There’s plenty of blame to go around.  I think the current plan for a $700 billion bailout is a bad idea … a VERY bad idea.  Treasury Secretary Henry Paulsen and Federal Reserve Chairman Ben Bernanke are insisting this is the only way.  What this essentially means is that the all of the mortgages that didn’t get paid are going to be paid, and all of the bad debt that the banks and lending institutions currently have is just going to go away.

But nothing ever actually just goes away.  The government is buying the debt.  But wait!  Where is the government going to get the money to do such a thing?  Our government is massively in debt.  They can’t afford to buy all (or any) of that debt.

This is where the American taxpayer enters the picture.  This is a burden that will be placed squarely upon the shoulders of the American public.  We are going to be the ones bailing out these borrowers and lenders.  All of those people who got mortgages that they couldn’t afford and all of those institutions who loaned them the money (knowing full well that they couldn’t afford it)—we will now be paying for those loans.  How aggravating is that?  For deciding to bailout these companies instead of allowing the market to correct itself, I blame the Bush administration.  President Bush appointed Paulsen and Bernanke, and he is completely in their corner on this bailout.  In a letter from Ron Paul on his Campaign For Liberty website, Dr. Paul writes regarding the bailout proposal:

•    The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time.  That means $700 billion is only the very beginning of what will hit us.

•    Financial institutions are “designated as financial agents of the Government.”  This is the New Deal to end all New Deals.

•    Then there’s this: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.“  Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.

That is all very scary stuff.  That is not stuff which a free representative republic based on capitalism should ever accept as ok.  This is corporate welfare, and it is socialism at its most vile.  The government is out of control, and our Congress, while hesitant, is likely about to buy into all of it.  These are the people representing YOU and ME.  Only, by doing this, they aren’t representing you and me.  The majority of Americans are not comfortable with the bailout.  Write your representatives in the House and Senate and let them know that if this happens, you will not be voting for them when they are next up for election.

That is the current problem.  But who started this?

Well, many people on both sides of the aisle are to blame, but this started long ago.  To President Bush’s credit, he has been trying to rein in these financial institutions since his first year in office.  He saw from the get-go that we were in for a world of hurt if something wasn’t done about this.   Now, Barack Obama is putting the blame for all of this squarely on the economic policies of George Bush and John McCain, saying that we can’t allow the people that got us into this mess to be the ones who are going to get us out, but  solutions Obama is calling for are exactly what Bush has been calling for all along.  In an article titledCrony’ Capitalism is Root Cause of Fannie and Freddie Troubles in Investors Business Daily, Terry Jones says that George Soros has called this current crisis “a crisis of capitalism” and “a failure to regulate our markets sufficiently,” but regulation is exactly what Bush has been calling for.  Unfortunately, no matter how many times he has pleaded with Congress, his calls have fallen on deaf ears.  Jones continues:

Barack Obama has repeatedly blasted “Bush-McCain” economic policies as the cause, as if the two were joined at the hip.

Funny, because over the past 8 years, those who tried to fix Fannie Mae (FNM) and Freddie Mac (FRE) — the trigger for today’s widespread global financial meltdown — were stymied repeatedly by congressional Democrats.

This wasn’t an accident. Though some key Republicans deserve blame as well, it was a concerted Democratic effort that made reform of Fannie and Freddie impossible.

The reason for this is simple: Fannie and Freddie became massive providers both of reliable votes among grateful low-income homeowners, and of massive giving to the Democratic Party by grateful investment bankers, both at the two government-sponsored enterprises and on Wall Street.

How did all of this start though?  We need to take a trip back to 1977 and the 95th Congress.

Back in 1977, the 95th Congress passed a federal law known as the Community Reinvestment Act (or C.R.A.).  This was a measure to ensure that affordable housing was being provided for everyone—not just the wealthy.  This law was never meant to be a free-for-all, allowing anybody and everybody access to as much money as they needed for a home loan.  Specific measures and tests were put in place to make sure that people applying for loans were actually credit-worthy and good for the money.  For the most part, this worked.

Then, in 1995, the Clinton administration changed the C.R.A. to make housing even more available to low and moderate income families.  In doing so, he removed many of the measures put in place to verify that people were actually credit-worthy before they were given loans.  Jones writes:

Fannie and Freddie, the main vehicle for Clinton’s multicultural housing policy, drove the explosion of the subprime housing market by buying up literally hundreds of billions of dollars in substandard loans — funding loans that ordinarily wouldn’t have been made based on such time-honored notions as putting money down, having sufficient income, and maintaining a payment record indicating creditworthiness.

With all the old rules out the window, Fannie and Freddie gobbled up the market. Using extraordinary leverage, they eventually controlled 90% of the secondary market mortgages. Their total portfolio of loans topped $5.4 trillion — half of all U.S. mortgage lending. They borrowed $1.5 trillion from U.S. capital markets with — wink, wink — an “implicit” government guarantee of the debts.

