credit derivatives. Please do not spend the American public’s money to provide corporate welfare to these domestic and foreign speculators.  Public money is far better spent rescuing American borrowers who were defrauded and punishing the predatory lenders who victimized them.

I don’t envy your position, but I urge you again to use your common sense in this consideration.  I will be following your actions with interest.

Thank you.

–  Milind S. Pandit

Tags: Economics, Politics

Created at: 23 September 2008 12:09 AM