Today we're in the midst of an economic slow-down and, unless we know what caused it, we're BOUND to repeat it. In my travels around the blogosphere I've noticed that the political left is extremely active with their dishonest--and totally self-serving--talking points about the causes of this economic downturn. In a nutshell, this is what they're saying:
The Bush Administration's 8 years of un-regulated capitalism and lack of regulations on the greedy Wall Street types and bankers led to this disaster.
Like any good stopped clock, the left did in fact hit on something, albeit accidentally in this case. The Government Sponsored Enterprises (GSE's) of FannyMae and FreddieMac desperately needed some strict oversight, but they operated free and clear of scrutiny thanks to 100% support among Congressional Democrats who used the GSE's as a campaign piggy bank, along with the help of a few weak-kneed Republicans. (Z: I had to add this video because it is SO incriminating... Take a look. It's ALL THERE)
While the causes of our economic woes are many and varied, overt Government interference in the free market is the BIGGEST piece of this sordid puzzle which starts with Jimmy Carter's Community Reinvestment Act (CRA). The Clinton Administration doubled-down on the CRA by strengthening and expanding this awful practice. Here's some reading about former H.U.D. Secretary Andrew Cuomo's role:
The CRA was a piece of legislation which forced mortgage
These risky loans are regarded as "toxic assets" in the best of times, and RUINOUS assets when times are tough, so lending institutions felt the need to get rid them. They accomplished this in a number of ways; first by unloading them on a newly receptive GSE like FannyMae or even FreddyMac. The government (aka "the abused taxpayers") eagerly bought up hundreds of billions of dollars of these subprime assets to pad their portfolios. This is how men like Franklin Raines earned tens of millions of dollars in taxpayer-paid bonuses, by showing these risky loans as "assets" on Fanny or Freddy's books. Lenders also unloaded these toxic loans by re-packaging them and securitizing them. This allowed them to be sold into the market in a practice akin to putting pretty wrapping paper on a rotten egg.
None of this Democrat government interference was enough, by itself, to seriously damage the economy.
Enter the force of nature known as supply and demand. As the supply of new and used homes outstripped demand for those homes, home values naturally started to fall. This drop in homes values has resulted in upwards of a TRILLION dollars in net loss!--(from the Village Voice article) Steven Holmes, a reporter from the Times's Washington bureau, wrote at the time: "In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But," he added, "the government-subsidized corporation (GSE's) may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s."
"Trouble"? Think of it as an economic time bomb that went of inside the American financial system and is now having worldwide ramifications! This is just a thumbnail sketch of what happened, but there is a VITAL lesson to learn if we are to avoid this type of trouble in the future, and it's about the role of the government and it's interference in the free market.
By forcing lending institutions to make questionable loans to dead-beat borrowers, the government induced an economic calamity. Why did Presidents Carter and Clinton (along with an abundance of Congressional help) champion this clearly ruinous policy? Quite simply, they were able to use the money of the free market to buy the votes of a large constituency of sub-prime borrowers. Then they were able to use taxpayer money to buy all of this bad paper through the GSE's, Fanny and Freddy. So they bought votes with private money, and solidified power with taxpayer money. (Z: Bush warned about this five years ago, McCain was also trying to alert Congress to what could happen, as you all know).
The government was buying votes and exerting power in ways that were never intended by the Founding Fathers. The proper role of government in the free market economy is to enforce laws against force and fraud. Regulations on the market should reflect that simple philosophy and be few and strictly enforced.
George Washington famously said;
We are at a crossroads in American history. We have the opportunity to learn from our mistakes and protect our God-given freedoms and our way of life by reining in an out-of-control federal bureaucracy led by those whose sole motivation is power over the American people OR we can continue on our path to the all-powerful nanny state envisioned by fascists and the rest of the political left.
In 1775 Patrick Henry wrote:
"Why stand we here idle? What is it that gentlemen wish? What would they have? Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!"
I'm with him!