KEEP YOUR NOSES OUT OF WHERE THEY DON’T BELONG


Congress has NEVER run a successful business and had absolutely no excuse for sticking its nose into a housing market about which it had no understanding whatsoever. What they THOUGHT they were doing was making housing available to the less economically advantaged citizens. What they actually DID was to trigger a recession.

Here’s how it started: The poor record of many low income public housing projects in the past led Congress to try to achieve its goal by making mortgages overly cheap. This created the artificial housing demand that caused the huge escalations in the price of housing (supply and demand, right?). Thanks to the natural law of unintended consequences, Congress actually ensured that the price of housing was once again beyond the reach of those who they believed their actions would benefit.

This is only the beginning of the full story, which has been reported extensively, and which ended with the collapse of the housing market. But in case you don’t know the facts, here’s a brief summary:

Most of the large number of new risky mortgages were ‘packaged’ into “mortgage-backed securities” by two government-sponsored organizations – Fannie Mae and Freddie Mac. These securities were then sold in the financial marketplace. The Congressional committees responsible for overseeing the operation were the Senate Banking Committee and the House Financial Services Committee. These committees were headed by Congressman Barney Frank and Senator Chris Dodd after the Democrats took over Congress in 2006. Because of the risk perceived by investors in buying these securities, a whole new financial product – the ‘credit default swap’ came into being. This derivative product served to allow buyers of the packaged mortgages to ‘hedge’ their investment by essentially buying insurance for the market price of the mortgage packages. They were highly profitable because of the huge leverage they provided. In case you forgot, one of the prime reasons for the magnitude of the great depression was the overleveraging of investments on Wall Street.

Several people – particularly Senator John Sununu, Senator John McCain, and President George W. Bush – warned for years about the excesses of the unregulated mortgage derivative market and the operations at Fannie and Freddie. They were ignored by Dodd and Frank. Frank specifically denied the potential of any financial risk right up to the housing bubble collapse and personally derailed efforts to introduce the suggested regulations.  In fact, Frank and his cohorts pushed Fannie and Freddie to take on even greater risk – urging even more loans be made to people who wouldn’t qualify for traditional bank financing. As the Wall Street Journal noted, Frank and Co. pressured regulators to ease the banks’ capital requirements. With the aid of the so-called ‘community organizing’ outfit ACORN , banks were similarly coerced to make riskier loans. Taxpayers were now responsible for any capital shortfall.

Then the spit hit the fan. Defaults began accumulating on the risky mortgages. Fannie and Freddie were bailed out with taxpayer money. Regulations requiring banks to value their assets at current market value (known as ‘mark to market’) resulted in huge bank PAPER losses and those that underwrote the credit default swaps (e.g., AIG) didn’t have the free capital to cover the policy payouts. The whole house of over-leveraged and unregulated instruments (thanks to Congressional sleeze-balls like Frank and Dodd and the inexplicable lack of attention by the SEC) teetered, and the taxpayer was suddenly faced with having to come up with more than $700 BILLION just to avoid complete economic collapse.

Of course, NOBODY in Congress accepted any responsibility. Instead, the party of Frank, Dodd, and Schumer accused President Bush of being responsible for the lack of regulation. The public, which obviously lacks a basic education about its own Constitution, bought the fairy tale – despite the fact that the Constitution clearly proscribes that regulation must be based upon and derived from law. It is Congress who creates law, not the President. Unfortunately, nobody in candidate John McCain’s political party was able to communicate this fact to the electorate. That was one reason why the party lost virtually all power in Washington. Thank you, major media!

It is unfortunate that those Americans who were the recipients of taxpayer gifts no longer have their homes. But it is criminal that the tumbling real estate values and job losses cost many perfectly innocent homeowners their homes too. And it is criminal that nearly every taxpayer (i.e., the 60% of the Americans who pay income taxes) and especially retirees (and near retirees), who had worked a lifetime to build retirement nest eggs, took huge financial loses – some to the point where they are no longer able to provide for themselves. Dodd, Frank, and Co. got off Scott-free. Even better. Look up the major contributors to Dodd’s and Frank’s campaigns (hint: you’ll see Freddie and Fannie). And while the private sector is shedding jobs at an alarming rate, the government is increasing its payroll (up 15% in the last three months, with an AVERAGE pay of $75,000 should the anticipated pay raise be passed in the near future). Socialism anybody?

All this happened because of a government that serves only its own members’ interests; a government that dabbles in finance and industry and markets about which they know nothing; and one that passes laws that almost never accomplish their stated intent. And now, the new administration has placed its hands in the cookie jar of the automotive industry and left the taxpayer holding the bag for $TRILLIONS! All for securing votes and because the public lacks understanding of the Constitution – thanks to a poor educational system controlled by the new President’s party. But this time the government is running roughshod over existing law on bankruptcies – overturning decades of laws that would allow investors to estimate the risks of their investments. Is this the death of capitalism in America? Or will the law prevail to punish those officials who have over-reached the limits of their Constitutional powers?

More insight to follow at a later date. Use the interim wisely by studying up on the Constitution. And DO NOT let ANY of those incumbents return to office!