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  • Morning Bell: A Financial Crisis of Government's Making

    Campaigning in Colorado yesterday Barack Obama blamed the financial crisis on “a culture of deregulation.” No, we don’t know what this means either. Pressed for specifics, some on the left manage to identify the 1999 Gramm-Leach-Bliley law as the deregulation source for all our problems. But as we have detailed before, Gramm-Leach-Bliley is not to blame for the current crisis. In fact, it has actually been key in helping the federal government manage financial institution failures.

    The financial crisis we are experiencing today is not the cause of too little government interference in markets. It is the cause of too much. The simple fact is that for the past 30 years or so, the United States has not had a free market in residential real estate. Instead, a massive government duopoly, made up of the government entities Freddie Mac and Fannie Mae, control more than half of home loans in the United States. For almost two decades, conservatives have been warning about the systemic risk Fannie and Freddie pose to the U.S. financial system. But conservative efforts to cut Fannie and Freddie off from their government advantages have always been stymied by the left.

    To this day, the left’s leaders in Congress still deny the integral role Freddie Mac and Fannie Mae played in the housing bubble and the resulting financial crisis. The facts say otherwise. Since 1995, Fannie and Freddie have been buying subprime securities to help meet government-directed affordable housing goals. At first they started out slow, but by 2004 Fannie and Freddie bought 44% of the entire subprime market. Their biggest customer was Countrywide Financial, which is now infamous for failing to perform due diligence before issuing the loans that their subprime securities were based on. Even when states like Georgia tried to tighten mortgage lending standards, Fannie Mae and Freddie Mac threatened to stop doing business in the state and turn Georgia into “a financial pariah.”

    As the extent of the housing bubble damage first came to light, the left showed it had learned nothing from Fannie and Freddie’s failure. Earlier this year, Democrats were even seeking to increase Freddie and Fannie’s role in the market as a solution to the problem. Speaker Nancy Pelosi (D-CA) demanded Fannie and Freddie do their best to keep the housing bubble afloat for her wealthy constituents, pushing for the limit on loans Fannie and Freddie can insure from $417,000 to $700,000.

    Freddie and Fannie’s failure should come as no surprise. Our country has a long history of government intervention in markets exploding in hugely horrific and costly ways. Since the mid-1980s, massive losses have occurred in the federal Farm Credit System, the Federal Deposit Insurance Corp., and the Federal Savings and Loan Insurance Corp. Worse, the heavily regu­lated and supposedly closely supervised savings-and-loan industry collapsed two decades ago, and repairing the residual damage cost the U.S. taxpayers $130 billion. After the immediate crisis has passed, we will need to update our financial regulatory framework. The past should teach us that a firm but light government touch is the best policy.

    Quick Hits:

    Posted in Ongoing Priorities [slideshow_deploy]

    17 Responses to Morning Bell: A Financial Crisis of Government's Making

    1. Jack Kyle, Lubbock,T says:

      This bailout is like the Doctor giving you a shot of penicillin to fight a virus infection. It may make you feel good for a short time, because you have done something, but will do nothing to cure the problem. In the long run it will do great harm because you grow immune to the penicillin and it will not help when you really need it.

    2. Ken Jarvis, Las Vega says:

      The HF blames Congress.

      THAT is their way of shifting the REAL blame

      from the GREEDY RICH

      who do NOT pay their share

      to anyone else.

      DON'T LET THE HF FOOL YOU.

    3. Janette Fowers says:

      It is sad to see how much our goverment has caused us all so much pain. I have been self employed for 34 years with my husband. We have worked very hard to provide a living for our family of 5 children. Most of what we has earned has gone to paying taxes, both on state and federal. I don't mind paying, but I do mind paying when they can't control there spending. Property taxes really make me upset, because you pay taxes on it the first time you buy it and so I don't think you should have to keep paying on it every year. When you buy a home it should be keep at the same price you payed for it and not keep going up. And when the next person buys it from you then they should pay taxes on the price they bought it for. Our senior parents have a very hard time because every year there house values keep going up and up and they are on a fixed income that doesn't go up as well. I hope our next pres. will be able to help control the spending and run the goverment like I have to run our business and not spend money they don't have.

