by: R.J. Moeller
In the 1930’s, amidst the turmoil and chaos of the Great Depression’s eco
nomic fallout, the federal government under FDR (and a Democratically-controlled Congress) passed a series of measures known as the “New Deal” to get the country back on its feet. Although admittedly many of those measures were necessary, and in some cases, visionary, the power Washington bestowed upon itself in the name of correcting a national crisis has continually proven to be on many levels a mistake we cannot seem to escape some 70 years later.
Out of the New Deal era came ideas like Social Security. Under the legitimate and sympathetic banner of helping our senior citizens survive after retirement, and in a stroke of political genius, FDR pushed legislation through Congress that promised to provide financial assistance to anyone over the age of 65 in an era when the average life expectancy was approximately 60. Today in 2008, the average life expectancy is roughly 80 years old and with the Baby Boomers dining-and-dashing their way to retirement in droves, payment of our national tab will be left for my generation (and millions of illegal aliens) to pick up. The decades of opportunity to reform or even just moderately revamp the depleted and on-pace-to-be-bankrupt-by-2032 Social Security system have passed by dozens of sessions of Congress and 11 presidents that could (and should) have fixed a broken structure.
Now I am in no way suggesting we abandon the commitments we’ve made to current and soon-to-be retirees. That important debate is for another time. No, my intent in relaying this anecdote is simply to point out that when the federal government gets too involved in specific areas, like tampering with the economy or promising “free” stuff that would come along with a new government program, two specific things occur: 1) The power they bequeath themselves is never returned and bureaucracies that were initiated as a temporary stop-gap solution to a specific problem become perennial all-stars at the gluttonous pork-barrel trough (located in adjacent chambers of the Capitol Building). And 2) Money is wasted, institutions and markets are devastated, and the cures the federal government then further suggests are invariably worse than the original sickness that brought on the intervention to begin with.
Case in point: the collapse of Freddie Mac and Fannie Mae. Now you don’t have to be an economics professor at Harvard for the government’s disastrous role in our recent financial woes to come clearly into view. Let’s quickly jump back to the good old days of FDR’s New Deal. Created with the intent to help more Americans get back into a home, Fannie became the first federalized lending houses in American history. (Freddie Mac wasn't created until 1970.) Through the years, pieces of both institutions would be sold off to private entities, but the fact that the government maintained a vested financial stake in Freddie and Fannie meant that the risk of being that private entity who partially owned each of them was socialized. In other words, whoever owned and operated each of them could take precarious financial risks but wouldn’t necessarily be on the hook for losses if (and when) things went south.
Can you guess where this is headed?
The federal government (with our tax money) insured the two biggest lenders in the nation. Members predominantly of one political party (Democrats) received kick-backs from Freddie and Fannie, and the desperately needed regulation of the out-of-control lending houses
Republicans like President Bush and John McCain were calling for the past eight years were ignored and voted down. Senators Barack Obama, Chris Dodd (D-CT), and Hillary Clinton were the top three beneficiaries of political campaign contributions from Freddie and Fannie. Even some Republicans warning of the coming troubles, including John McCain, took modest contributions from Freddie and Fannie, but the deep-seated connections between the liberal penchant for increased governmental intervention and the current economic misery go even deeper.
In 1977, Jimmy Carter and the Democratically-controlled Congress passed legislation known as the Community Reinvestment Act. Liberal politicians claimed that lenders were discriminating in their lending practices against minorities in poorer areas, so they mandated that loans be given to people regardless of their capabilities to pay the funds back. Congress may be dumb, and we all know they're stupid, but even they knew that some incentive or compensation would have to be given to lenders who would now be forced to put up money for people who in all likelihood would default on their loans.
