Politicians never learn they can't change the facts
Bill Wilson
September 28, 2008
All the back and forth over the proposed $700 billion bailout of New York financial firms has degenerated into gibberish, incomprehensible to most voters.
If people are confused, then they have no choice but to leave the decisions up to the very people who created the mess in the first place.
And that is exactly what the politicians want. As much as they are trying to cover Wall Street’s backside, they are far more interested in covering their own.
It is a big job. Because no matter how much they act “shocked” by this whole affair, there is no denying that this crisis is the direct result of planned government policy.
While a few elected officials try to figure out a way to deal with the crisis, many on Capitol Hill, in the media, and in the partisan salons are busy doing what they do best - playing the blame-game and looking to escape exposure of their culpability.
House Banking Committee chairman Rep. Barney Frank, D-MA, led off the spin effort by stating, “The private sector got us into this mess. The government has to get us out of it.”
Notice that Frank doesn’t say “Wall Street” got us in to this mess. For him and all too many of his allies, it is the “private sector” that is evil. A chorus of lesser voices have been dutifully parroting Frank ever since.
What Frank, Senate Banking Committee chairman Sen. Chris Dodd, D-CN, and others of their ilk are afraid of is that the public will learn the facts of this debacle. And the facts are clear.
The crisis we face is not a failure of the private sector. This crisis was conceived, manufactured, nurtured and defended by government and the horde of apologists who feed off of it.
As Deep Throat admonished a generation ago, let’s follow the money. In 1995, the Clinton Administration issued rules that required banks and lending institutions to give loans to people who could not afford them. The lending standards were essentially gutted. This was an overt act of government.
The banks complied and gave the loans. They got the money to lend by selling the bad mortgages to Fannie Mae and Freddie Mac. These semi-government entities “bought” the bad mortgages from the banks. But where did Fannie and Freddie get the money to buy the bad debt?
Fannie and Freddie got the money by packaging the bad debts into bundles and selling them to investors. Now, most people would never have bought these “mortgage backed securities” except for one thing: Fannie and Freddie marketed them as backed by the U.S. Government.
So, naturally, investors bought them. And over time, these securities were traded and treated just like real money. But of course they weren’t “real money.”
They were backed by little more than hope; hope that people with insufficient income or prospects would somehow be able to pay the mortgage.
When those mortgage payments failed to materialize, the securities couldn’t pay the dividends and the whole sordid deal started to fall apart.
Now, should investment companies and large banks have been aware and defended themselves and their stockholders? Yes, of course. But they were told from the beginning that the government had their back. It was “risk free.” Now they are calling the government’s bluff and we, the taxpayers, are getting stuck.
There was ample warning. Since 1999, responsible members of Congress and the two presidential administrations have attempted numerous times to tighten the lending standards and force reform of the system.
But using millions in political cash, Fannie Mae and Freddie Mac blocked all moves at reform. And people like Frank and Dodd – and, yes, Barrack Obama -- were there to defend the government social policy, while raking in tens of thousands of campaign contributions for themselves.
So now all of us will pay dearly for this failed utopian government policy. And while it will be an expensive and painful lesson to learn, learn it we must if we are to avoid a more costly repeat.
When government uses its power to distort the market for arbitrary ends, the scheme fails. Facts will not change just because some starry-eyed politician says they should.
It seems simple. So why do our politicians have such a hard time learning it?
Bill Wilson is chairman of Americans for Limited Government.
