The Democratic Credit Crisis
By Ted Baiamonte Comments: bje1000@aol.com (10/06/08)
Quite simply, the current credit crisis was caused by Democratic interference with the free market. In fact, Democrats hate the free market out of an interest in buying votes from those who don't profit as much or as easily as they'd like to from it. Accordingly, The Federal Reserve, Fanny Mae, Freddie Mac, The Community Reinvestment Act, and FHA, among many others, all exist to interfere in a huge way with the free market in order to make home buying easier for those whom the free market deems unqualified because of their actuarial inability to pay back their home loans.
The solution to this problem is to eliminate or shrink Democratic interference with the free market in which case the current crisis would be rendered impossible by the self-correcting free market. Republicans believe, for the most part anyway, in the free market; so they are the obvious option at this point.
The Soviet Union, Communist China, Cuba, The New Deal, among many others, failed because of free market regulation. Similarly, our economy, or at least the financial part of it, is now failing, albeit to a far lesser extent, because of the regulation referenced above. Tragically though, the Democrats are successfully fooling themselves, and swing voters into feeling that "Republican deregulation" caused the problem. This is perfectly Soviet thinking: the economy failed not because of regulation, but because of insufficient or mistaken regulation. They feel, in their oh so sensitive hearts, that if only they can have another chance their gov't bureaucrats will finally hit upon the correct regulation schemata.
Democrats have most of our less than qualified voters very confused about this and so they seem on the verge of "throwing the bums out" even though they are the same bums they have thrown in and out throughout all of American history. It would seem we still have the same two political parties quarreling about the same two issues because most voters can't grasp the difference between them. The default position is flip flopping back and forth based on the prevailing zeitgeist. It's not a great way to run a democracy but when Democrats extend the franchise to more and more people the result is, well, very much like the result you get when you extend the housing franchise to more and more people.
In any case, here is what Rep. Arthur Davis, D-Georgia (Harvard Law) said about his Democratic colleagues:
"Like a lot of my Democratic colleagues I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourage affordable home ownership when in retrospect I should have heeded the concerns raised by their regulator in 2004. Frankly, I wish my Democratic colleagues would admit when it comes to Fannie and Freddie, we were wrong. By the way, I wish my Republican colleagues would admit that they missed the early warning signs, that Wall Street deregulation was overheating the securities market and promoting dangerously lax lending practices. When it comes to the debacle in our capital markets, there is much blame to go around for both sides."
Here is what Alan Greenspan (ardent Republican / libertarian; past chairman of Federal Reserve) said:
"If Fannie and Freddie continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''
Here is what Barney Frank (leading Democrat, very sensitive champion of the poor) said:
"These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
In sum, it is very very clear that Democrats liked the massive regulations in place and fought for them because they enabled the illusion that unqualified poorer people were actually qualified to buy homes. It is equally clear that Republicans have always wanted deregulation back to a Jeffersonian free market that would have been far more restrictive about home loans, which would have, in turn, precluded the current crisis and all the derivative crises that have flowed from it. To insist that Republican deregulation caused this crisis is an absolutely perfect lie that most Democrats, shamelessly, are willing to tell.
Democrats have no elegiacal feelings for the demise of the free market that made us the wealthiest country in history, in a instant no less, because they never had the intelligence to understand it. Their egos protect them from their ignorance with grand socialist regulatory dreams that are, in reality, no more sophisticated than a child's dreams of Santa Claus. The dreams, surprise, never bear fruit as the USSR, Communist China, and Cuba found out but this is OK to them. As Lionel trilling said, "the liberal is always surprised" but, apparently, never discouraged the the constant failure embodied by their sophisticated quest to embrace a highly complex and nuanced modernity. They think of themselves the way Thomas Edison did when criticized for having failed in 1000 times attempts to build a light bulb. He said, "look here, I've learned 1000 ways how not to built a light bulb."
Unbeknownst to Democrats, economics reached its apotheosis when Adam Smith and Milton Friedman wrote the definitive textbooks a long time ago. We have no need whatsoever for Democrats to constantly reinvent the economic wheel. We do have a great need though for them to somehow find some pills that will somehow boost their IQs to the point where one day they can read the textbooks and pass the test. In the mean time, we can expect more silly experiments and a complete avoidance of the textbooks about which they are so embarrassed.
So, is the solution for Hank Paulson (admittedly, a Republican, of sorts) to spend $700 billion bailing out his life long colleagues and friends on Wall Street? No, his solution does not address the source of the financial infection which is defaulting home owners. It merely addresses the failed businesses on Wall Street whose cowboy blunders were derived from and continue to be fueled by the defaulting home loans.
If there is a credit crisis The Federal Reserve should merely announce that it is over, and stands ready to lend money to any solvent bank, anywhere, at very favorable interest rates as long as they will, in turn, increase the credit they offer by the amount of the loan. Secondly, $700 billion is enough to pay 100% of the monthly mortgage payments for all the defaulting mortgages for 14 years. If the Feds, more realistically, paid 25% of all defaulting mortgages for one year ($6000) the cost would be only be $12 billion, not $700 billion.
This would instantly end the horror of foreclosures, instantly stabilize home prices, and finally give an exact value to the $6 trillion of derivative paper on Wall Street and beyond that is clogging the world's financial arteries to cause the so-called credit crisis. A mere $12 billion would instantly obviate Paulson's excuse to buy, with our $700 billion, even one penny of it.
Oddly, Paulson, in very kingly and unamerican fashion, created the context for the current $700 legislation with a three page piece of legislation. While it has now ballooned to a 450 page piece of legislation it is still Paulson who established all the basic bailout principles and so here we are with the tragic and preposterous results.
Katrina was similarly absurd, the gov't will spend about $150 billion, but before the storm there were only 200,000 households, mostly very poor, in all of New Orleans. This means the gov't could have immediately given each, $700,000 instead of doing what they did. It was important for Bush, and the Feds in general, to look caring and sweet in the wake of Katrina so the gov't bureaucracy swung into action at an inexplicable, but self-serving cost of $150 billion. And that was after private insurance paid $30 billion to rebuilt many of the 180,000 houses that were lost. If the Democrats can't understand Adam Smith and Milton Smith can't they at least understand basic arithmetic?
Ted Baiamonte
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