nomic fallout, the federal government under FDR (and a Democratically-controlled Congress) passed a series of measures known as the “New Deal” to get the country back on its feet. Although admittedly many of those measures were necessary, and in some cases, visionary, the power Washington bestowed upon itself in the name of correcting a national crisis has continually proven to be on many levels a mistake we cannot seem to escape some 70 years later.Out of the New Deal era came ideas like Social Security. Under the legitimate and sympathetic banner of helping our senior citizens survive after retirement, and in a stroke of political genius, FDR pushed legislation through Congress that promised to provide financial assistance to anyone over the age of 65 in an era when the average life expectancy was approximately 60. Today in 2008, the average life expectancy is roughly 80 years old and with the Baby Boomers dining-and-dashing their way to retirement in droves, payment of our national tab will be left for my generation (and millions of illegal aliens) to pick up. The decades of opportunity to reform or even just moderately revamp the depleted and on-pace-to-be-bankrupt-by-2032 Social Security system have passed by dozens of sessions of Congress and 11 presidents that could (and should) have fixed a broken structure.
Now I am in no way suggesting we abandon the commitments we’ve made to current and soon-to-be retirees. That important debate is for another time. No, my intent in relaying this anecdote is simply to point out that when the federal government gets too involved in specific areas, like tampering with the economy or promising “free” stuff that would come along with a new government program, two specific things occur: 1) The power they bequeath themselves is never returned and bureaucracies that were initiated as a temporary stop-gap solution to a specific problem become perennial all-stars at the gluttonous pork-barrel trough (located in adjacent chambers of the Capitol Building). And 2) Money is wasted, institutions and markets are devastated, and the cures the federal government then further suggests are invariably worse than the original sickness that brought on the intervention to begin with.
Case in point: the collapse of Freddie Mac and Fannie Mae. Now you don’t have to be an economics professor at Harvard for the government’s disastrous role in our recent financial woes to come clearly into view. Let’s quickly jump back to the good old days of FDR’s New Deal. Created with the intent to help more Americans get back into a home, Fannie became the first federalized lending houses in American history. (Freddie Mac wasn't created until 1970.) Through the years, pieces of both institutions would be sold off to private entities, but the fact that the government maintained a vested financial stake in Freddie and Fannie meant that the risk of being that private entity who partially owned each of them was socialized. In other words, whoever owned and operated each of them could take precarious financial risks but wouldn’t necessarily be on the hook for losses if (and when) things went south.
Can you guess where this is headed?
The federal government (with our tax money) insured the two biggest lenders in the nation. Members predominantly of one political party (Democrats) received kick-backs from Freddie and Fannie, and the desperately needed regulation of the out-of-control lending houses
Republicans like President Bush and John McCain were calling for the past eight years were ignored and voted down. Senators Barack Obama, Chris Dodd (D-CT), and Hillary Clinton were the top three beneficiaries of political campaign contributions from Freddie and Fannie. Even some Republicans warning of the coming troubles, including John McCain, took modest contributions from Freddie and Fannie, but the deep-seated connections between the liberal penchant for increased governmental intervention and the current economic misery go even deeper.In 1977, Jimmy Carter and the Democratically-controlled Congress passed legislation known as the Community Reinvestment Act. Liberal politicians claimed that lenders were discriminating in their lending practices against minorities in poorer areas, so they mandated that loans be given to people regardless of their capabilities to pay the funds back. Congress may be dumb, and we all know they're stupid, but even they knew that some incentive or compensation would have to be given to lenders who would now be forced to put up money for people who in all likelihood would default on their loans.
Enter: Freddie Mac and Fannie Mae.
This ill-conceived hybrid of Capitalism and Socialism excited bleeding-heart liberals at the time like nothing would until the Prius offered actors and actresses in Hollywood who were leading otherwise depraved lifestyles the chance at spiritual redemption (in the eyes of Mother Nature, if no one else).