This created the problem we are having today.

In a 2004 USA Today article titled Subprime loan market grows despite troubles, Sue Kirchhoff and Sandra Block write:

Subprime mortgage activity grew an average 25% a year from 1994 to 2003, outpacing the rate of growth for prime mortgages. The industry accounted for about $330 billion, or 9%, of U.S. mortgages in 2003, up from $35 billion a decade earlier.

We knew back then that things were getting out of hand.  Still, nothing was done.

In a 2008 New York Post article titled The Real Scandal: How Feds Invited the Mortgage Mess, Stan Liebowitz writes:

Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed “the most flexible underwriting criteria permitted.” That lender’s $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.

Who was that virtuous lender? Why – Countrywide, the nation’s largest mortgage lender, recently in the headlines as it hurtled toward bankruptcy.

In an earlier newspaper story extolling the virtues of relaxed underwriting standards, Countrywide’s chief executive bragged that, to approve minority applications that would otherwise be rejected “lenders have had to stretch the rules a bit.”

In ‘Crony’ Capitalism, Jones also lets us know how insidious some of the Fannie Mae and Freddie Mac practices have been over the years.  He writes:

Over the span of his career, Obama ranks No. 2 in campaign donations from Fannie and Freddie, taking over $125,000. Dodd, head of the Senate Banking panel, is tops at $165,000. Clinton, ranked 12th, has collected $75,000.

Meanwhile, Freddie and Fannie opened what were euphemistically called “Partnership Offices” in the districts of key members of Congress to channel millions of dollars in funding and patronage to their supporters.

Many Democrats were receiving money from these financial giants and, as such, were unwilling to help put them in their place and point out the underhanded business practices which they were employing.  Democrats helped out the subprime mortgage lenders, and then the subprime mortgage lenders returned the favor.

Going back to how George Bush tried to do something about this, Jones writes:

President Bush, reviled and criticized by Democrats, tried no fewer than 17 times, by White House count, to raise the issue of Fannie-Freddie reform. A bill cleared the Senate Banking panel in 2005, but stalled due to implacable opposition from Democrats and a critical core of GOP abettors. Rep. Barney Frank, who now runs the powerful House Financial Services Committee, helped spearhead that fight.

Now, with the taxpayer tab approaching $1 trillion or more, we’re learning the costs of crony capitalism.

So that’s how we’ve gotten where we are now.  The rules have been stretched to the breaking point.  Subprime loans were given out to people who never should have gotten them.  It is a shame.  Many of these borrowers were naive and saw the path towards home ownership put before them by these predatory lenders.  Some people weren’t so naive and just thought they could beat the system for a quick house-flipping project that they believed would lead to quick profit.  But those borrowers all played with fire, and they got burned.  The government is to blame, the corporations are to blame, and to some extent the borrowers are to blame (for borrowing money they couldn’t afford to borrow).  Now, we are being told that we should bail them out.  Democrats and Republicans are both to blame.

I’m sorry, but I did not borrow this money.  I am well aware of the fact that I cannot afford a home mortage right now, so I did not get one.  I did not go and try to live beyond my means.  And that is why the majority of Americans are disgusted by this bailout plan.  The people at the top are playing the role of Henny Penny, telling us that if something isn’t done very quickly, the sky will fall.

Well, I don’t doubt that there will be some hard times if the situation is left alone and no one is bailed out, but that’s the way it goes.  Our country has gone through hard times before, and we’ve made it out of them too.  We can’t revert to socialism just because some of the people are having financial trouble.  People, ultimately, need to be responsible for their own actions.  Compassion can and should be doled out by individuals as they see fit, but that should not be the job of the federal government.  The market needs to be allowed to work, and if that means some corporations go under, so be it.  The sky will not fall.  The country will not fall.  If anything, once things level out, our economy would be stronger than before, without the artificial housing industry inflation that we have seen over the last decade or so.

Now is not the time to panic.  Now is the time to grit our teeth and set our feet against financial missteps.  Now is the time for frugal living and learning to live within our means.  Our grandparents didn’t buy things they couldn’t afford, and we shouldn’t do so either.  It’s time to get back to a simpler way of life.  That’s not to say luxuries have to be discarded.  But stick to the luxuries you can actually afford, and if you don’t have the money for something, save up for it.  That is the way to financial freedom.

Those who hold power in government only hold that power because of us.  They are our employees.  We need to always remember that.  Bill Cosby, in one of his most famous comedy routines, recalled how he once told his misbehaving children, “You know, I brought you into this world, and I can take you out!”   We need to relay that same message to our representatives in Congress while they are considering whether or not to forge our signatures on this $700 billion check.

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