    4. RickFromMichigan says:

      My belief this is a long coming backlash to all the lies,corruption and helplessness that the American people feel towards the government,financial institutions and so-called expert talking heads.I'm sorry I just don't want their hands in my pocket-again.

    5. Michael J O'Bri says:

      Indeed Heritage. No self respecting liberal could ever admit Government erred. This is because it is through government liberals achieving their goal of income redistribution. Fannie and Freddie invigorated the market for Mortgage Backed Securities loaded with sub prime mortgages, thus resulting in government achieving its goal of increased affordable housing. However, the government failed to insist on proper underwriting standards [following the 5 Cs of credit]. This resulted in the sub prime problem we have today.

      It is fact that one of the drivers forcing Fannie and Freddie into Conservatorship is the result of audits initiated by Secretary Paulson. Questionable accounting practices were discovered distorting the true level of capital reserves, and this is not the first time. Further the government had a huge appetite for sub prime mortgages that were poorly underwritten. As for GLB, [Gramm – Leach – Bliley] this has placed more stringent controls on banks and other financial institutions. Obama, Dodd, Pelosi, Frank, Reid fail to acknowledge or worst, understand these facts.

      Finally, when there was almost closure of a deal Monday — Speaker Pelosi's almost Kruschevian remarks before taking up the Emergency Economic Stabilization Act vote on Monday 9/29/08 stunned house members. The weekend mantra and speeches were about bipartisanship, and Monday was a day to walk the talk. Ms Pelosi, however, could not even take baby steps. This difficult piece of legislation had consequences and implications around the world, and indeed the world was watching. Her rhetoric and actions greatly embarrassed our nation, the Congress, herself and her legacy. Enough about liberal responsibility.

    6. roger madden pittsbu says:

      the current probles in our ecconomics is largely due to greed and wall street beliveing that it can do what it wants then cry to the fed and get yet another bail-out then if it does not get one they have a tantrem and call on the market to claim its going to crash I say let the markets correct themselfs.

    7. Pingback: Almost, But Not quite … « Reck of Things

    8. The voice of reason says:

      The bailout must be only for institutions that

      are not guilty of deception of consumers.

      We will be back In the same or worst situation again

      If we do not hand pick the institutions cautiously to

      bailout.

      credit given to emigrants that game the system and

      return to the country of origin and back to America

      with changed S.S. #s has to be checked as well

      because It has chipped away at our market as well

      and contributed to the problem.

      They come here to steal American money and return it

      unchecked to the anti American country they came from.

      They enter America posing as persecuted refuges.

    9. Arthur White says:

      The bailout must require:
      1. Repeal of the Community Reinvestment Act (CRA) and any other acts related thereto.
      2. Find out what is being done with the continuing mortgage payments ($$$)on the 95% or so mortages still active. (Huge dollar amounts that is loanable!)
      3. Determine the value of all the at-risk, or foreclosed mortgages, back to a date a year or two when most of the inflation in equity of the foreclosed/risky loans began.
      4. Convene grand juries to investigate who and when government elected and civil service people caused this fiasco.
      5. Require restoration of lending standards that were in effect before the CRA.
      6. Etc. ……..

    10. Brenda, Naples, Fl says:

      Please, I beg you! In the interest of making the most impact on readers, PLEASE choose a different font (typeface) than what you use now.

      As a newspaper editor, I promise your sans serif type is a detriment to your desired results. it looks nice and neat, but is difficult for people to process.

      If you want to reach more people and make a bigger impact, make it EASIER to read.