But another couple pieces of the puzzle have yet to be placed. There was the Federal Reserve Bank under Alan Greenspan who for the last 8 years kept interest rates artificially low as an
accepted strategy to keep the economy growing. This was all the incentive home-building companies needed to begin building more homes and potential home-buyers to purchase either a new house or an extra one to “flip” after too many hours of watching TLC. Housing market prices had steadily been growing since 9/11, and with policies like the afore mentioned Community Reinvestment Act in place, home ownership (even among minorities) in the last 8 years rose.
One of the final ingredients in this fiscal mess we find ourselves in was, is, and always will be, the greed inherent within every man and woman. Participants in the free market are not free from blame here by any means. It starts with the average citizen who knows (or better still, should know) that the loan they are taking out is not feasible given how much they make, yet takes it anyway. Personal responsibility is a rare and foreign commodity in the market of morality today. But this also spills over onto the private lending houses and banks that gave out loans to people they knew wouldn’t be able to sustain the mortgage they had been approved for. How can this be, you ask? How could otherwise free market, private enterprises be so foolish and cavalier as to give out money they could reasonably calculate they’d never see again?
Freddie Mae and Fannie Mac were buying the bad debt from smaller private companies and socializing the risk. They were cooking their books to keep Congress and investors happy. They were risking the fate of our national economy, the lives and incomes and securities of millions of Americans, our Congress was too pacified with campaign cash, and we were too happy with our starter homes to bother with the uncomfortable and forewarned reality that we were collectively walking towards a cliff we could and should have avoided.
Some will read this and think I’m being too simplistic and naïve to blame it all on Fannie and Freddie. Others will only want to blame Wall Street and capitalism. Still others will accuse me of partisanship for simply pointing out the overwhelming evidence that one Party in Washington was decidedly more “in the tank” for Mac and Mae and fought to keep them de-regulated.
Maybe you have a sad story about someone you know that recently experienced foreclosure and you don’t think I’m being sensitive enough. Maybe you don’t have any idea what any of this means or how our economy works (or at least, is supposed to work) and you are chomping at the bit for me to finish so you can post, “Typical conservative garbage,” in the Comments section below.
Many factors led to where we find ourselves economically this week. Many lives have been affected, and some even ruined. These are tragedies, and I do not make light of them. But we must look deeper past the emotional reactions to this problem and find out what caused it and how it can be prevented in the future. Without a doubt, the anvil that broke the camel’s back was the collapses of Freddie Mac and Fannie Mae.
Those institutions were federally-subsidized, quai-capitalist companies that owned or guaranteed more than half of the United State’s $12 trillion mortgage market. They, along with private lenders around the country, exploited a federal government-created loophole that required bad loans be given out but ensured you didn’t have to incur the risk. Add two parts “a majority of Democrats and a minority of Republicans with greased palms who refused to cooperate with one of the only kind of regulations Republicans like (self-regulation of a federally-owned entity)”, and one part “a Federal Reserve that refused to be the bearers of relatively bad news earlier this decade that might have helped us to avoid disastrous news today” and you have yourselves a good old-fashioned Black Tuesday-like stew brewing, baby.
Our lessons must be learned. The government must rescind these preposterous mandates on lenders going forward. Although I the thought of another layer of bureaucracy, someone with actual power needs to be monitoring the economy and be given a regular platform from
which he or she (or they) can keep the American people informed as to the state of specifically our housing and lending markets.
But another couple pieces of the puzzle have yet to be placed. There was the Federal Reserve Bank under Alan Greenspan who for the last 8 years kept interest rates artificially low as an
accepted strategy to keep the economy growing. This was all the incentive home-building companies needed to begin building more homes and potential home-buyers to purchase either a new house or an extra one to “flip” after too many hours of watching TLC. Housing market prices had steadily been growing since 9/11, and with policies like the afore mentioned Community Reinvestment Act in place, home ownership (even among minorities) in the last 8 years rose.One of the final ingredients in this fiscal mess we find ourselves in was, is, and always will be, the greed inherent within every man and woman. Participants in the free market are not free from blame here by any means. It starts with the average citizen who knows (or better still, should know) that the loan they are taking out is not feasible given how much they make, yet takes it anyway. Personal responsibility is a rare and foreign commodity in the market of morality today. But this also spills over onto the private lending houses and banks that gave out loans to people they knew wouldn’t be able to sustain the mortgage they had been approved for. How can this be, you ask? How could otherwise free market, private enterprises be so foolish and cavalier as to give out money they could reasonably calculate they’d never see again?
Freddie Mae and Fannie Mac were buying the bad debt from smaller private companies and socializing the risk. They were cooking their books to keep Congress and investors happy. They were risking the fate of our national economy, the lives and incomes and securities of millions of Americans, our Congress was too pacified with campaign cash, and we were too happy with our starter homes to bother with the uncomfortable and forewarned reality that we were collectively walking towards a cliff we could and should have avoided.
Some will read this and think I’m being too simplistic and naïve to blame it all on Fannie and Freddie. Others will only want to blame Wall Street and capitalism. Still others will accuse me of partisanship for simply pointing out the overwhelming evidence that one Party in Washington was decidedly more “in the tank” for Mac and Mae and fought to keep them de-regulated.
Maybe you have a sad story about someone you know that recently experienced foreclosure and you don’t think I’m being sensitive enough. Maybe you don’t have any idea what any of this means or how our economy works (or at least, is supposed to work) and you are chomping at the bit for me to finish so you can post, “Typical conservative garbage,” in the Comments section below.
Many factors led to where we find ourselves economically this week. Many lives have been affected, and some even ruined. These are tragedies, and I do not make light of them. But we must look deeper past the emotional reactions to this problem and find out what caused it and how it can be prevented in the future. Without a doubt, the anvil that broke the camel’s back was the collapses of Freddie Mac and Fannie Mae.
Those institutions were federally-subsidized, quai-capitalist companies that owned or guaranteed more than half of the United State’s $12 trillion mortgage market. They, along with private lenders around the country, exploited a federal government-created loophole that required bad loans be given out but ensured you didn’t have to incur the risk. Add two parts “a majority of Democrats and a minority of Republicans with greased palms who refused to cooperate with one of the only kind of regulations Republicans like (self-regulation of a federally-owned entity)”, and one part “a Federal Reserve that refused to be the bearers of relatively bad news earlier this decade that might have helped us to avoid disastrous news today” and you have yourselves a good old-fashioned Black Tuesday-like stew brewing, baby.
Our lessons must be learned. The government must rescind these preposterous mandates on lenders going forward. Although I the thought of another layer of bureaucracy, someone with actual power needs to be monitoring the economy and be given a regular platform from
which he or she (or they) can keep the American people informed as to the state of specifically our housing and lending markets. This, I believe, would be an example of the type of focused and limited regulation the Founding Fathers envisioned for the federal government’s role in our economy. More importantly, we need to equip ourselves with the necessary knowledge and understanding of what goes on in Washington and Wall Street. Self-reliance is the best and most dependable defense against the incompetence of our federal government and cyclical nature of our markets.
The free market is America. Nothing else distinguishes our nation from even the other democracies around the world as much as the system of economy we have employed for 232 years. Senator Obama is right to say that we, the American people, are the “change we’ve been waiting for,” and it’s time we inform the proselytizers of Nanny-State liberalism that if we wanted to live shallow, coddled lives in a secular society that replaced God with Big Brother we’d move to Western Europe.
The free market is America. Nothing else distinguishes our nation from even the other democracies around the world as much as the system of economy we have employed for 232 years. Senator Obama is right to say that we, the American people, are the “change we’ve been waiting for,” and it’s time we inform the proselytizers of Nanny-State liberalism that if we wanted to live shallow, coddled lives in a secular society that replaced God with Big Brother we’d move to Western Europe.
I hear Barack's good at giving speeches there.
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