      BH

    11. Carol Kidd says:

      the Paulson/Bernake should be rejected !!! I don't care what fancy name it's called to rob the American people!!! Most Americans know this is a private cartel& their thugs are the IRS. Their should be a grass roots movement to pass F.R. Abolish Act HR2755 !! It is lunacy for the taxpayer to bailout these THEIVES !!!! cekidd@bellsouth.net

    12. E Paul Lian, Scottsd says:

      How about this for a novel approach? Let's just go "bust", lift up the slate, design a new system and start over. Forgive credit card debt, eliminate existing home mortgages, blow off business & student loans, admit most of us have gotten a little aggressive pursuing "life, liberty and happiness". Few, if any U.S. citizens have any significant savings or capital, why even attempt to create enough lending power, only to come back in six months and ask for more? We would suffer some short term stress, but just think of the relief the typical U.S. citizen would feel? Spread the word…."Let's just go "bust" and see what happens"….kind of like a National Bankrupcy. You heard it here first….film at eleven.

    13. William Wynne, Atlan says:

      The Morning Bell summary of government culpability (Oct. 1) seems to me to be perfectly true. So what? To the extent that the Left owns the popular narrative, facts and sound historical analysis do not matter very much.

      The situation calls to mind Al Gore's An Inconvenient Truth. The title is instructive….

      While I agree with Heritage's assessment of the efficient causes of the nations economic troubles, I do not agree with central planning initiatives meant to put things right. I think we have fallen into the trap of confusing urgency with crisis. That is likely to lead us toward ill-considered decisions that favor palliatives over cures. The Paulson plan, though somewhat ameliorated, if implemented, will surely result in government bureaucrats making decisions based on someone's "ideal of distributive justice" (Hayek). Whose ideals? Governed by what rules?

    14. Lisa LaRosee, Spring says:

      When are our politicians going to wake up and stop being in denial. More and more different countries are offering loans to help people out. We continue to bail out all of the industries using the taxpayers money. There is a solution, without dipping into rainey day funds and overspending. The amount our goverment spends on useless things, would be enough to help in this regard. We need to elect some honest politicians, who are beyond corruption and are not out for their own state or pocketbook. Stand up and vote!!!

    15. IrishEyes2c, Alabama says:

      This Bill was needed and I still don't like it. But, in order for it to do any good, Congress has to curb their spending habits. If they don't we will be in a lot more trouble. If Obama becomes President, I have no doubt that his Congress will increase spending and raise taxes both those things hamper the growth of any Countries economy. What needs to be done is to lower taxes, stop the useless spending habits on a Democratic Congress, who will support and sponsor unneeded programs that benefit only a small portion (minorities) of Americans that all Americans will have to pay for. There will never be liquidation redistribution. It will not go to all the poor citizens, it’s more likely will only go to minorities, who have a history of demanding freebies from the Government and depending who is President what package they receive.

      They need to stop spending, lower corporate taxes, which will increase employment and productivity, decrease corporate taxes to increase employment growth and control capital supply to reduce inflation. All those things that are needed to recover our economy, the democrats and especially Barack Obama, will do the opposite. Increase taxes across the board almost double some taxes, increases spending, increase government and close any loopholes left open or let them expirer from the Bush Administration.

      I’ve done a great deal on research regarding economics. What I read and the explanations provided showed just how destructive Obama plan is, and I honest believe he is dangerous and what I do understand is why is everyone rally behind these economics ideas. The man, who drove Freddie or Fannie in to the ground, walked away $90 million richer and is the same financial and economic advisor to Barack Obama. What I don’t understand is why John McCain and Sarah Palin are not only pointing out the obvious but are not showing how dangerous these ideas are. If they honesty care about our Nation, they need to step up and explain to everyone what this means for all Americans. They are not doing that. Why?

      John and Sarah don’t want to play dirty politics in a polluted Democratic World. They need to fight back. There’s nothing wrong with telling the truth and point out what the Democrats plans are and explaining why they are so damaging for an already shaking economy.

      This election has created a conservative political activist in me and I’m not sure if that’s a good thing? Do you understand what Obama’s has planned for your Country? It will no longer look like anything that our forefathers had in mind. Supreme Court will not only be lopsided to the left, and court decisions will become way too liberal for most Americans.

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